Gradient Analytics Stung Once Again


According to an article published in the Wall Street Journal yesterday, independent research provider Gradient Analytics, has been named in a lawsuit brought by a publicly traded company accusing Gradient and a hedge fund client, of scheming to drive down the price of the firm’s stock.

This is the second time in the past six months that Gradient has been accused of a similar action. Last year, Gradient was named with hedge fund Rocker Partners. This year, the alleged co-conspirator is hedge fund behemoth, SAC.

Like last year’s lawsuit, Gradient is accused of working with a hedge fund client to produce “sponsored” research coverage on a limited number of companies — in this specific instance the company was Biovail Pharmaceuticals.

Gradient and SAC is accused of having worked together — SAC is said to have “ghost written” the research — to produce several negative research reports on the company, for the purpose of driving down the price of the stock. SAC’s interest in this activity was that they supposedly took a short position before the research report was published (but after the report was written).

The lawsuit alleges that this type of manipulation was used to pressure the stock prices of “dozens” of publicly traded companies, including Celgene Corp. and Biolase Technology Inc.

While Integrity cannot say if Gradient or SAC was actually involved in this type of activity, we are quite concerned that Gradient has been accused of fundamentally the same type of activity twice in a short period of time.

In fact, a closer read of both last year’s lawsuit (by and the more recent lawsuit by Biovail, reveals a striking similarity. In both cases, a hedge fund is accused of paying Gradient to write research reports on specific companies. This, in and of itself, is not a problem.

However, another serious accusation is that Gradient supposedly allowed the hedge funds in question to review (and suggest significant changes) to the reports before they were published.

While we understand having a firm review a research report for factual inaccuracies, we feel strongly that allowing any third party (the covered company or a client that sponsored the research) any more input than this is asking for trouble. This is particularly concerning if a research firm then distributes this research externally for broader readership.

Lastly, and possibly the most damaging claim, is that in both cases, the hedge fund requested, and Gradient agreed, to wait to publish the report until after they had acquired a position in the stock.

Again, Integrity will leave the legal findings of guilt or innocence to the judicial proceedings. However, the research industry at large needs to take note that certain activities can threaten the very credibility and independence of the research being produced — particularly giving a customer latitude in influencing a research report (or a firm’s recommendation), delaying the distribution of those reports based on a client request, and then distributing these sponsored reports to investors under the guise of them being “independent” research.


About Author

Mike Mayhew is one of the leading experts on the investment research industry. In addition to founding Integrity Research, Mike is on the board of directors of Investorside Research Association, the non-profit trade association for the independent research industry, and a frequent speaker on research industry trends and developments. Mike has over thirty years of research industry experience. Email:

Leave A Reply