Neal St. Anthony/On Business: Lawsuits, verbal grenades fly between Jacobs, others over software
firm
Neal St. Anthony
Friday, July 13, 2001
"Irwin Jacobs and AremisSoft vs. The Short Sellers and The Brokerage Temple of Doom" might be a better bill this summer for high-stakes intrigue than the
soapy "Pearl Harbor" and Hollywood's other high-gloss fare.
Salvo after salvo of verbal fireworks, conspiracy theories, lawsuits, character assassination and even First Amendment proclamations are flying in this fight. Both sides
are begging the Feds to investigate the other guy.
I'm bidding for the movie rights. The characters can play themselves. This is, at times, business theater at its best.
In the latest act this week, Jacobs blasted the New York Times and one of its business writers, Alex Berenson, for a portrayal of Marc Cohodes, a tough-nosed
principal in Rocker Partners, a hedge fund that is betting against AremisSoft Corp., in which Jacobs and his partners own more than 15 percent of the stock.
"Wouldn't it be interesting to know how many times Rocker and his other short-selling cohorts planted untrue and/or exaggerated stories about the public companies
they shorted stock in that resulted in costing the companies' shareholders hundreds of millions, if not billions, of dollars in the price of their stock ... " Jacobs wrote on
his IrwinLJacobs.com Web site.
AremisSoft makes similar allegations in its lawsuit this month against TheStreet.com, and Rocker Partners and other short-sellers, who profit when the stock of a
target company declines.
The New York Times piece cites former foes but credits Cohodes, a working-class son of Chicago, as a digger who finds financial dirt on companies often ignored by the
retail stock analysts who rarely find fault.
The AremisSoft suit contends that Rocker conspired with columnist Herb Greenberg of the TheStreet.com, and Berenson, a former Street.com writer, to spread false
allegations and malign AremisSoft.
Rocker also is an investor in the TheStreet.com, the struggling financial news site.
Greenberg, who is based in San Diego and also is a columnist for Fortune magazine, counters that he is "appalled" by Jacobs' accusations.
"The only reason Alex and I ended up with the AremisSoft story [in June] is because I stumbled upon it and a source told me the New York Times was sniffing around it.
I said, 'Whoa, we're going with it.' I'm competitive," Greenberg said.
Greenberg specializes in ferreting out bad news about companies and often has used Rocker partners as sources. But he denies that Rocker was his source for a June
column that questioned AremisSoft's accounting practices, insider-trading transactions and executive credentials.
"I hope that Irwin's research is better on AremisSoft than it is on me," Greenberg said this week. "I get paid a salary. I own one stock -- The
Street.com. I'm not allowed to own or short any stocks or invest in any company. Throughout the whole bull market, I was invested in California real estate, my house.
"I don't know why he's raising issues of collusion. Tell me where the financial gain is? When that guy comes out like that, it's way over the line. It's message-board
stuff."
AremisSoft did not sue the New York Times or Dow Jones -- deep-pocket, powerful news organizations that also have run critical stories on the company.
The Jacobs jihad against short sellers might ring hollow to some. He has sold companies short himself in the past.
"I never shorted a stock to hurt a business," the owner of the Genmar boat-making firm said. "I did it if I thought they were 'overvalued.' You never heard me short a
stock because I thought it was crappy. You will never see me do it again."
Wall Street brokerages loan out clients' stock at double-digit interest rates to short-sellers, who then sell it in hope of driving the price down and replacing the
borrowed shares eventually with cheaper ones.
Jacobs says short-selling increasingly is based on rumor and lies.
"It's criminal," he said.
David Rocker, the New York-based partner in the 32-year-old firm that bears his name, said this week that his firm wasn't Greenberg's source. Rocker shorted
AremisSoft this spring because of heavy selling by insiders and major shareholders, questions about whether the company improperly reported the value of a
several-stage contract with the Bulgarian health care system, and other concerns. AremisSoft also is the target of shareholder lawsuits over some of the same issues.
"The interesting story is finding out why Irwin likes this in the face of those things," Rocker said. "We've been short about three months.
"We were not the source of Herb Greenberg's stories. We've never been quoted by any media on this stock. We've been involved [partly] as a result of Irwin Jacobs
hooting and hollering on the stock."
The stock fell from $28 last winter to $8.75 in April on heavy short-selling before rebounding to $17 this month. AremisSoft recently announced a recapitalization
plan that most observers view as little more than an attempt to force short-sellers to immediately buy back the stock.
Jacobs said this week taht he believes the AremisSoft lawsuit will reveal a conspiracy to bring down the company.
"These guys are so wrong and they're in so deep they can't get out," he said of those on the other side of the fight. "They're going to lose this one big time. They're slime."
Insty prints money in Conseco
Conseco Inc., which has its finance operations headquartered in St. Paul and is another big play for Jacobs and his associates, has postponed announcing its
second-quarter earnings until Aug. 6.
The reason? Its new CEO, Gary Wendt, is away taking his wife's grandchildren on safari in Africa.
Jacobs has said he and his partners own almost 5 percent of Conseco, which has a total market value of about $5.1 billion. He says he bought most of the stock at $5 or
$6 in 2000. Conseco was reeling then because of losses in its St. Paul operation, formerly Green Tree Financial.
Wendt, former CEO of GE Capital, brought stability to the company. The stock shot to $20 per share in May before settling down to $15 lately.
Jacobs has said he hasn't sold any Conseco stock.
However, IPI Inc., a small public company that controls the Insty-Prints chain and that Jacobs controls with Dennis Mathisen, Dan Lindsay and related investment
partners, last winter sold $13.3 million worth of Conseco shares, Jacobs confirmed Friday.
That helped boost IPI's first-quarter profits markedly.
"I was very supportive" of the sale, Jacobs said. "We were chastised for putting the whole net worth of the company in [Conseco]. Why did IPI sell it? That's good
business, to bring down the exposure. They brought profit into the company."
IPI this month bought another 225,000 shares of Conseco, bringing the company's total ownership to 1.9 million shares at an average price of $9.57.
Jacobs doesn't plan to cross the 5 percent ownership threshold in Conseco, which would require disclosure of his partners and the actual prices paid for the stock.
He acknowledged that his Conseco play, in which he borrowed heavily to finance stock sales, was risky and had the rapt attention of his lenders.
"It was a much bigger risk at $5 or $6 then it is today," he said.
Dain vet D'Aquila is back
Jim D'Aquila, a son of the Iron Range who left Dain Rauscher, where he was head of corporate finance, in 1997, has returned to the Twin Cities.
"I never sold my house in St. Paul," D'Aquila, 40, said Friday. "I've had enough of working for big corporations."
D'Aquila left Dain to join Donaldson Lufkin & Jenrette in Los Angeles as a managing director. He and a partner have opened The Mercanti Group in downtown
Minneapolis, an investment adviser and merchant banking boutique.
DLJ now is owned by the even-bigger CS First Boston.
"The CS First Bostons and Merrill Lynches do a fantastic job competing for Global 1000-type business," said
D'Aquila, who joined Dain after stops at Drexel Burnham and other investment banks. "There's a lot more small-to middle-market companies."
The Web site is up at Themercantigroup.com.
Meanwhile, bond investment bankers Robin Weissmann and Aimee Brown have left Dain Rauscher. The two came to Dain about 2½ years ago amid some fanfare
when Dain acquired their all-female-owned, New York City-based investment bank, Artemis Capital Group.
Dain folded Artemis into its public finance group.
-- Neal St. Anthony can be reached at 612-673-7144 or Nstanthony@startribune.com.
© Copyright 2001 Star Tribune. All rights reserved. |
