SecProbe.io

CORRESP
1
filename1.htm

OVERSTOCK.COM, INC.

6350 South 3000 East

Salt Lake City, Utah 84121

July 31, 2015

VIA EDGAR AND OVERNIGHT DELIVERY

Ms. Mara L. Ransom

Assistant Director
 U.S. Securities and Exchange Commission
 100 F Street, N.E.
 Washington, D.C. 20549

Re:                             Overstock.com, Inc.

Amendment No. 1 to Registration Statement on Form S-3/A

Filed June 15, 2015

File No. 333-203607

Dear Ms. Ransom:

As CEO of Overstock.com, I am submitting this response to the comments set forth in the fine comment letter of the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) dated July 10, 2015 relating to the above-referenced Registration Statement on Form S-3/A (the “Registration Statement”).  For convenience, the Staff’s comments are set forth herein followed by our responses. My firm has revised the Registration Statement in response to the Staff’s comments and is filing concurrently with this letter an Amendment No. 2 to the Registration Statement (the “Amendment”) that reflects these revisions and generally updates the information contained therein.

General

1.              To better understand the offering process for digital securities pursuant to this registration statement, provide us with a diagram or detailed explanation illustrating the process, starting from the initial issuance of the digital securities to the recording of each trade in the distributed ledger, as well as the clearance and settlement process. Please include a detailed explanation of the role of each participant in the process, including but not limited to, the issuer, broker-dealers, and ATS. Tell us whether you anticipate interaction with or involvement of a registered clearing agency or registered transfer agent at any stage of the process as well as how compliance with the laws applicable to clearance and settlement will be ensured and/or accommodated by the technology you choose to use.

Response:  To help the Staff better understand the offering process for digital securities pursuant to the Registration Statement, my firm is providing the Staff with a supplemental slide deck attached as Appendix I to this letter.

Issuer Role:  An issuer that wishes to offer digital securities starts by entering into a Digital Securities Trading Platform Agreement with the ATS.  We expect there to be no fees payable by Overstock.com, Inc. (“Overstock” or the “Company”) to Pro Securities LLC pursuant to this agreement.  This agreement provides the issuer with a system for issuing primary digital securities and trading secondary digital securities.  The issuer’s board of directors authorizes the issuance of uncertificated digital securities and designates the combination of 1) the proprietary ledger, as validated by the distributed ledger and 2) the securities holder personal identity information database, as its book-entry system for the digital securities.  Our board has authorized the creation of this book-entry system for digital securities.  Once a primary offering has received the requisite corporate and regulatory approvals typical for any offering of securities, the issuer chooses a broker-dealer that is or will agree to become a licensee to the TØ technology on the ATS and which will create customer accounts for the purchasers of the primary securities.  In the case of the Pro Securities ATS, DriveWealth, LLC, a registered broker-dealer, is in the process of negotiating a license for purposes of trading digital securities on the Pro Securities ATS, which we expect to work with in this capacity.  As described in Appendix I, the book entry of trades is derived from the proprietary ledger, which can be validated by the distributed ledger.  The digital securities registry maintained by the issuer and its transfer agent consists of the proprietary customer information and the proprietary ledger.  The broker-dealer must agree to share the identity of its customers (whether its customers are primary or secondary purchasers) with the issuer or its transfer agent to enable the issuer to maintain the book-entry system that identifies record holders.  DriveWealth, LLC has confirmed that it will share this data.  Payment for primary securities is made to the issuer in the same manner as any other primary issuance of securities — if the offering is underwritten, the underwriter pays the issuer for the securities on the closing date, or if the offering is not underwritten (e.g., the broker-dealer is acting as a placement agent), the purchasers may pay the issuer directly or through a closing escrow arrangement for the securities on the closing date.(1)  The applicable securities purchase agreement with respect to the primary issuance will determine the closing mechanics whereby the issuer will give instructions to the ATS that the securities have been issued and sold on the closing date and the ATS will use the TØ software to generate the initial balance on the closing date for the issuer’s account held by the transfer agent to be transferred into each purchaser’s brokerage account with the purchaser’s participating broker-dealer.

The issuer continues to have ongoing access to the proprietary ledger with respect solely to that issuer’s digital securities, as well as the securities holder personal identity information database

(1)  In addition to these traditional closing payment methods involving wire transfers or checks, etc., it is also possible for closing payments with respect to primary offerings of digital securities to occur in the same manner as payments for secondary trades.  In other words, a primary purchaser could fund its brokerage payment account with its participating broker and generate a buy order in its brokerage account consistent with the primary securities purchase agreement with the issuer that is filled by the issuer with primary securities using the committed wallet process for exchanging dollar balances for digital securities balances as described in more detail in the slides in Appendix I.  In this case, the payment would ultimately come from the customer’s broker to the issuer, which is arguably a better process than the payment processes available for traditional primary issuances of non-digital securities since there is necessarily a broker-dealer involved with respect to payment for the securities.

2

with respect to the holders of its digital securities, and the issuer or its transfer agent is able to query the book-entry system whenever it wants to generate a list of record holders of its digital securities and the number of securities held as of any point in time.

The book-entry system gives the issuer and its transfer agent near real-time data as to its record holders of digital securities, which enables the issuer or its transfer agent to mail proxies and pay distributions and take all other actions with respect to its record holders, in each case as required by applicable securities and corporate laws.  Participating broker-dealers are not permitted to hold securities in “street name,” which eliminates the delay, potential for errors and confusion associated with the need to obtain beneficial ownership information from broker-dealers which exists with traditional securities.

In all cases, the issuer will have the ability to exercise control over its book-entry system for the digital securities as required by applicable corporate law.  In the case of the Pro Securities ATS, the TØ software will generate two private keys for each customer account.  We and our transfer agent will have access to one of the private keys for customer accounts holding our digital securities.  The TØ software will store the other private key, which is automatically used to authenticate trades initiated by the customer out of the customer’s online brokerage account when the customer supplies his or her login credentials.  Either of these two private keys is necessary to effect a transfer of digital securities.  In cases where we are required by law or court order, for example, to effect a transfer of our digital securities, we will provide the applicable private key to the ATS and have the ATS effect a transfer of the digital securities.

ATS Role:  The ATS will have a license to use the TØ software and its broker-dealer subscribers that wish to onboard customers to trade our digital securities will also have a license to use the TØ software.  This license is in process for Pro Securities LLC.  The ATS operates the trading system, consisting of the licensed TØ software and servers with data cryptographically segregated for each issuer of digital securities trading on its system.  The ATS provides integration services to enable its broker-dealer subscribers licensed to use the TØ software to offer a digital securities user interface that is integrated into the broker-dealer’s existing online brokerage account product offering.  At the request of an issuer, the ATS will assist the issuer with the creation of the initial balances representing primary securities to be sold by the issuer.  At the request of the issuer or its transfer agent, each of which has access to private keys for customer accounts that hold such issuer’s digital securities, the ATS will be able to effect transfers of digital securities when necessary or mandated by court order, for example.  We expect that an ATS will charge customary types of fees as permitted by its regulatory status.  Pro Securities LLC has confirmed to us that it currently expects to enter into commission arrangements with its subscribing broker-dealers and does not currently expect to charge fees to issuers or directly to end-use customers of the subscribing broker-dealers.

Broker-Dealer Role:  Each end-use customer that wishes to trade digital securities will be required to open an online brokerage account with one or more broker-dealer subscribers to the ATS that are licensed to trade digital securities.  As discussed above, in the case of the Pro Securities ATS, we expect that DriveWealth, LLC will be the first broker-dealer licensed to trade digital securities.  Each broker-dealer subscriber to the ATS (as well as each broker-dealer

3

that otherwise gains or arranges access to the ATS indirectly through a direct subscriber to the ATS) that is licensed under the TØ software will be able to offer a digital securities user interface as part of its existing online brokerage account product.  The broker-dealer will be responsible for onboarding customers in the same manner and using the same “know your customer”, suitability and other requirements applicable when onboarding customers interested in trading traditional securities.  The only difference will be that under the TØ software licensing provisions, the broker-dealer’s end-use customer must own digital securities as the record holder instead of in “street name” and the broker-dealer will be required to share its end-use customer’s identity with the applicable issuer and its transfer agent, which happens automatically at the time each customer’s account is created by the TØ software.  The broker-dealer’s customer agreements will need to include provisions for its customers to consent to this sharing of the customer’s personal information and an acknowledgment that the broker-dealer does not carry the customer’s securities or hold custody of them.  As the broker-dealer will not be the holder of record, the end-use customer will by default receive security holder reports, proxy statements, tender offer documents and other security holder mailings directly rather than via the broker-dealer.

The broker-dealer will have the relationship with, and be the point of contact for, its customers trading digital securities and, except as described above, will otherwise interact with its customers in the same manner as it would with respect to traditional securities.

Payment for securities in the secondary trading market will be made on a pre-funded basis out of brokerage payment accounts, as described in more detail in the slides in Appendix I.

Transfer Agent Role:  The transfer agent will have access to near real-time information with respect to the record holders of digital securities (including the identity of the holder and the amount of securities held by the holder) and can query the issuer’s book-entry system, consisting of a combination of 1) the proprietary ledger, as validated by the distributed ledger and 2) the securities holder personal identity information database, as of any point in time it wishes.  Because the holders of digital securities are the record holders, there is no need to run broker searches to request beneficial ownership information, as is necessary for traditional securities.

Other than the differences described in the foregoing paragraph, the transfer agent will perform the same role it performs for traditional securities.  The transfer agent will be the registrar managing the securities registry for the digital securities using the issuer’s book-entry system on behalf of the issuer.  For example, the transfer agent will query the book-entry system of record holders of digital securities and coordinate the mailing of proxies to the record holders with respect to any digital securities that have voting rights in compliance with applicable securities and corporate laws.

We have engaged Continental Stock Transfer & Trust Company as the transfer agent for our corporate bonds issued as digital securities in an unregistered public offering under Rule 506(c).  We expect to work with Continental or another transfer agent to act as transfer agent in the context of registered public offerings of our digital securities.

4

Clearance and Settlement:  We respectfully advise the Staff that the primary innovation associated with the TØ technology is around streamlining the clearance and settlement process for securities trades.  Please see Appendix II to this letter for a discussion of how compliance with the laws applicable to clearance and settlement will be ensured and/or accommodated by the TØ technology.  But, philosophically, our vision is that the transaction is the settlement.  The two are reunified in the act of writing the transaction to the book-entry system.

2.              We note your response to comment 1 and your revisions to your prospectus, which indicate that you are not planning to sell in a registered public offering any digital securities of the same class as any of your existing traditional securities. Revise your fee table, prospectus cover page and “Prospectus Summary — The Securities We May Offer” to identify the classes of securities that represent digital securities.

Response:  The Company has included a revised fee table and has revised its disclosure on the prospectus cover page and on page 3 of the Amendment in response to the Staff’s comment.

3.              Tell us whether you plan to offer any digital securities of the same class as any existing securities in an unregistered public offering. In this regard, we note your press release dated June 5, 2015 where you indicate that you are offering TIGRcub bonds using TØ.com technology. Also, to better understand the offering process, identify the buyers of your TIGRcub bonds and describe the process by which the bonds were issued starting with the initial issuance to the recording of the TIGRcub bonds in the distributed ledger. Further, given that the securities will be restricted from resale under Section 5 of the Securities Act of 1933, tell us how the restrictive legend that is required pursuant to Rule 502(d)(3) has been reflected on the bonds and how the restrictive legend can be removed in light of the uncertificated nature of the digital securities.

Response:  I respectfully advise the Staff that the Company has no plans to offer any digital securities of the same class as any existing securities in an unregistered public offer