MISSISSAUGA, Ontario (HedgeWorld.com)–Biovail Corp., and its subsidiary Biovail Pharmaceuticals, filed a lawsuit in a New Jersey state court Wednesday [Feb. 22] against the hedge fund manager SAC Capital Advisors LLC, Stamford, Conn., and two intertwined analysis firms, Gradient Analytics Inc. and Camelback Research Alliance Inc., of Scottsdale, Arizona, as well as other related parties, alleging a conspiracy to undermine the defendants’ business and subsequently profit by short sales.
One of the individual defendants, David Maris, of Banc of America Securities, resides in Farmingdale, N.J. He is a securities analyst for Banc of America, covering specialty pharmaceuticals, including the plaintiff companies.
The complaint alleges that in 2003, Camelback and Gradient both held themselves out as independent securities analysts, but that both firms “permitted hedge fund clients … to author reports–nearly always negative–on companies,” and that they would then publicly release the reports as their own independent analyses.
The complaint alleges, further, that the SAC defendants used such “hatchet jobs” (it says that the defendants used that phrase in their own communications while conspiring) as well as “false and misleading information” planted through Mr. Maris, to drive down Biovail’s stock price. In particular, Biovail’s stock lost 20% of its value in six weeks in June and July 2003, while the “short-selling defendants reaped enormous profits at their expense.” The conspiracy continued into at least the spring of 2004, the complaint added.
In a statement Wednesday evening, SAC replied that the allegations “are outrageous and defamatory, and SAC will defend itself and its investment practices vigorously.”
The complaint also allows for the existence of unknown co-conspirators, cited as “Does 1 through 50,” who may include “unknown Canadian and American financial analysts and portfolio managers who participated in the scheme, enterprise, and misconduct alleged in this complaint.”
Gradient and Camelback also are defendants in the lawsuit brought by Overstock.com concerning an alleged similar conspiracy attributed to Rocker Partners LP. Camelback appears to have been subsequently folded up into Gradient.
A spokeswoman for Gradient said, “Gradient researches, draws conclusions and issues reports based on work conducted by highly-trained analysts who report to Gradient and Gradient alone. We will continue to do so, despite efforts like these to discredit the valuable and insightful analysis we provide to investors and shareholders.”
The lawsuit itself doesn’t appear to have much affected the stock price, which closed Wednesday (NYSE:BVF) at US$25.57, and was at US$25.73 at 1:00 p.m. Thursday.
Two law firms, Nagel Rice & Mazie LLP, Roseland, New Jersey, and Kasowitz, Benson, Torres & Friedman LLP, New York represent the plaintiffs. A spokesman for SAC couldn’t say which attorneys would be working on the defense of this lawsuit.
Contact Bob Keane with questions or comments at email@example.com.