When 60-year-old David Rocker, one of the city’s leading short sellers, retires in January 2007 from the hedge fund Rocker Partners, which he founded in 1985, he might conceivably do so with considerably less money than he thought if one of his corporate adversaries has its way.

Last August, that adversary, online retailerOverstock.com, sued Rocker Partners for unspecified damages, which, the New York Sun has been told, could now run in excess of $1 billion.

In its suit, Overstock.com- which disclosed on Tuesday that it is the subject of an investigation by the Securities and Exchange Commission – charged that Rocker Partners, which shorted its stock (a bet its price would fall), had conspired with Gradient Analytics, an independent research outfit based in Scottsdale, Ariz., to denigrate its business for a profit. Gradient, which was also sued, “knowingly served as a shill for Rocker Partners,” Overstock.com said in its suit. (Rocker Partners recently changed its name to Copper River Partners to reflect Mr. Rocker’s planned departure from the firm.)

In a brief interview, Wes Christian, a principal of Houston, Tex.-based Christian, Smith & Jewell, one of the law firms representingOverstock.com, said the amount that would be sought from the defendants could run into the hundreds of millions of dollars, if not in excess of $1 billion. “We’re still commencing discovery to determine the full damages,” he said.

On what basis does Overstock.com come up with such an obviously astronomical price tag?

Among other things, Mr. Christian argued, the defendants harmed Overstock.com’s relationships with its vendors and creditors, hurt its ability to grow, and impeded its ability to merge with or acquire other companies. Likewise, he said, they indirectly affected the stock price, “causing a counterfeit supply of stock to come into the market.” He went on to say, “This is the biggest bank robbery you have ever seen, and it involves Wall Street.”

Indeed, Wall Street has soured on the company’s shares, which have dived more than 50% from a 52-week high of $48.65 to a current price of $23.27.

Both Rocker Partners, which manages assets of $1.2 billion, and Gradient have denied any wrongdoing and Mr. Rocker declined to respond to calls seeking comment. In March, a California judge denied a motion to throw out the suit, but that decision is being appealed.

Mr. Christian claimed he had written evidence that the two defendants had conspired to deliver false and misleading information aboutOverstock.com. He also said he knew that each is the subject of a formal SEC investigation.

Asked about talk in Texas hedge fund circles that Overstock.com had hired detectives to look into Rocker Partners and Gradient, Mr. Christian said, “I’m not going to comment on that,” but he noted that “I have a lot of information about the defendants.”

An attorney for Rocker Partners, Gavin Rooney, declined comment when asked about a formal SEC probe and a spokeswoman for Gradient, Karen Hinton, said, “We do not comment on SEC investigations, and we really don’t want anything written about us.” The SEC, as is usually the case, declined comment, but one regulatory source confirmed the investigations and also said that Mr. Rocker was under intense SEC scrutiny.

Meanwhile, Overstock.com is also facing regulatory headaches of its own, having announced that it had received a wide-ranging subpoena from the SEC, requesting documents related to its accounting policies, communications with analysts, and trading in the company’s stock. In February, Overstock.com said it would restate results for more than three years as a result of accounting errors it had made in recording freight costs beginning in 2002.

In its investigation into the Overstock.com matter, the SEC subpoenaed journalists from several news organizations, including Dow Jones and CNBC. It later withdrew its request but reserved the right to question the journalists.

Some rival hedge funds complain that some journalists have been too much of a boon to Mr. Rocker by repeatedly doing negative reports on companies in which he was short. As one put it, there’s nothing wrong with a short seller soliciting a reporter to do an unfavorable story on one of his short sales – which happens all the time – but it’s way overdone when it becomes 10 to 20 of his short sales because that practice eliminates what’s supposed to be a level playing field. Several hedge fund managers, including a former associate of Mr. Rocker’s, tell me that his uncanny ability to entice a select number of journalists to do negative stories on his short sales time and again is a key reason for his success.