Overstock continues to face scrutiny over its failed tZero initiative

Overstock continues to face scrutiny over its failed tZero initiative

Overstock.com’s former CEO Patrick Byrne once became so enamored by digital currency that he announced he was selling the retail business to concentrate solely on digital assets. That didn’t quite happen, but he did launch tZero, a blockchain initiative that would offer several solutions, including an exchange for regulated token sales, the tZero digital token and even the tokenization of Hollywood movies. It was surprising, then, that Byrne suddenly stepped down from all of his activity and sold off his stake in the company. That led to a lot of questions about his management of the company to which the U.S. Securities and Exchange Commission (SEC) still wants answers.  

According to Overstock’s most recent financial report, covering the 2019 calendar year, the SEC sent it two subpoenas for information related to investigations that began more than a year earlier. One of the subpoenas is tied to a stock sales deal between Overstock and GSR Capital, a private equity firm out of China, and the other is related to the company’s “insider trading policies as well as certain employment and consulting agreements.”

GSR was going to inject $400 million into tZero, but then backed off, lowering the anticipated investment to $100 million and then to $30 million. By May of last year, only $5 million was handed over, leading to other institutional investors deciding to step away, as well. 

Not long after that, Byrne and Overstock Chief Financial Officer Gregory Iverson suddenly left the company, resigning in August and September of last year. Byrne was the first to go and, about the same time Iverson was leaving, the now-former CEO sold his stake in Overstock, receiving $90 million for 13.6% of the company’s shares. Subsequent to that sale, the company reported lower financial guidance for the third quarter of the year, and Byrne suddenly became a pariah who must have known a downturn was coming, which had led to the dumping of his shares.

Overstock continues to suffer financially for several reasons, and blames the majority of its 20% net revenue decline on ongoing litigation. Byrne and Iverson have become embroiled in several lawsuits amid accusations of securities fraud and market manipulation, and the litigation has damaged the company’s reputation. As a result, the future looks bleak, and Overstock asserted in its financial report, “Such litigation could be costly and time consuming and could divert or distract our management and key personnel from our business operations. Due to the uncertainty of litigation and depending on the amount and the timing, an unfavorable resolution of some or all of such matters could materially affect our business, results of operations, financial position, or cash flows.”

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