December 16, 2010 / 10:20 PM / 9 years ago

UPDATE 2-Overstock accuses Goldman. Merrill of racketeering

* Overstock says RICO charges apply in case

* Original lawsuit from 2007 alleges naked short selling (Adds Goldman, Bank of America comment)

SAN FRANCISCO, Dec 16 (Reuters) - Overstock.com Inc (OSTK.O) plans to amend a lawsuit it filed in early 2007 to include racketeering claims against Goldman Sachs and Merrill Lynch, the online retailer said on Thursday.

The original lawsuit, filed in the California superior court in San Francisco, alleged that Goldman Sachs Group Inc (GS.N) and Bank of America’s Merrill Lynch unit (BAC.N) engaged in a “massive, illegal stock market manipulation scheme” that involved so-called naked short-selling.

In naked short selling, short sales are executed but never delivered, thereby causing the company’s share price to fall.

“Merrill, Goldman and certain of their market maker clients agreed to and created a scheme to effect the naked short selling in Overstock securities that is the subject of this action, in order to perpetuate short selling and drive down the price of Overstock, to their mutual profit,” alleges the motion, which was filed on Wednesday.

A Goldman Sachs spokesman said the bank opposes the motion, but did not elaborate. Bank of America declined comment.

Overstock claims the brokerages’ actions are illegal under New Jersey’s Racketeer Influenced and Corrupt Organizations Act (RICO) and such claims can be decided by non-New Jersey courts.

Overstock also said in a filing that it had settled with some unnamed defendants for $4.44 million in the case. (Reporting by Alexandria Sage. Additional reporting by Joe Rauch in Charlotte, N.C. Editing by Robert MacMillan)

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