I have no opinion on Overstock as an investment or business, but their market cap is around $300mm; I don't see how hedge funds could make enough shorting it for it to be worth committing fraud.
The most recent episode concerned Deep Capture, a blog that supports Byrne. They were able to obtain the Facebook friends lists for the hedge fund managers and journalists targeted by Byrne and were able to show a large number of cross-links between the journalists and fund managers, and in some cases their families. Deep Capture was careful to avoid making specific charges, but the basic argument is that it establishes the possibility of collusion between the fund managers and an unprofessionally close personal relationship with the journalists.
http://blogs.reuters.com/felix-salmon/2009/12/10/why-cant-i-...
http://blogs.reuters.com/felix-salmon/2009/12/12/larry-bergm...
I can't give a good explanation of the financial aspects, but they've been trying to apply pressure to a bunch of journalists by publishing private information about them.