you've regressed back to your
idiotic loonspeak! you do that
to avoid the subject matter, don't you?
New! National TV Commercial: O in the City
New! National TV Commercial: O Christmas in a Box
overstock.com
...allegations against a mortgage broker...
nypost.com
...it was Roddy Boyd who ran interference to keep me
from pursuing the topic. He pointed me to Floyd's active
status with Primerica...
Message 23530235
July 17, 2007
Free Speech, Efficient Markets, and the Overstock.com Case
Posted by Christine Hurt
theconglomerate.org
Yesterday, I blogged about the Overstock.com suit
that has had some success in California state court.
This suit alleges that a short-seller and an "analytical
reporting service" conspired to issue false reports to
drive down the share price of Overstock.com and profit
from the difference. Gradient, the reporting service,
kept a list of companies that suffered a 20% or more
price decline after the issuance of its negative reports
and used this list to recruit other customers who could
request such reports. The complaint alleges, among
other things, libel. As you may expect, the financial
reporting on this case has centered around the free
speech element. If this case results in a judgment
against the defendants, then how will bona fide stock
analysts and financial reporters know where to draw the
line between pointing out negative flags at
publicly-held companies and libel? (Mike McKee has two
articles in The Recorder here and here.)
Bethany McLean, for example, dismissed the Overstock.com
suit as "paranoid fantasy" in a November 2005 Fortune
article. Of course, McLean may be predisposed against
lawsuits that name analysts and journalists who speak
negatively about public companies. Remember that McLean
wrote a seminal article in Fortune (Is Enron
Overpriced?) in March 2001 that is often cited as the
article that began to unravel the Emperor's New Clothes
(or New Financial Statements). However, two things
probably distinguish McLean's type of financial
reporting from Gradient's. The first, and most obvious,
is that McLean had no direct interest in Enron's stock
going down. We know of no economic interest she held by
way of owning or shorting Enron stock. Therefore, it
would be hard to show malice on the part of McLean for
anything she said about Enron. Furthermore, I would
assume that McLean could back up her financial analysis.
In the Overstock.com case, the court went over many
statements in the Gradient report that were simply
false: False facts about Overstock's business model and
false conclusions that certain practices were not in
accordance with GAAP. Gradient's defense is that these
were opinions. However, the court made clear that
merely saying "I am of the opinion that" before stating
a verifiable fact or a verifiable conclusion is not an
opinion. If an analyst says that a business practice
does not conform to GAAP, but that practice obviously
does and is backed up by opinions from accountants and
outside attorneys (no hoots here), then that is not
merely an opinion.
Instead of rallying around the flag of free speech, I
would think that reputable analysts and reporters would
condemn this type of scheme. (By the way, Gradient's
reports were prepared by college graduates with no
additional schooling or licensures; they were not CPAs
or other licensed financial professionals.) Gradient's
reports make all analyst reports look suspect and
biased. In this age of "no analyst conflicts," there
should be more policing of one's own. (Again, legal
documents in this case are collected here.) |
