NEWARK, N.J., March 28 /PRNewswire-FirstCall/ -- Banc of America Securities and hedge fund S.A.C. Capital Management are among the defendants named in a lawsuit charging the fund with “paying, pressuring, and otherwise influencing purportedly independent analysts to disseminate materially false and misleading information” about Biovail as part of a “short-selling bear attack” on the company.
The $4 billion class action was filed Friday in U.S. District Court in New Jersey by Lampf, Lipkind, Prupis & Petigrow on behalf of shareholders of Biovail Corporation against defendants including S.A.C. Capital Management L.L.C. and its founder Steven A. Cohen, Scottsdale Arizona-based Gradient Analytics (formerly known as Camelback Research Alliance), Banc of America Securities L.L.C. and one of its securities analysts David Maris.
The lawsuit states that, “This action arises from a massive, illegal and continuing stock market manipulation scheme, which targeted the common stock of Biovail and severely harmed its investors, and which has resulted in immense ill-gotten profits for S.A.C. Capital and other extremely powerful hedge funds.
“At the core of this scheme was defendants’ preparation of a massive and fraudulent disinformation campaign attacking the stock of Biovail and other targeted publicly-traded companies, including the preparation of ostensibly objective, but in fact biased, analyst reports; defendants’ accumulation of short positions in the stock of those companies -- i.e., bets that the stock prices would decline; and defendants’ subsequent unleashing of the disinformation campaign and biased analyst reports on the unsuspecting trading public -- thus bringing about the sought-after stock price declines and the resulting immense profits for defendants and commensurate harm to the plaintiff,” the lawsuit continues. “Defendants’ scheme thus attacked the very basis for the financial markets -- the free and fair disclosure and dissemination of information concerning publicly-traded stocks.”
In addition to S.A.C. Capital Management L.L.C., Steven A. Cohen, Gradient Analytics (formerly known as Camelback Research Alliance), Banc of America Securities L.L.C. and its securities analyst David Maris, the suit names as defendants S.A.C. Capital Advisors LLC, S.A.C. Capital Associates, LLC, S.A.C. Healthco Funds, LLC, Sigma Capital Management, LLC, Arthur Cohen, Joseph Healey, Timothy McCarthy, David Maris, James Carr Bettis, Donn Vickrey, Pinnacle Investment Advisors, LLC, Helios Equity Fund LLC, Hallmark Funds, Gerson Lehrman Group, Thomas Lehrman, and Patrick Duff.
The lawsuit states:
“S.A.C. Capital, a hedge fund conglomerate, is at the center of this illegal scheme. S.A.C. Capital was founded and is run by Steven Cohen, who has immense power in the financial markets. Through S.A.C. Capital, Steven Cohen controls at least $7 billion in capital, with his trading activity regularly accounting for 3% of the daily volume of the New York Stock Exchange (“NYSE”) and 1% of the NASDAQ daily volume.
"...In spring 2003, when Biovail in fact was poised for substantial growth, S.A.C. Capital and the other defendants launched a devastating attack on Biovail’s stock. In furtherance of their scheme, after having taken short positions, defendants manipulated the market for Biovail stock and artificially lowered its stock price by, among other things, disseminating materially false and misleading information concerning Biovail and tortiously interfering with Biovail’s business.
“One of defendants’ primary methods in executing their attack on Biovail’s stock was to ‘ghost write’ negative and false analyst reports concerning Biovail. Defendants issued these reports through Camelback and Gradient, which purported to provide independent securities analysis to subscribers.
“In fact, Camelback and Gradient were anything but independent. Instead, Camelback and Gradient permitted hedge fund clients such as S.A.C. Capital to author reports -- nearly always negative -- on companies, and then publicly release the report as a product of its own independent research and analysis. These reports-for-hire were referred to internally at Camelback and Gradient as ‘hatchet jobs’ and typically were released at the behest of short-selling hedge funds.
“The attack on Biovail’s stock provides a prototypical example of defendants’ abuse of analyst reports -- an abuse all the more shocking in the wake of recent Wall Street analyst scandals. In June 2003, S.A.C. Capital commissioned a hatchet job on Biovail from Camelback. S.A.C. Capital provided virtually all of the information and opinions found in the report, which grossly distorted and misstated the facts concerning Biovail’s business and accounting. The report was merely transcribed by an inexperienced Camelback ‘analyst’ who had only recently graduated college and held no investment analyst credentials.
“S.A.C. Capital instructed Camelback to hold the report for over a week so that S.A.C. Capital and other defendants could establish short positions in Biovail stock. Camelback then issued the report on June 20, 2003, falsely representing that the content constituted its own independent, unbiased analysis that resulted in an ‘F’ grade for Biovail.
“Over the next several weeks, other purportedly independent analysts including defendant Maris, disseminated, at S.A.C. Capital’s direction, negative and false information concerning new Biovail drugs, including Wellbutrin XL, and defendants did not stop at false analyst reports. Through defendant Gerson Lehrman, defendants and those with whom they were working in concert went so far as to pay doctors to provide quotes to the financial press falsely implying that Biovail had implemented a program to bribe doctors to prescribe Cardizem LA. This complete fabrication was disseminated to the financial markets through The Wall Street Journal and Barron’s and subsequently throughout other financial media.
“By the end of July 2003, defendants’ attack on Biovail’s stock was having its intended effect: in those six weeks, Biovail’s stock price declined 20%. Defendants, however, were not satisfied. S.A.C. Capital had Camelback issue another negative report at the end of July, again with a false and misleading description of Biovail’s business, including the false Gerson Lehrman reports of bribery, and an additional negative Camelback report in September 2003.
“At S.A.C. Capital’s further instigation, in early October 2003, Maris of BAS issued two false reports on Biovail based upon the Camelback hatchet jobs. In an attempt to lend credence to the attacks on Biovail, Maris retained three accounting experts, who he expected would rubber stamp that attack. When those accountants failed to support his preconceived conclusions, Maris blatantly misrepresented their findings. Maris’s false reports, together with yet another S.A.C. Capital instigated Camelback hatchet job, led to an additional 14% drop in the stock price of Biovail by October 2003.
“Similar orchestrated attacks continued during the spring of 2004 by which time Biovail’s stock had been driven down over 50%, its business reputation devastated, its ability to access capital markets severely curtailed, its ability to do business substantially impaired, and hundreds of its employees laid off. Investors in Biovail stock were saddled with huge losses, while the short-selling defendants reaped enormous profits at their expense.
“We are bringing this class action to recover damages the shareholders of this company have suffered, both compensatory and punitive, as a result of defendants’ egregious misconduct,” said Thomas A. Gentile of Lampf, Lipkind, Prupis & Petigrow, the lead attorney in the case. “We look forward to our day in court.”
In February, Biovail Corporation filed a lawsuit in the Superior Court in New Jersey alleging that various hedge funds and analysts manipulated the market in order to drive down Biovail’s share price to benefit their own stock positions. That lawsuit, which seeks $4.6 billion in damages, claims the company’s business plans were disrupted, its stock price was attacked and its shareholders were directly and materially damaged.
Both lawsuits come at a time when the U.S. Securities and Exchange Commission and various Canadian regulators are engaged in an effort to gain more oversight in the largely unregulated hedge fund industry.
In early 2003, just months before the alleged manipulation of Biovail’s share price began, The Wall Street Journal reported that the SEC was investigating allegations from several public corporations that hedge funds and other private investment pools were working together behind the scenes to spread negative information about their stocks and encourage negative media coverage in order to drive down stock prices and bolster their trading positions.
In a September 2003 staff report, the SEC said: “The use of short selling by hedge funds has led to allegations that some hedge funds may be engaging in short selling as part of a manipulative scheme.
Issuers have alleged that the hedge funds accumulated bearish positions in their stocks (i.e., sold securities short or purchased put options and credit- default swaps) and subsequently issued critical reports regarding the issuers in an attempt to drive down their security prices.”
Thomas A. Gentile, Esq., on Behalf of the Shareholders of Biovail Corporation
CONTACT: Thomas A. Gentile, Esq., of Lampf, Lipkind, Prupis & Petigrow,+1-973-325-2100; or Bernie Roswig of BJR Public Relations, +1-310-836-4381,for Biovail Corporation
