Overstock.com, Inc. v. Goldman Sachs & Co.

I. Introduction

Often, it is the federal courts, applying federal law, that wrestle with claims of cross-state securities fraud involving a nationally listed stock. Here, plaintiffs of various states allege defendants, securities firms headquartered on the East Coast, violated California and New Jersey laws through their involvement in massive “naked short selling” of Overstock.com, Inc. shares. The trial court sustained demurrers to plaintiffs’ New Jersey Racketeer Influenced and Corrupt Organizations Act (RICO; 18 U.S.C. § 1961 et seq.) claim without leave to amend and subsequently granted summary judgment to defendants on plaintiffs’ California market manipulation claims.

We affirm the dismissal of the belatedly raised New Jersey RICO claim. We also affirm the summary judgment as to three of the four defendants, but reverse as to Merrill Lynch Professional Clearing Corporation. The evidence, although slight, raises a triable issue this firm effected a series of transactions in California and did so for the purpose of inducing others to trade in the manipulated stock. In reaching this disposition, we conclude Corporations Code section 25400, subdivision (b), reaches…