“Is your allegation that SAC made up a lot of this stuff in order to depress the stock so they could sell it short?” Stahl asked.

“That’s what’s alleged in the complaint,” he replied.

The piece includes interviews with ex-Gradient employees, one of whom calls the research firm a “shop for hire.” Another ex-employee alleges that Gradient analysts took down SAC’s allegations against Biovail like “dictation.”

Of Gradient’s work, the piece says:

The report was replete with comments like this: “history of unusual … aggressive accounting;” “earnings overstated;” “severely negative free-cash flow.”

Of course, it turns out, Gradient was right.

The segment included interviews with former Gradient employees Demitri Anifantis and Darryl Smith, who bring in the media:

“Did the Biovail report go to anybody outside of your client circle?” Stahl asked Anifantis.

“Yes, media. A lot of media outlets had access to the service as well,” he replied.

“So, in other words, Camelback was trying to generate this publicity… that further helped SAC,” Stahl asked.

“Sure, sure,” Smith said.


The Stahl piece rankled many financial journalists who found it deeply ignorant, particularly for the way it characterized short sellers—who are a vital counterpoint to the Wall Street hype machine—as somehow bad by definition. Reporters also felt the story tarred by implication the journalists who use them as sources.

Indeed, the 60 Minutes piece was doubly frustrating because the work of exposing corporate frauds is already difficult and thankless enough.

Joe Nocera of The New York Times nicely summed up this sentiment a few days after the broadcast:

The silliest idea embedded in both the Biovail lawsuit and the 60 Minutes segment is that because an analyst, a short seller, a research firm, and even a reporter are talking with one another—and perhaps even collaborating—that they are somehow engaged in stock manipulation. This is what people do in markets all the time, on the long and short sides. When you have a big position in a stock, you want to persuade others to your point of view. You make your case in phone calls, or at conferences, or over drinks. You try to get reporters to write articles reflecting your views. If you can get others to agree with you, and either buy or sell because they are persuaded by your logic, that is good for both you and the market.

In some ways, the process is even more important for a short seller because his point of view is invariably a minority one. In early 2001, when the short seller James Chanos became convinced that there was something amiss at Enron, he didn’t keep that information to himself. He spoke to Bethany McLean, the Fortune reporter who then wrote her famous story, “Is Enron Overpriced?” And he presented his views about Enron at his annual Bears in Hibernation conference. One of those attending was Mark Roberts, a newsletter writer who then wrote a tough report on Enron. According to a witness in the Enron trial, that is the report that caused Jeffrey K. Skilling, the chief executive, to exclaim, “They’re on to us.”

The short-versus-public-company fracas peaked in May 2006, a few months after the Stahl piece. The SEC, which was probing Gradient because of the corporate complaints, subpoenaed three financial reporters—Herb Greenberg of Marketwatch, Jim Cramer of TheStreet.com (and CNBC’s Mad Money show) and Carol Remond of Dow Jones Newswires—sparking an uproar. Journalists and their supporters argued that SEC probe infringed on reporters’ First Amendment rights and chilled tough reporting.

The SEC later dropped the subpoenas and backed away from the idea of subpoenaing reporters altogether.

The SEC dropped its Gradient probe last year.

As it turns out, SAC and Gradient were doing investors a favor. Biovail traded around $24 a share when the Stahl piece ran. Now’s it under $11, a drop of 55 percent, including nine percent on news of the SEC settlement. Dow Jones provides this two-year chart:








One can only hope 60 Minutes viewers listened to the shorts and not 60 Minutes.

But the ongoing SEC probe of Biovail was always going to be a time bomb under this story.

This week, it blew up.

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.