Sunday, August 23, 2009

A (Bio)Vail of Tears

There was weeping and wailing and blubbering among inept CEOs across the land in recent days as a federal court judge threw out a junk lawsuit against hedge fund manager SAC Capital Advisors and Gradient Analytics by the veteran underperforming blame-shifter, Biovail Corp.

In retrospect it was one of more well-engineered blame-shifting lawsuits of recent years, as this cruddy little pharmaceutical company carefully targeted one of the least sympathetic hedge fund managers in creation. Biovail even managed to con 60 Minutes into a brain-dead segment celebrating its cause. But at the end of the day junk is junk, and out the suit went.

Here's the unanswered question: what is the SEC going to do about the larger issue raised by this lawsuit, which is the nagging problem of issuer retaliation? That's the practice of companies retaliating against analysts, investors and other critics. Biovail raised issuer retaliation to a high art, and was filing lawsuits against shorts since back in the early 1990s.

My favorite corporate crime petri dish, Overstock.com, still has a junk lawsuit pending against Rocker Partners, a hedge fund that made the terrible mistake of shorting Overstock's perenially overvalued shares.

It's the aim of issuer retaliation to keep the market from working properly and preventing the free flow of information. Issuer retaliation works, because small research shops can be bled white by lawsuits, while public companies have plenty of shareholder money to use for lawyers.

The SEC has neglected issuer retaliation entirely, while sometimes paying lip service. SEC chairperson Mary Schapiro won't even do that. After all, talking about blame-shifting lawsuits won't put her on the cover of Equities magazine or other stock-pumping rags.

Getting off her fanny and doing something about it won't win her any political brownie points, but it might actually change the direction the agency has taken since slip-sliding into corporate-protection mode when Harvey Pitt slithered onstage in 2001.

© 2009 Gary Weiss. All rights reserved.

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