Monday, March 27, 2006

Leslie Stahl vs. the Supreme Court

I watched the highly anticipated 60 Minutes segment on hedge funds last night, and my first question is why would anybody in their right mind ever watch 60 Minutes?

The way I grasp the show is this: a bunch of extremely old, infirm, out-of-touch people—all white with the exception of the ridiculous looking, earring-wearing Ed Bradley—pretend to ask tough questions while the camera tries to make them look somewhat younger than Keith Richards.

Is that about it?

And to paraphrase Andy Rooney (who strikes me as not so much a humorist but just a really bitter old guy), I don’t know about you but Leslie Stahl seemed to me so financially illiterate she’d have trouble making a withdrawal from an ATM machine.

Still, the show carries some weight, so I watched. And I did learn something new.

It is, apparently, terribly suspicious behavior when a person arranges a conference call with analysts and then provides those analysts with information, especially when the person arranging the call has a financial stake in the company and hopes to benefit from a movement in the stock.

If this is so—and since Leslie Stahl thinks it’s so, who am I to quibble—then this country is in big trouble.

Because the arranging of conference calls by interested parties with analysts, in order to influence those analysts and the reports they write to clients, is (it seems to me) precisely what all CEOs and CFOs do each time they hold an earnings call with Wall Street analysts.

So if Ms. Stahl is to be believed, all those CEOs and CFOs attempting to influence analyst opinion every quarter are doing something terribly terribly evil.

As is anybody in America who talks to a reporter, hoping to influence a story.

And wouldn’t this apply also to lawyers speaking before the Supreme Court, hoping to influence the outcome of a case?

I just have one question for Ms. Stahl: how is she going do her next story if nobody is supposed to talk to her?

Jeff Matthews
I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.


tahoe kid said...

I gave up on '60 Minutes' many years ago. Last night was a good example of why. The Biovail segment was the typical slanted piece that failed to really bring out all the issues on BOTH sides. Objective and thoughtful it was not. On the other hand the Tiger Woods segment was great (although too long) but not because of the reporting/interviewing skills of Ed Bradley. It was great because of Tiger's tremendous presence in golf. His story is one of those "Only in America" stories that serves to inspire us or at least reaffirm one's faith that sometimes good things happen because people decide to do something above the call of duty. "60 Minutes' remains a fading icon. Tisk, tisk, tisk, tisk.....

Aaron Koral said...

Jeff - I heard the Leslie Stahl piece on Biovail and their pending case against both Camelback, now Gradient, Research and SAC, Steven Cohen's hedge fund. I thought Ms. Stahl's piece, while slightly biased toward BVF, left viewers with the impression that the practice of hedge funds providing research analysts with financial information about a company the hedge fund holds a position in is wrong, i.e. illegal, BUT difficult to prove. I also got the impression from the piece that the practice is pervasive, which I highly doubt. Rather, what would have been nice to see in the piece is how CEO's also attempt to shape analyst opinions as well with the information they provide. The key issue, which wasn't properly addressed in the piece, IMHO, was whether the information SAC provided Camelback on BVF was correct, i.e. truthful. If the financial information Camelback recieved from SAC was untrue on BVF's financial condition, and SAC intended to use falsified financial information to benefit from movement in BVF's stock, then BVF's claims are legit IMHO.

SECFOInfo said...

is a CEO "independent" and do they represent themselves as so?

I think their is a difference.

Sausagewrap said...

If SAC fed information to Camelback/Gradient, and then Camelback/Gradient took that information and represented it as independent without disclosing the fact that SAC provided the information to them, then that is wrong. This is true whether or not the information they received from SAC is correct, because they didn't disclose the conversation with SAC. If they knowingly published incorrect information, then they dug themselves an even deeper hole.

It seems to me that SAC is in the wrong only if the information they provided was knowingly fraudulent.

Either way, it appears that somebody did something wrong. And the comparison of this issue to quarterly conference calls by CEO's and CFO's is not valid in any way, shape or form.

On the one hand, company managements typically quarterly calls for a broad array of interested parties. The calls are recorded, and like it or not, are subject to Reg FD. On the other hand, the SAC deal was a private back-channel call between a hedge fund and a single research firm that held itself out to be independent. Comparing the two is like trying to figure out how much a fish and a bicycle have in common - its a useless exercise that results in a meaningless answer.

leewhee said...

We've just about come full circle.

Back in 2000-2002, when the market was tanking, 60 minutes did a whole bunch of finger-pointing stories on "who's to blame for the crash".

Back then, it was Enron, Blodgett, Worldcom, dotcommery, etc.

Now they're running stories on those evil short-sellers holding down the stock prices of companies like Biovail, a serial disappointer if there ever was one.

This is not a timing signal...yet. But the pendulum has swung, and soon it will begin to swing back again. Likely with even more ferocity.

Captain Obvious said...

I didn't see the 60 Minutes piece and don't know any of the details, but I suspect it doesn't make me any less qualified to comment here than Leslie Stahl is.

First of all, sell-side analysts and sales people WANT to have a give-and-take discussion with their clients. Making calls to clients who give you no feedback or may only be barely listening (if that) is no fun. And smart sell-siders know that they can learn a lot by listening. At the very least, they get an idea of where both the bulls and bears stand on any give story. But occasionally they may actually learn something new that leads to some sort of epiphany or change of heart on a recommendation. But a responsible analyst wouldn't ever do that without doing some research and due diligence on his own.

I am definitely more communicative with the sell-side than a lot of people in this business. I will tell most of them (some...okay, many are just a waste of time to talk to) if I agree with their call or not, and why. Sometimes I will give them an alternative to their thesis or a rebuttal. I do this on stocks I have positions in and on stocks I don't have positions in. But I have a couple of rules that I follow whenever I am expounding in detail about a stock I own or am short: (1) I always tell them "I am talking my own book here", and (2) I always tell them the truth and/or my honest opinion and clearly differentiate between the two.

The idea that a sell-side researcher should be expected to disclose every conversation with an investor that contributes to his opinion on a stock is patently ridiculous.