Why Whistle Blowing Can Cost You an Investment Banking Job

It’s a bit of an ominous warning for those in investment banking jobs, particularly if you’re starting out as an analyst. An article by Jesse Eisinger of ProPublica published by Business Insider highlights what happens to those who uncover shady dealings by the companies they’re covering … and actually report on it.

He relates the story of David Maris, a one-time star pharmaceutical analyst for Bank of America. In 2003, Maris released a sell report on Biovail, a Canadian drug company. The company had issued some bizarre explanation for missing its earnings estimates, something about a truckload of medicine crashing at the very end of a reporting quarter. Maris didn’t buy it, and pointed out the inconsistency in his analyst report.

Biovail took offense, and sued Mr. Maris, the Bank of America, along with the hedge fund SAC Capital Advisors and an independent research firm, Gradient Analytics, claiming they were all trying to drive down the price of Biovail stock.

While Bank of America initially stood by its analyst, they eventually caved into pressure and fired Maris two weeks before the end of 2006 – just in time to avoid paying his bonus. BoA claimed the firing wasn’t related to the bad publicity generated by the lawsuits. Maris is now suing BoA.

A subsequent investigation revealed that Biovail did indeed perpetrate fraud and cooked the books. Biovail later settled out of court with the Securities and Exchange Commission, which had accused the company, its former chief executive, Eugene Melnyk, and four other officers of fraud. The company never admitted to any wrongdoing, has paid millions in fines to settle various lawsuits, and has since merged with Valeant Pharmaceuticals International.

So here’s the bottom line. Maris was right about Biovail, the facts and the law. But he still got canned and stripped of his bonus. Because of all the negative publicity surrounding the case, he was also persona non grata at other bulge-bracket Wall Street firms.

Hence the reason why analysts rarely issue sell ratings on the companies they cover. Banks often just don’t want to jeopardize their lucrative investment banking business.

According to Maris, “If you asked me what’s my advice for a young analyst who wants to be in business for a long time, I wouldn’t tell them to follow the path I went. Everyone knows you play ball or live with the consequences.”

Everyone knows the pressures to conform and be a “team player” on Wall Street is enormous. When do you draw the line and risk everything? Add your comments below.

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