Overstock.com 2011 Annual Report Download - page 40

Table of Contents
our company or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.
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 intend to appeal 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
34