Overstock.com 2012 Annual Report Download - page 36

Table of Contents
The price of our stock may be vulnerable to manipulation.
We filed an unfair business practice lawsuit against Morgan Stanley & Co. Incorporated, Goldman Sachs & Co., Bear Stearns Companies, Inc.,
Bank of America Securities LLC, Bank of New York, Citigroup Inc., Credit Suisse (USA) Inc., Deutsche Bank Securities, Inc., Merrill Lynch, Pierce,
Fenner & Smith, Inc., and UBS Financial Services, Inc., and settled the case with respect to all defendants except Goldman Sachs Group, Inc.,
Goldman Sachs & Co., Goldman Sachs Execution & Clearing L.P.; Merrill Lynch, Pierce, Fenner & Smith, Inc., and Merrill Lynch Professional
Clearing Corporation. In January, the trial court granted the remaining defendants' motion for summary judgment. We have appealed the ruling.
We believe these remaining defendants engaged in unlawful actions and have caused substantial harm to Overstock, and that certain of the
defendants have made efforts to drive the market price of Overstock's common stock down. To the extent that the defendants or other persons engage in
any such actions or take any other actions to interfere with or destroy or harm Overstock's existing and/or prospective business relationships with its
suppliers, bankers, customers, lenders, investors, prospective investors or others, our business, prospects, financial condition and results of operation
could be harmed, and the price of our common stock may be more volatile than it might otherwise be and/or may trade at prices below those that might
prevail in the absence of any such efforts. The practice of "abusive naked short selling" continues to place our stock at risk for manipulative attacks by
large investment pools and prime brokers.
Abusive naked short selling is the practice by which short sellers place large short sell orders for shares without first borrowing the shares to be
sold, or without having first adequately located such shares and arranged for a firm contract to borrow such shares prior to the delivery date set to close
the sale. While selling broker dealers are by rule required to deliver shares to close a transaction by a certain date, and while purchasing broker-dealers
are obligated by rule to purchase the sold quantity of shares when they are not delivered to close the sale, these rules are often ignored. Abusive naked
short selling has a depressive effect on share prices when it is allowed to persist because the economic effect of abusive naked short selling is the
oversupply of counterfeit stock to the market. We believe the regulations designed to address this abusive practice are both inadequately structured and
inadequately enforced. Consequently, we believe that without the enactment of adequate regulations and the enforcement necessary to curb these abuses,
the manipulations achieved through abusive naked short selling are likely to continue. We believe that our stock has been subject to these abusive
practices by those attempting to manipulate its price downward. To the extent that our stock is subject to these practices in the future, our stock may be
more volatile than it might otherwise be and/or may trade at prices below those that might prevail in the absence of such abuses.
In the past, our stock has consistently been on the Regulation SHO threshold list.
Regulation SHO requires the stock exchanges to publish daily a list of companies whose stock has failures-to-deliver above a certain threshold. It
also requires mandatory close-outs for open fail-to-deliver positions in threshold securities persisting for over 13 days, with the aim that no security
would appear on the threshold for any extended period. Despite that aim, our common stock has frequently appeared on the Regulation SHO threshold
list for extended and continuous periods and, while we do not currently appear on the Regulation SHO threshold list, in the past our stock has been on
the list for more trading days than any other company.
Any investment in our securities involves a high degree of risk. Investors should consider carefully the risks and uncertainties described above,
and all other information in this Form 10-K and in any reports we file with the SEC after we file this Form 10-K, before deciding whether to purchase
or hold our securities. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also become important
factors that may harm our business. The occurrence of any of the risks described in this Form 10-K could harm our business. The trading price of our
securities could decline due to any of these risks and uncertainties, and investors may lose part or all of their investment.
27