We’re at the close of another tumultuous week – we made it, barely.
But the ups and downs the market’s experiencing almost pale in comparison to what’s been happening to one online retailer who’s been feeling the heat.
I’m talking about Overstock.com Inc. (NasdaqGM:OSTK).
The stock took off last October and has since been on its own roller coaster ride.
Shares spiraled downward 25.2% last week. As of January, the stock’s down almost 50%. It tried to bounce and failed, tried again, and failed, tried again, and is failing.
The news on Overstock.com isn’t good.
Between rapidly declining revenue, down nearly $25 million before taxes, and their low sales relative to competitors like Wayfair Inc. (NYSE:W) and Amazon.com Inc. (NasdaqGS:AMZN), Overstock.com could be headed into a brick wall.
That’s just the on-the-surface news. There’s something darker going on behind the curtain.
Overstock’s Controversial ICO
Overstock.com is circulating a cryptocurrency private placement offering. That means it’s out drumming up investor interest in an initial coin offering (ICO).
That’s how some cryptocurrencies initially come to market. Investors, usually accredited investors or insiders, are offered coins for cash, and then the public gets a chance to jump on the bandwagon. The initial investors want the public to buy the coins at higher and higher prices, lifting all boats for all coin investors – especially the insiders.
That’s not crazy; it’s just not mainstream and not what public companies do, though some have tried it lately.
What makes the prospect of a publicly traded online retailing company floating an ICO crazy is that this particular company, Overstock.com, happens to be in the securities dealing business.
Overstock, which most investors in the company don’t know, owns not just one, but two registered broker-dealers, SpeedRoute and PRO Securities.
SpeedRoute is an electronic FINRA-registered broker-dealer that provides connectivity for its customers to U.S. exchanges and off-exchange venues, such as dark pools. It’s an “agency-only” industry broker-dealer that doesn’t do retail business. Its customers are other broker-dealers.
PRO Securities is another FINRA-registered broker-dealer that owns and operates the PRO Securities alternative trading system, or ATS. The PRO ATS, however, isn’t an exchange; it’s a licensed venue for matching buy and sell orders.
The thing about broker-dealers is they’re subject to all manner of regulatory scrutiny – which, not incidentally, allows regulators to look at everything the company does. Everything.
That includes attempting to float a cryptocurrency, in Overstock.com’s case, what they’re calling Preferred Equity Tokens.
As controversial as ICOs are on their own, the fact that Overstock owns regulated broker-dealers, and is issuing Preferred Equity Tokens (that aren’t registered securities, though some regulators think they should be) that aren’t technically regulated. Nonetheless, it’s tied to a registered securities broker-dealer, attached to a publicly traded online retailing company, trying to sell a non-registered security to the public eventually… It’s just not everyday stuff.
Disgruntled Overstock.com investors and haters of the company’s controversial CEO, Patrick Byrne, are saying the $250 million ICO Byrne’s attempting is a last-ditch effort to turn around the online business. Some naysayers say it’s a flat-out scam.
Where There’s Smoke…
Meanwhile, both of Overstock’s broker-dealers are being examined by their regulators. That includes what appears to be an investigation by the SEC.
That’s not good.
What’s interesting to me, and maybe regulators, is the buying and selling of pieces of the broker-dealers into and out of Overstock.com, between principals of the company, and Byrne’s attempt to now sell tokens.
Mind you, nothing illegal has been determined to have happened. Nothing.
But when the SEC opens a formal investigation, it’s a big deal.
There’s nothing in any regulatory filing or related to the company’s disclosure on March 1, 2017 that the SEC’s looking at them, or anything anywhere that points to anything wrong.
But I’m of the school that thinks where there’s smoke, there’s probably fire.
It’s a dirty mess that could spell big trouble if it’s not cleaned up – and soon.
In theory, the securities broker-dealer related issues, whatever they are, could be cleaned up. The cryptocurrency could be a hit. Overstock.com’s stock could see new highs… Though it’s not likely.
Yet, there is a bright side to the tumult of Overstock.com.
In my Zenith Trading Circle research service, we’re taking a position that has tremendous potential to fatten our wallets if there’s a real fire at Overstock.com.
Members of my Zenith Trading Circle have already gotten my recommendation on how to trade it, and my next recommendation will be coming as soon as Monday.
So far, this year, we are averaging over 80% gains per closeout, and have even racked a couple quadruple-digit gains (including partial closeouts).
When it comes to where Overstock.com may be going, and why, I have no doubt that you could cook up some further profits from the heat engulfing the company.