Overstock.com CEO Patrick Byrne has said that hedge fund Copper River Partners paid his company $5m this afternoon to settle claims it colluded to denigrate Overstock and then profit from short positions in the etailer's shares.

Byrne - who has waged a very public battle over Wall Street short selling - tells The Reg that the $5m payment from Copper River (formerly Rocker Partners) arrived at about 2:30pm Pacific time on Tuesday. According to Byrne, it settles a 2005 lawsuit Overstock filed against the hedge fund.

We reached Copper River partner Marc Cohodes on his cell phone, but before we could ask for comment, he hung up. Copper River was liquidated last year in the wake of the Wall Street meltdown.

According to Overstock and Byrne, the defendants in the case - including fund founder David Rocker, Marc Cohodes, and other outfits controlled and advised by the hedge fund - have agreed to dismiss a 2007 counter-suit as well.

Overstock's original suit also included research firm Gradient Partners. Gradient settled with the etailer last year, and though terms of the settlement were not disclosed, a source close to the matter says the research firm paid Overstock between $1.5m and $2m.

Overstock's remaining dispute with Copper River was set for trial in February.

In 2005, Patrick Byrne announced Overstock's lawsuit against Rocker with a now famous conference call he insisted on calling "The Miscreants’ Ball." He was widely abused in the press - including by The Reg - for telling the world that a cabal led by a "Sith Lord" was out to destroy his company. His methods are, shall we say, unorthodox. But in the wake of last fall's economic meltdown, Byrne has received more than a little vindication from a financial press that once branded him a madman.

The Overstock.com CEO spent years warning that abusive naked short selling was threatening the health of America's financial markets, and in the wake of the Wall Street meltdown, many other voices - including Lehman Brothers CEO Richard Fuld - have acknowledged that the practice at least played a part.

Last fall, the US Securities and Exchange Commission issued temporary rules meant to curb naked shorting. In late July, the Commission made these rules permanent.

With a traditional short sale, traders borrow shares and sell them in the hope that prices will drop. A naked short works much the same way - except the shares aren't actually borrowed. They're sold but not delivered. The practice essentially floods the market with non-existent stock.

In their suit, Byrne and Overstock contended that hedge funds such as Copper River colluded with research firms and journalists - and each other - to drive down the stock prices of certain companies and profit from short positions.

For years, news outlets ignored Byrne's warnings over naked shorting, with some journalists - most notably a former BusinessWeek reporter named Gary Weiss - painting the Overstock boss as a complete nutcase. According to Byrne, many of these journos were part of the alleged cabal trying to bring his company down.

Byrne also said that additional abuse was fueled at least in part by the unfavorable way that Wikipedia discussed him and his stance on naked shorting. According to Byrne, for years the relevant articles on the "free encyclopedia anyone can edit" were controlled by none other than Gary Weiss, hiding behind various anonymous accounts. Weiss - who now writes for the business news site Portfolio.com - has always denied this. But Byrne and his employees eventually turned up emails indicating otherwise.

Still outstanding is an additional $3.48bn lawsuit from Byrne and Overstock against 12 New York brokerage firms, alleging a "massive, illegal stock market manipulation scheme."

"That's the big one," Byrne says. "That's the OJ trial of the financial world." The trial is expected in late 2010. ®

Update: This story has been updated to point out that Copper River liquidated last year and to clarify the headline. Overstock's suit against Copper River was not over naked short selling per se. The suit alleged that Copper River colluded to denigrate Overstock and then profit from short positions in the etailer's shares.