Biovail Plans to Pursue Lawsuit Against Hedge Funds

Date: Tuesday, September 11, 2007
Author: Joe Schneider, Bloomberg.com

Biovail Corp., the Canadian maker of the antidepressant Wellbutrin XL, plans to pursue a lawsuit against a group of hedge funds it accuses of driving down its share price after settling a separate case.

Biovail, based in Mississauga, Ontario, said today it reached a settlement with Banc of America Securities LLC, a unit of Bank of America, and David Maris, one of its former analysts. Biovail spokesman Seth Faison said he couldn't confirm a New York Post report that Biovail agreed to pay $2 million to Maris and the bank to cover legal fees.

The settlement agreement ``is expected to be extremely helpful in Biovail's pursuit of its lawsuit'' against Steven Cohen's SAC Capital Advisors LLC's hedge fund, the company said in a statement. Maris will ``provide substantial sworn testimony'' and he and the bank might have to turn over additional materials such as e-mails, correspondence, tape recordings and trading records, according to Biovail.

In a lawsuit filed in federal court in Newark, New Jersey, on Feb. 22, 2006, Biovail accused SAC Capital Advisors of helping ``ghost write'' negative and false reports in 2003 and 2004 to lower the share price after SAC took short positions in the stock. Short sellers borrow shares in anticipation of making a profit by paying for them after the price drops.

``A critical element of the scheme was and remains short- selling,'' the company said in the original complaint. ``The defendants, in concert with one another and others, drove down the price of stocks they had shorted.''

The suit was transferred to the Superior Court of New Jersey in Essex County Jan. 9.

Information Restricted

Banc of America asked a New York judge to throw out the New Jersey suit because Biovail used information the bank provided to the drugmaker to defend itself in a separate suit filed against Biovail by shareholders. The judge had prohibited the use of those documents in other cases.

Former Biovail Chief Executive Officer Eugene Melnyk blamed the use of the documents on a communications breakdown when he testified in federal court in New York in May.

Biovail said today the settlement with the bank and Maris involved the suit over improper use of information in the New York court.

Defendants named in the New Jersey suit include SAC Capital Management LLC, SAC Capital Advisors LLC, SAC Capital Associates LLC, SAC Healthco Funds LLC, Sigma Capital Management LLC, Steven A. Cohen, Arthur Cohen, Joseph Healey, Timothy McCarthy, Gradient Analytics Inc., Camelback Research Alliance, James Carr Bettis, Donn Vickrey, Pinnacle Investment Advisors, Helios Equity Fund, Hallmark Funds, Gerson Lehrman Group, Gerson Lehrman Group Brokerage Services, Thomas Lehrman, Patrick Duff, and James Lyle.

SAC previously denied any wrongdoing, as did Gradient.

Biovail shares fell 3 cents to C$18.10 ($17.20) today in trading on the Toronto Stock Exchange.

Biovail Corp. v S.A.C. Capital Management LLC, 06-1625, United States District Court of New Jersey (Newark).

To contact the reporter on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net .