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From: StockDung3/29/2006 11:02:26 AM
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StockGate: Is The Biggest Financial Media Bust In American History In The Offing? / FinancialWire®

March 29, 2006 (FinancialWire) Financial journalists are quick to yell ?fire? whenever a public company is slow with disclosures that would provide full public transparency, but there has been a dirty little secret among a wide swath of the media, many of whom have written and published indignant pieces about the broadening Gradient Analytics ? Rocker Partners ? SAC Capital ? (NASDAQ: OSTK) ? Biovail (NYSE: BVF) scandal for weeks.

March 29, 2006 (FinancialWire) Financial journalists are quick to yell ?fire? whenever a public company is slow with disclosures that would provide full public transparency, but there has been a dirty little secret among a wide swath of the media, many of whom have written and published indignant pieces about the broadening Gradient Analytics ? Rocker Partners ? SAC Capital ? (NASDAQ: OSTK) ? Biovail (NYSE: BVF) scandal for weeks.

It turns out that the U.S. Securities and Exchange Commission is not interested in the emails of just three journalists, Herb Greenberg and Carol Remond of Dow Jones (NYSE: DJ) and CNBC commentator James Cramer, co-founder of (NASDAQ: TSCM), which was also subpoenaed, but also for five other well-known writers, most of whom have long celebrated the usefulness of short-selling in the marketplace without distinguishing from the ?naked? kind that is manipulative and illegal, and almost all of whom appear to have drawn much of their content from a previously little-known research outfit in Arizona.

Roddy Boyd, writer for News Corp.?s (NYSE: NWS) New York Post, revealed somewhat belatedly, after previously failing to disclose the SEC?s potential interest in him in previous articles supporting the initial three named journalists, that he is one of those ?persons of interest? by SEC investigators, in their requests for emails from Gradient.

Others, he revealed, are Bethany McLean of Fortune Magazine, Jesse Eisinger of the Wall Street Journal, Elizabeth MacDonald of Forbes Magazine, and former Barron?s editor Cheryl Strauss Einhorn, who is married to a hedge fund head David Einhorn.

The scandal could produce a journalist haul before justice that could dwarf the Dan Dorfman ? CNBC affair ten years ago.

Boyd noted that the SEC investigation is into ?alleged collusion,? but did not say if the SEC believes the journalists themselves colluded.

Despite their otherwise positions on public transparency ? for others ? none of those nor their media outlets have disclosed the SEC?s interest in their emails, although Boyd said Gradient is first seeking ?permission? from the reporters? news organizations.

Meanwhile, Gradient Analystics, the subject of an expose on Viacom?s (NYSE: VIA) CBS network?s ?60 Minutes? Sunday night, for alleged biased research produced on Biovail, has now admitted that giant hedge fund SAC Capital Management paid it for its research, and there were no required U.S. Securities and Exchange Commission disclosures, according to Charles Gasparino, reporting on CNBC.

At the same time, a $4 billion class action lawsuit has been filed on behalf of Biovail shareholders against SAC, its founder Steven A. Cohen, Gradient and Banc of America Securities (NYSE: BAC) and one of its analysts, David Maris.

It has also been disclosed that the SEC has subpoenaed Gradient for its own copies of communications it may have had with journalists whose own subpoenas are on hold pending new SEC guidelines. These journalists include Herb Greenberg, now with Dow Jones (NYSE: DJ) Marketwatch, but formerly with (NASDAQ: TSCM), whose own co-founder and CNBC personality James Cramer was subpoenaed, as well as Carol Remond, a writer for Dow Jones.

Despite these developments, Greenberg appeared on CNBC to defend the ?independence? of Gradient?s reports, saying its research is distributed to subscribing mutual funds and others, and not to the public. He called the new developments ?spin.?

Greenberg did not address allegations that a reporter working for Greenberg and Cramer actually ?ghost-wrote? reports for Gradient, or whether his own subsequent ?news reporting? on Gradient?s research wittingly or unwittingly effectively moved the ?findings? of Gradient on Biovail and (NASDAQ: OSTK) and several others into the ?public? arena.

Michael Mayhew, CEO of Integrity Research Associates, appearing on the network shortly afterwards, disagreed, saying that disclosure of compensation in any commissioned research project is imperative, ?whether produced for retail or for institutional subscribers.?

Sponsored research is not new. For example, Investrend Research, a division of the company that publishes FinancialWire, produces ?sponsored research,? but it follows both the law and the ?Standards For Independent Research Providers? in full disclosures regarding not only who commissions the research but how much is paid.

U.S. Securities and Exchange Commission Regulation 17(b) states:

?It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof.?

Gradient is a member of the subscriber-based research organization, InvestorSide, which had previously told FinancialWire that it would consider terminating the company?s membership if an impropriety is found to exist.

On May 1, Greenberg will welcome U.S. Securities and Exchange Commission Chair Chris Cox into a lion?s den of supporters when both speak at the annual conference of the Society of American Business Editors and Writers. The announcement is at

Greenberg will discuss the subpoenas himself on a panel with Joseph Nocera, a New York Times (NYSE: NYT) columnist, Dan Colarusso, business editor for the New York Post, and Dave Beal, columnist for the St. Paul Pioneer Press, who will moderate the panel.

Greenberg, who has been alleged in affidavits as having close ties with Gradient Analytics and whose reporter has been accused of having ghost-written some of the research firm?s reports, was more recently famously associated with Cramer in a joint TV appearance where Cramer wrote ?BULL? on his subpoena and tossed it ceremoniously on the floor.

Also, Myron Kandel, the retired TV business news reporter, will moderate the annual Gary Klott Ethics Symposium, focusing on hedge funds, short sellers, regulators and the ethical challenges for journalists and editors working in that realm. Participating will be Dave Kansas, Money & Investing Editor of The Wall Street Journal; Jane Kirtley, Silha Professor for Media Ethics and Law University of Minnesota, and Ed Wasserman, Knight Chair of Ethics at Washington and Lee University.

Sponsored research is common practice among smaller public companies for which no other analytics would generally be available to shareholders, and it has now drawn the endorsement of a U.S. Securities and Exchange Commission advisory committee.

The endorsement by the SEC committee, however, comes with a proviso, that such providers and their covered companies reveal the compensation and act according to a published set of standards designed to eliminate conflict.

The ?Standards For Independent Research Providers? at was the model the SEC advisory committee had available as their sole reference when promulgating their new recommendations to the Commission.

In an email to FinancialWire), John J. Nester, a spokesperson for the U.S. Securities and Exchange Commission, confirmed that regulators interpret 17(b) to mean that specific compensation information must be contained in press releases, and that a link to a disclosure somewhere else, for example, is a violation of the regulation. He further stated that the compensation disclosure required by the SEC includes ?amounts and sources in any press release mentioning the company under research coverage?.?

The SEC had previously told FinancialWire that it intends to enforce its provisions so that investors may have a fully transparent understanding of any potential agenda or lack thereof.

The CFA Institute and National Investor Relations Institute ?Analyst / Issuer Guidelines? requires that analysts:

?Accept only cash for their work and to decline any compensation that is ?contingent on the content or conclusions of the research or the resulting impact on share price?;

?Disclose the nature and extent of their compensation, along with any relationship they may have with the issuer or an affiliate, their credentials and professional background, and any matters that might reasonably be expected to impair their objectivity; and

?Certify that analysts and recommendations contained in the report represent their true opinion.?

The NIRI-CFAI joint panel now requires public company issuers to insure that reports issued about it for a fee contains the appropriate fee disclosures, as well as require that analysts have proper, disclosed credentials.

The following ?Standards for Independent Research Providers,? initially promulgated three years ago were updated May 9, 2005, and are posted at . They include the CFAI-NIRI and other ethics programs by reference:

The FIRST Research Consortium, founded in May, 2003 as an Association of Standards-Based Research Providers, recognizing that surveys indicate that three out of every four investors are ?most influenced? by an analyst report, that nearly nine out of ten investors believe ?legitimate fee-based research is objective and useful,? and that ?Enrollment in standards-based research is an important measure of a company?s commitment to transparency and Good Governance,? has promulgated these ?Standards for Independent Research Providers,? to serve as an ethical bond between enrolled companies and their shareholders.

1. Ethical precepts are an essential element of professional independent research, establishing the credibility necessary to understanding and accepting the research provider?s analytical output. Thus:

a. These Standards incorporate by inference the analyst ?Standards and Ethics? of the CFA Institute, the ?Issuer / Analyst Guidelines? jointly adopted by the CFA Institute and National Investor Relations Institute, and the appropriate language in NASD Rule 2711, Regulation AC, as well as other recognized industry guides; and

b. Once a company has enrolled for coverage, the responsibility of the fee-based independent research provider and its assigned analyst(s) is to the public and to a company?s shareholders and investors, and not to any company or to management.

2. Qualified analysts are fundamental to the production of valid analytics. Thus:

a. Only analysts credentialed by professional peer-reviewed organizations, or otherwise qualified by several years of supervised or supervisory research reporting for recognized financial institutions, and only adherents to the ?Standards and Ethics? of the CFA Institute should be allowed to produce research published by fee-based independent research providers;

b. The names and credentials of analysts producing the research should be included in reports published by independent research providers, along with an attestment thereto that the analyst?s work product is purely his or her own without influence or interference; and

c. Only qualified analysts should determine what to publish and when to publish. Independent research providers are obligated to distribute the qualified analyst?s report upon publication.

3. Transparency is vital to the publication and dissemination of investment data and fundamental analysis, and is an ethical responsibility of the fee-based independent research provider. Thus:

a. Fee-based independent research providers should disclose all amounts of compensation received or to be received for the preparation, publication and dissemination of research, research summaries or other announcements not only in the reports but also in whatever form such material is disseminated;

b. All such communications should include the names and identities of the payers, and if a third-party or third-parties, their names and identities, as well as their relationship(s) to the issuer;

c. All such communications should also meet both the letter and the spirit of U.S. Securities and Exchange Commission Regulation 17(b);

d. If communications come from the issuer, it is the responsibility of the provider to advise the issuer that its reports or summaries may not be issued without the inclusion of these full disclosures, and if the provider is ignored, it is the responsibility of the provider to so inform the public; and further,

e. Ratings and targets should not be issued as recommendations or stock price predictors, and should not be issued or published in the absence of a full, publicly-accessible report. Where a report has been issued previous to a public announcement, the research provider has a responsibility to notice the investing public as to the date the report was previously issued, as well as who received the report.

4. Conflicts are inimical to credible professional research. Shareholders and investors need to feel comfortable that research is produced and published in an environment that is as free of analyst influences as possible. Thus:

a. Analysts should not own a stake in their ratings. Neither they nor principals of independent research providers should own or trade any form of equities of companies under coverage;

b. Analysts should be paid for their initial reports in advance, or if salaried, the analysts? incomes should not be dependent on the outcome of their reports; and

c. Independent research should not be under the control of an investment banking department, investor relations or promotional firm or department or executive, and should not be produced or published under the auspices of an investment bank, investor relations or promotional firm or brokerage.

5. The Mission of the Standards-based independent research provider is to provide the investing public with an ethical, qualified, transparent and conflict-lessened fundamental analysis of public companies and their equities. Thus:

a. Adopters of these ?Standards for Independent Research Providers? agree to review by the FIRST Research Consortium Independent Research Standards Task Force, and agree that the Consortium may, at its sole determination, suspend, terminate or expel a Provider found to be in violation of these Standards.

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