A federal judge in Utah has overturned his own dismissal of a class action lawsuit against online retailer Overstock alleging he manipulated the market by issuing a “Digital Dividend” security token to shareholders last year.
On January 6, Judge Kimball overturned his previous decision dismissing the lawsuit and granted plaintiffs’ motion from October to file an amended consolidated complaint.
The class action lawsuit was filed by lead plaintiff Mangrove Partners Master Fund in September 2019, alleging that Overstock lied about the purpose of its OSTKO security token, which plaintiffs believed was to “punish” short sellers
The lawsuit also alleged that Overstock misled investors about the finances of its retail division and failed to disclose that it did not take out liability insurance for directors and officers.
The judge had previously moved to dismiss the lawsuit last September after finding that Overstock’s collateral issue had not tampered with the market and that the company’s income statement revisions were protected by the Private Securities Disputes Reform Act were. At the time, Kimball concluded that the complaint was “a classic attempt to bring forward fraud”.
However, on Wednesday Judge Kimball stated that he had made a “mistake” by overlooking a footnote in plaintiffs’ objection to dismissal requests seeking permission to lodge an amended complaint should the case be denied.
The apparently voluminous footnote also included new evidence from confidential witnesses who plaintiffs believe shows that Overstock executives were aware of the magnitude of their financial problems.
Overstock’s OSTKO security token was traded on its alternative trading system tZERO in May 2020. In mid-August, the token exploded from around USD 10 to a high of USD 89. The token has plummeted 50% since then and most recently changed hands for $ 48.50.
According to Stomarket, OSTKO has a market capitalization of nearly $ 212 million, which would make it the 85th largest crypto asset by capitalization. OSTKO represents roughly half of all trading activity with secondary security tokens.