SEC Clears Gradient Of Hedge Fund Conspiracy

Feb 14 2007 | 11:01am ET

Gradient Analytics, the independent research firm accused of conspiring with hedge funds to drive down stock prices, said today that the Securities and Exchange Commission has ended its probe into the firm.

Scottsdale, Ariz.-based Gradient was informed by letter from the SEC’s San Francisco office that the probe has ended and that the office recommended no enforcement action be taken.

“We are not surprised by the SEC decision,” CEO Brad Forst said. “Independent and objective research may be unpopular with some companies, but it is vital information in the equities market.”

The SEC opened its investigation after online retailer sued Gradient and hedge fund Rocker Partners, accusing them of trying to manipulate its stock price. Later, Canadian pharmaceutical company Biovail filed a similar suit against Gradient and another hedge fund.

Forst said he is confident Gradient will prevail in those cases, arguing that independent research is protected speech under the First Amendment.

“Our work represents both the right of free speech and the right of shareholders and investors to understand the questionable business practices of public companies,” he said.

Forst succeeded firm founder Carr Bettis as president and CEO in December. At the time, the firm denied that the move had anything to do with the SEC probe or lawsuits. Bettis remains chairman of Gradient.

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