Overstock sued by investor over former CEO’s sudden resignation

Online retailer Overstock is facing a lawsuit from investor John Murphy after former CEO Patrick Byrne’s abruptly departed the company and cashed out on $90 million in stock.

According to a report by Law360, the suit states: “This action seeks corporate books and records to investigate Byrne’s and the board’s role in what appears to be a scheme to cause a so-called ‘short squeeze,’ resulting in Byrne’s sudden resignation from the company and sale of over $90 million of his stock.”

Murphy also contends that Byrne’s “evident psychological instability” harmed Overstock’s reputation, whilst “his misconduct not only triggered an investigation by, among others, the US Securities and Exchange Commission, it contributed to the destruction of hundreds of millions of dollars of the company’s value.”

Dissing Wayfair

Following his departure, Byrne published a public letter to his former Overstock colleagues in which he announced his intention to stop trading anything else except the three assets that are “counter-cyclical to the economy,” including gold, silver and “two flavours of crypto.”

“I have been following the US economy and the deteriorating world situation, and I am growing worried, as I am sure you have as well…The good news is that a collapse of Wall Street would crush your main competitor, Wayfair: so far their business model has been predicated on losing ≈ $3 billion without a remotely break-even quarter, while replenishing continually thanks to their Wall Street promoters (e.g., Goldman), but in a recession that game will end,” he wrote.

“An economic downturn would hurt Overstock as well, but your firm has repeatedly shown the ability to roll with whatever punches get thrown, while Wayfair’s expense structure is so lopsided (with expenses that run 2X their “nectar$”), they will not be able to adjust such an event.”

Byrne’s resignation closely followed the announcement of disappointing Q2 2019 financial results. In a letter, he said it was impossible to continue due to distraction and fallout related to his involvement in a Federal Bureau of Investigation Russian espionage probe. Further details here.