Continuing Patrick Byrne's self-described crusade against naked short sellers, Overstock.com filed a $3.5 billion lawsuit in California state court Friday accusing 10 of the largest U.S. securities firms of participating in a 'massive, illegal stock market manipulation scheme' to distort the price of its stock.
The suit names Morgan Stanley, Goldman Sachs, Bear Stearns, Bank of America, Bank of New York, Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch, and UBS (nyse: UBS - news - people ) as defendants. According to Forbes, the suit accused the firms of permitting hedge funds and other investors to short securities without actually borrowing the securities as required by law, and in other instances, of loaning the same securities to more than one hedge fund.
Naked short selling has been a complaint of issuers and investors since before I was an attorney. Byrne, and others before him, complain that the outstanding short position in Overstock has been larger than the entire float, a situation which is virtually impossible without cheating, since short sellers have to borrow the stock from a shareholder.
It will be interesting to watch this case develop. Does Byrne have the desire, motivation and money to pursue Wall Street's biggest firms in what might be another huge trading scandal?
