A Utah federal judge has tossed out a lawsuit that accused Overstock ($OSTK) of market manipulation by distributing a ‘digital dividend’ of security tokens to shareholders and repeatedly revising retail earnings guidance upward to punish short-sellers.

U.S. district judge Dale Kimball granted two motions to dismiss the suit on September 28, finding that the digital dividend did not manipulate the market, and that the revised earnings statements were protected by the Private Securities Litigation Reform Act. In his judgement Kimball said:

“On the day that Overstock announced the dividend, market observers recognized and publicized that the digital dividend would place short sellers in a pickle by forcing them to cover their short positions to avoid breaching pre-existing contractual obligations.”

The lawsuit was filed by Mangrove Partners Master Fund in September 2019, two months after Overstock, a former-online retailer-turned crypto retailer, announced its digital dividend. The dividend airdropped ‘OSTKO’ security tokens to Overstock shareholders at a ratio of one token for every ten shares. 

Mangrove claimed that conditions that prohibited the token’s sale until six months after distribution were intended to make it hard for shorters to cover their positions, and accused Overstock of engineering an artificial short squeeze.

The U.S. Securities and Exchange Commission later launched an investigation into the actions of Overstock and its executives, subpoenaing documents concerning the dividend, in addition to communications with the firm’s former CEO Patrick Byrne.

Judge Kimball ruled that Byrne’s “very public disdain” for shorters (he made numerous disparaging comments about them) was not relevant to the case as “there was a legitimate business purpose for issuing the dividend.”

He summed up the lawsuit as “a classic attempt to plead fraud by hindsight.”

Speaking to Law360, Byrne’s attorney Robert Driscoll said: “Federal securities laws do not serve as investment insurance and the court agreed.”