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Biovail denies Gradient claims

Date: Saturday, March 4, 2006
Author: LEONARD ZEHR- Globe & Mail

Biovail Corp. has rejected allegations that private investigators working for its New York law firm intimidated employees and former employees of an Arizona securities research company at the heart of its $4.6-billion (U.S.) lawsuit against short sellers.

"It has come to our attention that Gradient Analytics Inc. has engaged a public relations firm, who is feeding false and inaccurate information to U.S. and Canadian media in an attempt to distract from a very detailed 89-page lawsuit filed by Biovail last week," a Biovail spokesman said.

"No one engaged in any intimidating conduct," he added. "One employee and several ex-employees were visited during normal hours to ask if they would be willing to share information about events that are now associated with Biovail's claim. There is nothing unusual or improper about these requests, which are routinely made by lawyers, investigators and journalists."

In a statement yesterday, Gradient, based in Scottsdale Ariz., accused Biovail and on-line discounter Overstock.com of engaging in "a campaign of intimidation and baseless litigation of the sort described in the recent U.S. Securities and Exchange Commission's market regulation memorandum, which warned against this type of activity."

At the urging of SEC chairman Christopher Cox, commission staff has been reviewing the potential impact that corporate retaliation against analysts may have on the ability of investors to obtain objective analytic research and whether securities regulations should be tightened.

Gradient said private investigators working for James Holohan, managing director of KBTF Group, an arm of Biovail's New York law firm Kasowitz Benson Torres & Friedman LLP, conducted "personal invasions" and "intimidating visits" to the homes of employees and ex-employees and the separate residences of parents of ex-employees, before and after business hours and in the parking lot of Gradient's offices as employees headed to work.

It also alleges they made calls to personal cellphones of employees during work hours.

Mr. Holohan couldn't be reached for comment. However, his team works out of the same building in New York as the Kasowitz law firm.

Mississauga-based Biovail has alleged that its stock price was battered and its business damaged during a wide-ranging stock market conspiracy led by Wall Street hedge fund SAC Capital Management LLC, Gradient and others, beginning in mid-2003.

Among other things, the drug maker contends that SAC executives were involved in ghost-writing negative and inaccurate research reports published by Gradient, and in controlling the release of those reports while hedge funds built short positions in Biovail's stock.

None of the allegations has been proven in court and SAC and Gradient have strongly denied the charges.

Gradient is being probed by the SEC as a result of a lawsuit last year by Overstock.com, which made similar allegations about the research firm.

A published report in New York yesterday claimed that Gradient wasn't the only target of Kasowitz's private investigators.

Former Banc of America Securities analyst Jerry Treppel, who has sued Biovail, alleging defamation, had his trash searched by investigators, while the home of current B of A analyst David Maris has repeatedly been under surveillance, the New York Post reported. Mr. Maris, a vocal sell-side critic of Biovail, has been named by Biovail in the latest litigation as a participant in SAC's alleged orchestrated plan of short selling. A spokesman for the securities firm declined comment.

Biovail's spokesman said the Post story contained false information about the company. "The Post ignored extensive communication to set the record straight and repeated false accusations knowing they had information from Biovail stating quite the opposite," he added.