Herb is back with another article, parroting the gibberish that he was spewing this morning on CNBC. In case anyone missed it, there, and here, he is incoherently trying to convert a straightforward discussion about whether hedge funds paid for research reports for which they supplied the data, and then released those reports to their captive media hacks in order to affect prices, into some convoluted parsing of terms.
First off, this piece reads like an attorney wrote it, not Herb. That might be the case – dunno. It smacks of esoteric legal spin, and ignores common sense. Join me in a trip down Herb’s rabbit hole and let’s see how today’s “Ah din’t do nufin” defense is holding up.
His full piece can be viewed here.
Then there are my favorite bits:
“Witness what I view as a well-orchestrated public-relations "spin" by Biovail Corp. (BVF :) and Overstock.com ( OSTK30.66, -0.07, -0.2% ) in their lawsuits against Gradient Analytics, for daring to write negatively about their companies.”
We can stop right there, Herb. That isn’t what the suit is about. It is about disseminating false and misleading information in order to enable hedge fund clients who paid for the reports to front-run and benefit financially from that tactic. So the first sentence and Herb is already “misstating”, much as Gradient’s rep on CNBC TV today was busy “misstating” with Charles Gasparino, who was having none of it.
“The spinmeisters are trying to create the impression that Gradient's research wasn't truly independent because clients were permitted to request research on companies. Subsequent reports -- if they were written -- were then disseminated to all Gradient clients. The bugaboo, according to those attempting to turn this molehill into a mountain, is that Gradient's reports didn't disclose when a report was the result of a request by another client.”
No, Herb, that too is wrong. What critics of stock manipulation are saying is that research that is bought and paid for by hedge funds, who are accused of basically drafting and editing the pieces, and who time the release to cause maximum damage to the targeted companies, is bad and wrong and isn’t research at all. Further, they are claiming that if the research fails to articulate clearly that it was bought and paid for by hedge funds, that it violates 17(b). And further, what many suspect is that the reports served as a coded “go get ‘em” trigger for smaller opportunistic hedge funds who would then pile on, assisted by the media lickspittles who were fed the data in order to publicize it broadly, achieving maximum negative effect. That is quite a bit different than what you are claiming the “bugaboo” is, huh?
So this is a typical rhetorical dishonest we see, namely one where guys like Herb mis-characterize the problem, and then attack that deficient straw-man. It is obvious, and it is sophomoric, but it is also prevalent in most of the spin pieces that the investigated journalists are putting out.
Again, the problem isn’t that Gradient wrote nasties. Or that the companies are pissy about it. It is that the reports were a stock manipulation tool, as were the articles by the quisling writers engaged to assist in driving down the stock prices.
More Herb, who now that he has established his false story, attacks it:
“Never mind that private research firms without brokerage or trading arms aren't considered investment advisers and therefore aren't regulated by the Securities and Exchange Commission. My take on this, as I've been saying on CNBC in recent days, has been: So what?”
I’ll bet you are thinking so what. Cramer is thinking Bull. But most of America is thinking what a bunch of crooks, I hope they drag them through broken glass before lighting them on fire.
“I can't vouch one way or the other on the allegations made in the lawsuits against Gradient and others, beyond noting that claims in affidavits about yours truly that are part of Overstock's suit are false and misleading. The real issue here, however, is that Gradient provided private, for-pay research to several dozen clients. The key word is "private."
No, Herb, the key word is bullshit. What you are trying to sell here is bullshit. Most people understand that word, and it is universal.
Gradient didn’t provide research, per the affiants, they provided monkeys on typewriters who regurgitated whatever dirt their larger hedge fund clients could come up with, so it could be disseminated to their press lapdogs. I have personally reviewed several examples of Gradient’s “research”, and frankly the math errors were so horrific that I contacted Donn at Gradient to let him know that it was an embarrassment – in one now famous example they claimed that NFI would make $1.23 in 2005 – because they omitted to include the hundred million of income generated by the portfolio, and further mis-applied the 3 million shares of preferred dividends across almost 30 million common shares, creating a liability 10 times larger than actual. He acknowledged the errors, but never changed the “research report” and further used the erroneous numbers for months in their updates, knowing full well they were wrong by orders of magnitude.
What kind of “research” is that, Herb? You are probably familiar with that report, because you quoted it on Feb. 14, 2005 – the same day it was issued. Kind of shreds the “we only give the reports to reporters two to four weeks after release” bullshit apart too, huh, Herb? That is probably why the SEC is investigating you. The story sucks. And they understand bullshit just as well as the average jury member in Marin or in NY. For interested readers here is my original shredding of that “research report.”
“It's important to note that no clients have filed complaints; the complaints are only coming from companies that were the focus of negative (and, in turn, correct) reports. In an e-mail dispatch, Whitney Tilson founder of the hedge fund T2 Partners, noted that a friend of his -- a Gradient subscriber -- pointed out that "Gradient discloses clearly to its clients that its reports may have been the result of custom reports that were done first for another client.”
Golly, Herb, we’ve just cited an example of a report that was clearly incorrect. So that is BS. And is it really compelling that none of the clients of Gradient, who were in on trading based on those reports, and were using the channel to slam their own shorts, complained? Is that the best you can come up with? Really? Huh. I’ll bet not too many gang members fill out police reports for drive by shootings, too. It is only those hit by their bullets that do so. Thus, there must be no drive by shooting problems anywhere.
This line of reasoning is so weak it literally caused me to blink a few times.
Herb, are we drinky drinky to stop the pain? Get help. And get lawyered up. We all can see where this is going. The BS fools nobody.
“That is not a run-of-the-mill legal matter but a First Amendment issue.”
No, Herb, it’s a criminal stock manipulation and 17(b) violation issue.
“What if reports from private research firms find their way to journalists, which they sometimes do? Shouldn't they contain disclosures that ideas may have come from a client's tip? Wouldn't I want to know that a report may have been written at the suggestion of a research firm's client?
Oh, please! I don't give a hoot.”
Is that the same as writing 32 negative articles in one 12 month period about NFI, most of which showed evidence of front-running, as explained here? Or would it be like issuing forth provably false information the same day the reports were released, as with the Feb. 14, 2005 NFI report you wrote about that same date?
Herb. Tell the truth. Will the phone and email records show you in daily, or sometimes hourly, contact with Gradient, working on the reports and fine tuning them? You can tell me. We’re friends, sort of, right? 1st Amendment buddies, and all.
And whether or not you claim to be interested in whether the research you are disseminating is bullshit, the rest of the investing public does. Just a tip for your defense team, who will no doubt look back at these articles and ask why you couldn’t have done what Carol did, and shut up and keep your head down…
“This is private research, and, quite frankly, it's no different from a typewritten report by an unknown person in a plain brown envelope or a published report from a major investment bank that you know handled the company's IPO. What I care about is the quality of the information, which I am obliged to then confirm. That is, after all, why I tell the IRS I'm a "reporter." No matter where a lead originates, it generally results in further reporting and, one hopes, winds up being a jumping-off point to a greater story. If I then quote someone, I point out that person's bias. (Funny, but people generally only complain when I point out that a person is bearish. Why is that?)”
Save that one for the jury, Herb. Like with the February 14 report – you released and parroted it, and when people sent you emails showing how it was in error, you responded glibly “you are free to interpret the data however you like.” I know, I have some of those gems. How about this – start working on your defense for the February 14 report, which was both false and misleading, which you instantaneously disseminated, and which Gradient and you were told was false – I mean it isn’t like you could have just READ MY REVIEW OF IT ON THE HUGELY POPULAR NFI-INFO SITE, or anything….Best of luck with that. Your going to need it.
“Don't get me wrong: These private research firms could get themselves in hot water if they intentionally distribute false information or, worse, let one client know that a recommendation has changed before alerting others.
Beyond that, as in life, what happens behind closed doors is between consenting adults.”
Sure thing, Herb. Except that isn’t what is being alleged, is it? Again what is being alleged is front-running research reports that were literally downloads from hedge funds who were paying for their distribution solely to cause stock prices to move down. And they were being assisted by lapdog “journalists” who were distributing the lies the same day.
But the tolerance for consenting adults is noted, and will likely serve the guilty well if they are sent to prison.
“While the SEC appears to be well within its legal rights to use this backdoor approach, though not necessarily acting in the spirit of the privilege afforded journalists, I echo Jesse's point that it will have a chilling impact on market participants sharing their information with the press.
An SEC spokesman told Jesse that regulators "don't believe the policy chills law abiders from communicating with the press."
Jesse said the comment was naïve. I'll be more blunt: The spokesman is simply wrong.“
Hey Herb: which part of getting the income projection for NFI wrong by a factor of 4 and then disseminating it as credible fact will the public most be harmed by chilling? Assuming you are right, and it won’t simply stop crooked hedge funds from blatantly manipulating the markets using their private research hatchet shops, and disseminating the lies through crooked reporters…
How is the public harmed by that sort of false and misleading information being created and disseminated , versus it carrying suitable penalties? Good one, huh?
“While I'm as busy as I've ever been, with more ideas to chase than I have time to research, I've already had several good sources say they can no longer communicate with me -- certainly not by e-mail -- on stories that may question a company's fundamentals. Even on the phone, though, one of these hedge-fund analysts made it clear he's really not supposed to have any contact with me.
That's too bad, because it means the promoters will win, and investors will lose.”
I hate to keep beating a dead horse, but let’s take a specific example – the Feb. 14, 2005 report that got so much so badly wrong, that you were clearly in possession of that same day, and about which you wrote articles propagating the false info. How do investors lose by that tactic carrying a jail term, versus multi-million dollar rewards for the crooks? Take your time explaining it, I suspect you will get a chance to do so in a more formal forum.
As to hedge funds not wanting to get within a thousand yards of a bomb blast, no kidding. I wonder if Charlie Gasparino is experiencing that same problem?
Maybe it will only curb contact with CERTAIN journalists and CERTAIN funds who might possibly be behaving in less than ethical ways?
Just a thought.
I really can’t wait for the next one of these softball whine-festivals. The articles might as well have all been written by the same PR firm (that’s what Milken did), and they really aren’t that hard to crush. But it does take time to type, so I wish they would confine them to one or two per day. It’s cutting into my golf time…
Best of luck with that Herb.
Might want to seek independent counsel. Again, just a thought. Can’t hurt.