Judge OKs Case Against Corvis Bull
It’s possible, given some recent legal proceedings involving a once-famous stock analyst and now part-time Columbia B-School professor Paul E. Johnson.
Yesterday, U.S. District Court Judge Gerard E. Lynch issued an opinion allowing a class-action lawsuit to go forward against Johnson, accusing him of inflating the price of Corvis stock for his and his former firm's own gain.
Read on carefully -- it may dredge up some bad memories of the bubble, Corvis stock, and the now-defunct investment bank Robertson Stephens, where Johnson once worked.
In this case, what’s at issue is that both Johnson and Robertson Stephens were investors in pre-IPO shares of Corvis stock, which was positively reviewed in several of Johnson’s research reports after it went public.
The complaint, Anthony V. DeMarco vs. Robertson Stephens Inc. and Paul Johnson, says Johnson and his former firm, Robertson Stephens, issued positive research reports to inflate the price of Corvis stock after its IPO, while advising private clients to sell the shares at the same time that they were telling the public to buy.
Johnson had participated with other Robertson Stephens executives in a private partnership called Bayview Partnerships to buy Corvis stock before it had gone public. He ended up selling the Corvis position -- at a healthy profit -- even though he kept issuing positive research on the company after the fact, says the complaint. The price of Corvis stock, which once soared over $100 per share, later collapsed into the single digits. The company has since morphed into Broadwing Communications LLC, a service provider that it acquired.
Judge Lynch has "certified" the class-action lawsuit, meaning that it can go forward. Although class-action lawsuits against corporations and investment banks are a dime a dozen, there have been few cases in which an individual securities analyst gets singled out in complaints.
”The judge decided to certify the case for going forward, so we are proceeding with the discovery process,” says Russel Jacobson, one of the lawyers for the plaintiffs in the case.
A spokesperson for Columbia Business School, where Johnson is currently an adjunct professor, referred Light Reading to Johnson’s private email address. Light Reading was unable to contact Johnson. Robertson Stephens, which was purchased by BancBoston, which merged with Fleet Bank, which was later purchased by Bank of America (NYSE:BOA), was shut down in 2002.
Johnson, was bullish on many high-flying communications stocks such as Corvis, Redback Networks Inc. (Nasdaq: RBAK), and ONI Systems at the height of the bubble. Ironically, he's slated to teach a course called “Value Investing” in this spring’s semester at Columbia, according to a course schedule published on the university’s Website.
The class-action lawsuit isn't the only legal action revolving around Johnson’s activity during his reign as the star communications analyst at Robertson Stephens back in the bubble days. Johnson and Robertson's actions in Corvis stock were also subject of an SEC Civil Lawsuit, filed in 2003 which was reported here (see SEC Charges Paul Johnson). In that civil suit, the SEC was also seeking damages for actions Johnson took in Redback Networks Inc. (Nasdaq: RBAK) and Sycamore Networks Inc. (Nasdaq: SCMR). Johnson had owned stock in two private companies, Siara Systems and Sirocco Systems, that were respectively acquired by Redback and Sycamore, and he had not disclosed this while issuing favorable notes about these companies being acquired by the public companies that he covered, according to the SEC.
The fate of that SEC complaint could not be determined at press time. The SEC Website, which typically lists the outcomes of civil complaints it has filed, had no information on the lawsuit’s outcome. Inquiries to the SEC had not been answered by press time.
Johnson’s activity in the shares of ONI Systems, another company that he invested in while it was private and later reviewed glowingly once it went public, has never been the topic of any lawsuits (see Analyst Owns $9M in ONI Systems Stock ). That relationship had been disclosed in public filings. ONI was acquired by Ciena Corp. (Nasdaq: CIEN). Smith Barney analyst who became the target of a criminal probe launched by New York Attorney General Eliot Spitzer, Johnson has never been the target of any criminal action. Grubman ended up settling his cases with both the State of New York and the SEC. He was fined $15 million and received a ban from the securities business [ed. note: which apparently qualifies him to teach].
Would a class-action lawsuit or SEC lawsuit jeopardize Johnson’s teaching career at Columbia? Hard to tell. Columbia failed to return calls requesting comments for their policies involving their professors involved in securities litigation.
— R. Scott Raynovich, US Editor, Light Reading