Biovail sues SAC
SHAWN McCARTHY
Wednesday, February 22, 2006
New York — Embattled Mississauga-based Biovail Corp. has launched a legal war against a top Wall Street hedge fund manager, claiming in a $4.6-billion (U.S.) lawsuit that SAC Capital engaged in a conspiracy to manipulate the market and drive down Biovail's share price.
Biovail, which has already faced numerous legal fights, filed the claim in New Jersey state court today, naming among the defendants SAC founder, Steven A. Cohen, a billionaire hedge-fund founder who is considered one of the most successful and aggressive stock traders in the market.
The 87-page complaint alleges that SAC Healthco, one of the SAC funds, secretly worked with an independent research firm and another analyst to spread false and damaging information about the company to investors.
“This action arises from a massive, illegal and continuing stock market manipulation scheme which has targeted and severely harmed Biovail, among other companies, and which has resulted in immense ill-gotten profits for S.A.C. capital and other extremely powerful hedge funds,” the Biovail complaint says.
It claims SAC Healthco took major short positions in Biovail shares in 2003, and then engaged an aggressive campaign to drive down the stock in the company that, Biovail alleges, was “poised for substantial growth” at the time.
Also named in the lawsuit are independent research firm, Gradient Analytics Inc., of Phoenix, Az., and David Maris, a pharmaceutical analyst with Banc of America Securities LLC.
SAC, a $10-billion (U.S.) hedge fund based in Stamford, Ct., and the other defendants have not yet responded to the statement of claim, which is based on unproven allegations.
Mr. Cohen has a sterling track record in earning market-leading returns for his high-end investors. SAC recently raised $3-billion (U.S.) for a multi-strategy fund despite fees approaching 40 per cent. His firm is said to account for as much as 3 per cent of the New York Stock Exchange's average daily trading volume.
Biovail is represented by New York law firm, Kasowitz, Benson, Torres & Friedman LLP.
In its complaint, the company alleges that SAC Capital targeted “many dozens and likely hundreds” of other firms with short-selling campaigns based on false information and market manipulation.
Biovail and its chairman Eugene Melnyk have experienced a turbulent three years after the company failed to hit optimistic earnings forecasts in 2003, leading analysts to downgrade the stock which sent it into a tailspin.
The share price plummeted from a high of $67.75 (Cdn) in early June 2003 to $21 the following April.
Investors slapped Biovail with lawsuits alleging accounting irregularities, and it is now facing investigations by the Securities and Exchange Commission, and the U.S. Department of Health and Human Services. Last year, Biovail shelved plans for an aggressive marketing effort in the U.S., amid charges and counter-charges of improprieties.
Then in November, Mr. Melnyk, who is also owner of the NHL's Ottawa Senators, was named by the Ontario Securities Commission as part of a wide-ranging investigation on trading, reporting and disclosure issues related to trading in Biovail shares.
The stock price began to recover last fall amid restructurings and the naming of a new chief executive officer, and topped $29 (Cdn) in trading today on the Toronto Exchange.
In the statement of claim, Biovail blames its troubles on what it says was a concerted effort by SAC Capital, its fund manager Tim McCarthy, and several analysts and hedge funds to undermine the company.
Biovail alleges that in, June 2003, Mr. McCarthy prepared a report on the company which contained false information, and conspired with an independent research firm, Camelback research Alliance Inc., to publish it under Camelback's name.
The suit further alleges that Mr. McCarthy persuaded Camelback — since renamed Gradient Analytics Inc. — to release the negative report after SAC had built up a substantial short position in Biovail.
When selling short, traders sell borrowed shares on the expectation the price will fall and he can profit by buying them back at the lower price. Biovail also claims that Mr. Maris – who once worked with Mr. McCarthy at Credit Suisse First Boston – conspired with the SAC fund manager to undermine Biovail stock by releasing false information into the marketplace.