Overstock short sellers now lose an appeal over market manipulation after they were squeezed from massive price movement years ago.
The Tenth Circuit Court ruled on Tuesday that short sellers cannot continue to argue that Overstock.com Inc. and its executives engaged in improper tactics to force them into a “squeeze.”
This lawsuit originated from a contentious dispute between Overstock’s management and investment funds that were betting on a decline in the company’s stock value.
The short sellers claimed they were compelled to buy shares due to a situation known as a short squeeze and attempted to revive their case after it was dismissed by the U.S. District Court for the District of Utah in 2021.
The claims made by the short sellers regarding misrepresentation, market manipulation, and insider trading were all rejected by the court, per Bloomberg Law.
Overstock’s short squeeze occurred after its digital dividend sparked investors’ interest.
One of Patrick Byrne’s last acts at Overstock made life difficult for short sellers.
The inclusion of its digital dividend forced investors to recall their shares loaned out to short sellers, forcing buys to cover the position.
“Overall, the reason behind the squeeze was technical but came down to the obligation of the short seller to pass back the dividends to whoever lent the shares,” reports Benzinga.
“This caused a flurry of investors to cover their shorts and further aided the growth of Overstock.”
Short squeeze plays have become popular thanks to companies such as GameStop (GME) and AMC Entertainment (AMC), both of which incurred massive swings during the ‘meme stock’ frenzy of 2021.
Investors have maintained a bullish stance to-date.
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Also Read: SEC Enforcement Chief Gurbir Grewal Is Now Resigning This Month
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AMC’s short interest is now beginning to rise again, signaling sellers are moving in against the stock, as seen in 2021.
Last month I reported that AMC’s short interest had nearly doubled this year-to-date from 7.80% to 15.09%.
However, sources are now reporting a slight increase in AMC’s short interest to 17.03%.
Shares of the movie theatre company are currently down more than 15.05% in the past month and more than 32% in the past year-to-date.
Despite falling stock prices this year, retail investors continue to maintain bullish on the company — primarily due to the industry’s recovery.
In August, CEO Adam Aron said AMC Entertainment Holdings Inc. had the best Q2 June in its 104-year-old history.
The company was able to secure more than $770 million in cash equivalents by the end of the second quarter.
The “box office is making a come back”, said Adam Aron during the Q2 earnings call.
Despite recording a record Q2 June, the company still has a lot of work ahead, as stated in the call.
Total Q2 revenue was down to $1,030.6 million compared to $1,347.9 million from last year.
Adjusted EBITDA also fell drastically to $29.4 million compared to $182.5 million from Q2 of last year.
Separately, the S&P Global raised AMC’s rating to CCC from SD — selective default — but says the company is still ‘unsustainable’.
However, it’s AMC’s short interest that investors are keeping an eye on.
As the company’s short interest rises, the opportunity to squeeze short sellers also presents itself to retail investors.
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Also Read: AMC CEO Adam Aron Now Shares Optimistic Company News
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