Washington Post – Are Biovail Corp. and Overstock.com Inc. promising companies victimized by unscrupulousinvestors illegally conspiring with stock analysts and journalists? Or are they troubled firms whose executives have turned to wild conspiracy theories to divert attention from underlying businessproblems?
That question is at the heart of two lawsuits and a couple of Securities and Exchange Commission investigations into whether there is an improper link between negative reports issued by Gradient Analytics, a Scottsdale, Ariz., research firm, and short-selling investors who have bet that Biovail and Overstock share prices will go down.
Sources familiar with the SEC’s investigation caution that it is in its early stages and that most SEC investigations do not result in formal charges. At any given time, the agency’s enforcement division has 2,000 open probes, but it brings only about 600 cases a year. The SEC also is probing Biovail’s accounting, a development the company blames on analysts and news reports. Overstock officials say the company is not facing regulatory scrutiny.
But the allegations highlight the growing impact of hedge funds that sell stocks short — that’s Wall Street’s way of selling for today’s price a promise to deliver a stock in the future, by which time, the seller hopes, the price will have fallen.
