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Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion

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Posted by:   bobo 4/26/2006 11:00 PM

The Judge ruled in Marin yesterday, and basically indicated that discovery would not move forward in the OSTK case until the appellate court heard the case, and decided whether the lower court had made a mistake WRT the SLAPP decision.

This is troubling for a number of reasons. Not unexpected, but troubling.

First, it means that if the materials that will be sought in discovery are destroyed in the interim, that there are issues in terms of what can be done. Given that the court hasn’t ordered discovery to go forward, I could argue that the best that could happen might be a contempt citation – big deal. So all the records were destroyed “in the normal course of business”, and all I got was this lousy Marin contempt citation. Whooooo. Scary.

Second, it means that discovery gets stalled until Fall or so. Why is that important? Hmmm. Let’s see.

David Rocker indicated that he is retiring. So if a bunch of investors pull their money out of the fund, it could well be severely reduced in terms of cash available should an unfavorable judgment be forthcoming against them. Now, I’ve argued that would be fraudulent conveyance, as the money isn’t really the investors’ to take back at this point given the claim against the hedge fund, however one could also imagine where the only recourse is then to have to go after 100 investors, many who are probably located in jurisdictions like Dubai, or Nevis, or Lichenstein, for a fraudulent conveyance charge – only to discover that the underlying investment partnership there is another group of shell companies in yet more jurisdictions. So 5 years later, maybe you unravel it, or maybe not. In the meantime, the money is gone, and could have easily flowed through to yet another unregulated investment pool  - offshore hedge fund, that is.

Now I’m not saying that will happen, but can anyone think of a reason it wouldn’t?

One of the fundamental problems I see is that time works for the bad guys in many of these cases. The longer they can stall, the longer they can craft an egress. While I wish I could say I’m surprised, I’m not. I thought it was 50/50 that OSTK would prevail on this go around, and that the judge erred on the side of caution in preserving the defendants’ rights is not unexpected.

But it is disappointing. That is for sure.

And I think we can bet that this will get 5 times the NY press corps attention than the judge's decision that there is a "probability" that OSTK will prevail in court got. At least that little bias hasn't changed. My in-box was just contaminated by Carol's latest, which spends quite a few column inches belittling O'Quinn.
Copyright ©2006 Bob O'Brien
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Comments (17)
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By mhatmccane on 4/27/2006 12:17 PM
It will be interesting to see the spin out of NY, considering they didn't say squat when the original ruling came down. Sure is a shame the SEC subpoenas were put on hold - that could have preserved some of the information.
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By hwh on 4/27/2006 12:27 PM
Others in similiar fraud & RICO/DTPA oriented cases are dealing with the same stall. My bet is the DOJ's snail pace investigations are allowing the judges a parole from making very politically implosive decisions prior to mid terms as well as a lot of time for parties to consider settlement v potential damages associated with discovery.

The DOJ excuse/rationalle is smelling like compost. SDNA has been waiting for a lift-stay since October in a relatively similiar case. Seeing DOJ finally charge AMRO 6 years after the fact & NASD findings does not leave a "warm & fuzzy" feeling.

This is a political landmine. D.C. & NYC political inhabitants would probably like to leave there without implication.

Of course, DOJ may well be close to dropping a hammer on the lot of the miscreants. Time will tell...hwh
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By Chico on 4/27/2006 1:02 PM

=DJ IN THE MONEY: Overstock Suit Likely Delayed By Several Mos

By Carol S. Remond

A Dow Jones Newswires Column


NEW YORK (Dow Jones)--Overstock.com's legal battle against short sellers and a research firm it accuses of colluding with them will need to take major time out.

A California state judge ruled Wednesday that the Salt Lake City online retailer needs to wait until the resolution of appeals filed by hedge fund Rocker Partners LP and research firm Gradient Analytics before Overstock can proceed with the discovery process.

People familiar with the process said it would likely take several months for the appeals to be heard. That means that subpoenas - seeking detailed information about anybody who traded Overstock's securities and already sent by the company to some 70 financial firms - are now on ice.

Overstock sued Rocker and Gradient in Superior Court of the State of California in Marin County last August. The company alleges that Rocker, a hedge fund which often takes bets that stock prices will go down, engaged in unfair practices and colluded with Gradient to produce negative reports with the aim of pressuring Overstock's stock price for profit. Rocker and Gradient have denied any wrongdoing. Last November, they asked Judge Vernon Smith to dismiss the suit under California's anti-strategic lawsuits against public participation, or Slapp, statute. Judge Smith denied Rocker's and Gradient's Slapp motions last month and the companies have since filed notices indicating they will appeal
that decision.

Overstock could ask that Judge Smith's latest ruling in the case be overturn by filing a writ petition with the California Court of Appeals but such petitions are rarely granted.

70 Brokerages Subpoenaed

Overstock last month sent letters informing subpoena recipients that, since the Slapp motions had been denied, the requests for information should now be answered. Rocker and Gradient argued that their notices of appeal automatically
stayed proceedings.

Overstock had argued that it would suffer from any stay in discovery because of the risk that evidence could be destroyed. But Judge Smith, in his opinion, ruled that there is sufficient warning, including letters sent by Overstock to
subpoena recipients, "to protect plaintiff's interests in preserving evidence without the need for a formal protective order."

Overstock Chief Executive Patrick Byrne last year began a very public crusade against what he claims is a vast conspiracy orchestrated by hedge funds and the media to depress his company's stock price. Byrne claims his company has been the target of illegal short selling and that brokerage firms are facilitating the abuse by allowing Overstock's shares to be "naked shorted."

Short sellers typically borrow shares to sell them, hoping that they will be able to replace them with stock bought later at a lower price. Trading without a borrowing agreement is called naked short selling. It is illegal for most
investors, but legal for firms that make markets in stocks and bring liquidity to the market.


Tort Lawyers Lead The Charge


As with several other suits brought by companies alleging that their stocks have been manipulated, Overstock's complaint was brought by a consortium of law firms led by Houston class action lawyer John O'Quinn.

So far, O'Quinn and the consortium of law firms working with him haven't been very successful. Most cases have been thrown out of court by judges who ruled either that the firms were unable to prove their allegations or rejected the
lawsuits on jurisdictional grounds. Other cases are languishing in courts.

O'Quinn's firm last June was singled out by a U.S. District Court judge in Texas and fined $8,250 for submitting questionable claims for silicosis, an occupational lung disease. The federal judge said law firms engaged in mass
screening of potential plaintiffs and created a "phantom epidemic" of silicosis.

A U.S. House panel has also began to investigate the matter.


(Disclosure: Two columnists for Dow Jones & Co. (DJ), this columnist and Herb Greenberg, have received subpoenas from the Securities and Exchange Commission requesting information in connection with an SEC investigation. Dow Jones, publisher of this newswire, objected to the subpoenas. The subpoenas were put on hold and the SEC recently announced new guidelines for requesting information from journalists.)


(Carol S. Remond is an award-winning columnist and one of four who write the "In The Money" feature. Most recently, she won a 2005 Gerald Loeb Award for best news service content with "Exposing Small-Cap Fraud," a series of articles that described how three small companies unscrupulously pumped up their stocks.)



-By Carol S. Remond, Dow Jones Newswires; 201-938-2074;

carol.remond@dowjones.com





(END) Dow Jones Newswires



27-04-06 1746GMT



Copyright (c) 2006 Dow Jones & Company, Inc.
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By hwh on 4/27/2006 1:47 PM
"Christmas" Carol...the Loeb award was a gift for sure...hwh
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By browntrout on 4/27/2006 1:57 PM
Hey Carol Redmond is a guy, right?
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By Carol's quick on 4/27/2006 2:24 PM
was she this quick to get the Marin word out on last month on the March ruling? LOL
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By gregcable2002 on 4/27/2006 2:31 PM
Theres more than one way to skin a crooked cat and they may have temporarialy dodged this bullet but look out,these crooked wallstreetians are being shot at from all directions and sooner then late a bullet will find the heart.
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By SEC Fan on 4/27/2006 2:36 PM
This doesn't delay the SEC or the DOJ one bit...
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By Jasper on 4/27/2006 2:38 PM
Bobo

Where is the militant arm of this party? I don't know about the rest of you guys, but I'm getting pretty sick of the SEC, the DTCC, Wall Street and the financial press. When are people going to start stoning these people. Tar and feathers. Jeepers.

70 years and the crap still goes on. 70 years and we still don't lock these rat bastards up. Country club prisons. Small time chumps taking the fall. It's high time for some hard time. It's clear that financial crimes do more damage to more Americans than the ATF's.

Somebody told me that if these crooks started showing up in the east river things would change. If that would put a stop to the 100 plus years of Wall Street crime then that's what the American people should do... Jeepers.

Jasper
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By Marin Wino on 4/27/2006 2:47 PM
Was this the same judge who ruled on the same suit last month?
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By bobo on 4/27/2006 2:53 PM
Yes, it was the same judge.
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By cynabear on 4/27/2006 3:03 PM
ugggggh.....i am beginning to think that even if any of these smug(alleged) criminals are found guilty which now that they get months to shred everything in sight and out of sight-all they will be given is a slap on the wrist and told not to play dirty again....since the SEC is so pathetic is there away to get the IRS involved??? They don"t have an enforcement problem.......
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By Bluesbum on 4/27/2006 4:25 PM
In A liberal left wing state like Ca.I'm surprised they even got the ruling to begin with.
Trying not to be to political but the way this government is heading this country is going to implode from the inside out no need for terrorist.
Ca.Passed Proposition 187 in 1994 Which was to deny services to Ilegal Immigrants
only to be struck down by A judge in Frisco fed by special interest on Constitutional grounds!
Don't expect justice in the state of Ca.!
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By TheresASpyInTheHouse on 4/27/2006 7:39 PM
People keep talking about everything being shredded-- but if the plaintiffs already have information that those receiving a subpoena should have, but don't produce, those receiving the sobpoenas are in a world of hurt...
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By bobo on 4/27/2006 9:44 PM
Spy: Of course they haven't done anything bad.

After all, engaging in a global stock fraud/manipulation scheme is bad enough. Who could imagine that they are thinking they are 1 hour flying time to a life of hawaiin shirts and Cohibas, and thus are better off destroying evidence than facing the full wrath and fury of the US law, such as it is?
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By InTheKnow on 4/27/2006 11:35 PM
SETTLE THE TRADES, and we will promise to go away.
Re: Judge stalls discovery in OSTK suit until appellate court can rule on tossed SLAPP motion By cynabear on 4/28/2006 9:16 AM
Bluesbum this issue in the courts is not a "liberal" issue as much as you might want to paint it so....this problem re FTD's is not a liberal or conservative issue it is a class war imho...and if you think your conserrvative cronies aree going to put and end to it look what a great job they are presently doing in DC and the SEC, and for the liberals that think their representatives have the desire or will or ability think again, it takes intelligent couragous people of all persuasions with the ability to do something that will clean up this mess.
Use all the tools you have and settle the trades.

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