Post by ginger on Mar 27, 2006 13:41:28 GMT -4
Witnesses go public in biovail suit
Standing with drugmaker: Reports dictated by hedge fund SAC, held at its request, former Camelback staff allege
Boyd Erman, Financial Post
Published: Monday, March 27, 2006
Two men who worked at a U.S. stock-research firm say they saw evidence of collusion with influential hedge fund SAC Capital Management LLC, a link that underpins drugmaker Biovail Corp.'s US$4.6-billion lawsuit alleging that analysts and SAC conspired to drive down Biovail's stock price.
Many of the claims Biovail makes in the lawsuit are based on interviews with the men, who worked at Camelback Research Alliance in 2003 when Biovail alleges an illegal attack on its stock took place.
The two men have agreed to co-operate with Biovail.
Arizona-based Camelback has since changed its name to Gradient Analytics. Gradient and Connecticut-based SAC have denied the allegations, none of which has been proven in court.
Biovail's lawsuit is the company's attempt to recover money to compensate for the value, business and reputation it lost in 2003 when its stock plunged from as high as US$67.75 to as low as US$21.90, a decline from which it has never recovered.
That period was marked by earnings warnings from the company, analyst reports calling into question Biovail's accounting practices and probes by market regulators.
Biovail hopes to convince a New Jersey jury the real problem was a conspiracy between analysts and hedge funds to drive down the stock using false reports to create a profit for short-sellers, who bet that stocks will decline. In SAC, Biovail and its chief executive, Eugene Melnyk, are taking on one of the most powerful entities on Wall Street, a US$8-billion fund that accounts for a large slice of the trading each day in the U.S. stock market.
The lawsuit has attracted the attention of U.S. television news show 60 Minutes, which was scheduled to run a story on the fight and the implications of short-selling last night.
One of the men who worked at Camelback, Daryl Smith, said he was the person responsible for selling research products to SAC, which commissioned reports on Biovail and other companies.
Mr. Smith said he was party to conversations via conference call in which an SAC executive named Timothy McCarthy directed the content and timing of research reports from Camelback.
On one call, Mr. Smith said that Mr. McCarthy essentially dictated the contents of a report in a "one-way" conversation while a Camelback analyst took notes. Mr. Smith said he was "let down" because he expected to see "forensic accountants at work."
On another call with Mr. McCarthy, he said the research firm agreed to SAC's request to delay the release of the report. Biovail's lawsuit alleges this was done to allow SAC to establish a bet against Biovail's stock.
The other man, Robert Ballash, another Camelback sales representative, said he was not happy when he heard about the SAC situation. "Daryl had a client that was SAC and one of the conversations that happened in his office was about holding a report for a matter of a few days, and this didn't jive for me," said Mr. Ballash. "It was supposed to be independent, unbiased research."
Both Mr. Smith and Mr. Ballash were later let go by Gradient. Along with a third former Gradient employee, they have given testimony in a similar lawsuit by Overstock.com that alleges that Camelback teamed up with short-sellers to attack that company's stock.
© National Post 2006
tinyurl.com/lknme
Standing with drugmaker: Reports dictated by hedge fund SAC, held at its request, former Camelback staff allege
Boyd Erman, Financial Post
Published: Monday, March 27, 2006
Two men who worked at a U.S. stock-research firm say they saw evidence of collusion with influential hedge fund SAC Capital Management LLC, a link that underpins drugmaker Biovail Corp.'s US$4.6-billion lawsuit alleging that analysts and SAC conspired to drive down Biovail's stock price.
Many of the claims Biovail makes in the lawsuit are based on interviews with the men, who worked at Camelback Research Alliance in 2003 when Biovail alleges an illegal attack on its stock took place.
The two men have agreed to co-operate with Biovail.
Arizona-based Camelback has since changed its name to Gradient Analytics. Gradient and Connecticut-based SAC have denied the allegations, none of which has been proven in court.
Biovail's lawsuit is the company's attempt to recover money to compensate for the value, business and reputation it lost in 2003 when its stock plunged from as high as US$67.75 to as low as US$21.90, a decline from which it has never recovered.
That period was marked by earnings warnings from the company, analyst reports calling into question Biovail's accounting practices and probes by market regulators.
Biovail hopes to convince a New Jersey jury the real problem was a conspiracy between analysts and hedge funds to drive down the stock using false reports to create a profit for short-sellers, who bet that stocks will decline. In SAC, Biovail and its chief executive, Eugene Melnyk, are taking on one of the most powerful entities on Wall Street, a US$8-billion fund that accounts for a large slice of the trading each day in the U.S. stock market.
The lawsuit has attracted the attention of U.S. television news show 60 Minutes, which was scheduled to run a story on the fight and the implications of short-selling last night.
One of the men who worked at Camelback, Daryl Smith, said he was the person responsible for selling research products to SAC, which commissioned reports on Biovail and other companies.
Mr. Smith said he was party to conversations via conference call in which an SAC executive named Timothy McCarthy directed the content and timing of research reports from Camelback.
On one call, Mr. Smith said that Mr. McCarthy essentially dictated the contents of a report in a "one-way" conversation while a Camelback analyst took notes. Mr. Smith said he was "let down" because he expected to see "forensic accountants at work."
On another call with Mr. McCarthy, he said the research firm agreed to SAC's request to delay the release of the report. Biovail's lawsuit alleges this was done to allow SAC to establish a bet against Biovail's stock.
The other man, Robert Ballash, another Camelback sales representative, said he was not happy when he heard about the SAC situation. "Daryl had a client that was SAC and one of the conversations that happened in his office was about holding a report for a matter of a few days, and this didn't jive for me," said Mr. Ballash. "It was supposed to be independent, unbiased research."
Both Mr. Smith and Mr. Ballash were later let go by Gradient. Along with a third former Gradient employee, they have given testimony in a similar lawsuit by Overstock.com that alleges that Camelback teamed up with short-sellers to attack that company's stock.
© National Post 2006
tinyurl.com/lknme