The Columbia Journalism Review reports:
The Securities and Exchange Commission sued a Canadian drug maker this week—and in the process blew apart the premise of a two-year-old 60 Minutes investigative piece on short sellers.
The March 2006 segment by Lesley Stahl sought to warn viewers about hedge funds that use bad information to drive down stock prices to benefit themselves at small investors’ expense.
To make its point, 60 Minutes focused on a lawsuit brought by Biovail Corp., of Toronto, which accused the big hedge-fund SAC Capital, of Stamford, Connecticut, and a stock-research firm of conspiring to spread bogus information about the company. . .
On Monday, though, the SEC sued not the targets of the 60 Minutes piece, but Biovail itself and two of its executives, alleging accounting fraud and other wrongdoing. The SEC said the drug maker “repeatedly overstated earnings and hid losses in order to deceive investors” and “actively misled investors and analysts about the reasons for the company’s poor performance.” . . .
The SEC charges against Biovail effectively torpedo the Stahl piece, which was devoted to airing the drug maker’s allegations that the stock-research firm, a predecessor of Gradient Analytics, concocted phony research to please SAC, a client.
In fact, the danger to investors was Biovail. So, 60 Minutes had it exactly wrong.
It gets worse:
Biovail had been under SEC investigation since 2003. So it was clear at the time that Biovail was probably not a good example of a public company victimized by shorts. In fact, it was more likely that the Biovail example would prove the value of shorts, as it has.
The 60 Minutes segment acknowledged that its alleged victim was under investigation, but buried the information artfully in the middle of a denial of wrongdoing by the hedge fund.
Here it is. The emphasis is mine:
The hedge fund SAC denies all the charges in Biovail’s lawsuit and says that the decline in the company’s stock was due to earnings shortfalls and investigations by authorities, including the Securities and Exchange Commission, “not any conspiracy.”
Confused? I think you’re supposed to be.
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