Blog - Investing Notes

February 28, 2006 - The Hedge Fund Public Relations Game Plan?

Is this how a savvy hedge fund manager plays the game? First, get cozy with other fund managers, financial market research firms and the financial media. Then "orchestrate" the attention paid to a company in which the manager's fund has taken a position? Here's a picture, with some links to relevant allegations and news/commentary...

We constructed the figure above from recent court filings and related news/commentary, such as:

Overstock, Inc.'s complaint against Gradient Analytics, Inc., Rocker Partners, LP et al. for unfair competition and negligence. The complaint charges that the defendants "have conspired to denigrate the business of online retailer Overstock.com so as to reap personal profits for themselves."

Biovail Corporation's lawsuit alleging that S.A.C. Capital Management, LLC, Gradient Analytics, Inc., et al. made the company a "target of a 'massive and fraudulent disinformation campaign' that involved biased analyst reports from purportedly independent sources hired to do 'hatchet jobs' to drive down Biovail's stock."

As "as part of an investigation into allegations of stock manipulation," the SEC has issued subpoenas "to columnists for two Dow Jones & Co. publications, Herb Greenberg of MarketWatch and Carol Remond of Dow Jones Newswires." Herb Greenberg responds (indignantly) in his MarketWatch column.

The SEC has issued subpoenas to "TheStreet.com and its co-founder and major shareholder, James J. Cramer." These "subpoenas are related to a Securities and Exchange Commission investigation into allegations that Gradient Analytics, an Arizona stock-research firm, published bearish research reports at the behest of a group of short-sellers, including Rocker Partners, a minority owner of TheStreet.com."

Needless to say, the media reports and commentary on these lawsuits and investigations are less than sympathetic to those initiating the actions.

If the courts and/or the SEC arrive at public findings, we'll get an answer to the opening question above. If there are instead sealed settlements...

For research relevant to the potential effectiveness of the above public relations game plan, see our blog entries of:

1/30/06 and 6/16/05 on the aggregate behavior of the prices of stocks around the times that Herb Greenberg mentions them in his column;

5/31/05 regarding the impacts of various types of company news on stock price;

3/14/05 for notes on the concerns of the CEO of Overstock, Inc. regarding naked short-selling;

2/6/05 examining the counterplay between active individual investors and rational speculators (smart traders) after attention-grabbing events;

12/29/04 finding that the media can be a market-destabilizing force; and,

10/30/04 on the attention-driven herd-like behavior of individual investors.