Advisor or Hedge Fund Flack? Pt 2
More and more, it looks as though Manuel Asensio has cleverly crafted an image that bears little resemblance to reality. His claim of independence is hard to reconcile with evidence that he initiates coverage at the behest of clients seeking help with problem short positions. His claims to write his own reports are belied by his ignorance of their content and lack of training in the subject matter. His recent commentaries don't help either.
His most recent "pick" is Multimedia Games, initiated in early October. MGAM has performed impressively this year. It doubled between March and September, creating a nightmare for short-sellers.
As always, investors and the financial media were
expected to
see MGAM as an independent pick. But a little probing
turned up evidence that Asensio's longtime client, West Highland Capital, has been
following MGAM closely for at least a year and a half. The
transcript of an April 2002 conference call, for example,
features the fund's Dave Scially interrogating management in familiar
hostile-adversarial style.
In the acknowledgments of his book,
Sold Short, Asensio thanks Scially, along with his
colleague Mike Wilkins, for "their wisdom, instincts, and savvy." So
what is the story here? Did Scially short MGAM, find himself swimming in a
sea of red ink, and use his "instincts and savvy" to call on Asensio
for help? Or
is this simply another coincidence?
Whatever the answer, the campaign could be going better. The stock has made several new highs since Asensio took aim.
More Coincidences?
Most Asensio releases in 2003 were about stocks he had written about in previous years. Among them were Parkervision and Polymedica,
two stocks in which clients had positions long before he appeared
to comment. Also on the list for 2003 are On2 Technologies and Rica Foods, two
of eight AMEX stocks he complained about in a letter to the SEC on November 2, 2000.
Holdings reports filed by Blue Ridge Capital and West
Highland show that they held small long positions in On2, consistent with a strategy involving a much larger short
position, months before Asensio contacted the SEC.
West Highland also held such a position in Rica Foods, Epicedge, and Emagin during
the quarters before the letter was sent.
In 2001, West Highland reported small long positions in ATSI and Med
Diversified, two more stocks mentioned in the complaint. It is
possible that these shares were bought to protect short positions taken during
prior years.
The question here is the same as with MGAM. Is it mere coincidence that
six of the eight stocks that Asensio complained about in his letter to the SEC
were ones that clients appear to have been shorting?
Fooling the Feds?
Another question is whether it is appropriate for Asensio to complain to a federal agency without disclosing that his clients are positioned to benefit handsomely from regulatory action. This question applies not only to agencies, but to Capitol Hill.
According to Asensio's version of events, his letters to members of Congress have stimulated investigations by the General Accounting Office and SEC. Would these have occurred if he had disclosed that his clients stood to gain from the announcement of an investigation? It's possible, but not nearly as likely. Which perhaps is why clients prefer that letters to Congress and the SEC bear Asensio's signature, not theirs.
Asensio and his clients can hardly
claim a lack of knowledge about what is expected in such a situation.
Between them, they
hold at least five MBA degrees; four teaching
positions at well-known universities; and many decades of experience.
John Griffin, president of client Blue Ridge Capital, is also vice-chairman of the
board of trustees of the University of Virginia McIntire School of Commerce.
Surely they must realize that seeking
regulatory action without disclosing potential windfall benefits to one's
clients is highly questionable. Especially if compensation for
services is tied
to outcome.
"They Pay Us"
Whether Asensio's compensation depends in any way on the magnitude of damage he does is not clear. He hinted that this might be the case in recent courtroom testimony. Asked by his attorney to explain how his clients compensate him, Asensio said:
We do research and we publish that research and people act upon that research. . . . If they believe the research is valuable, they pay us. They pay us based upon what they believe our research is worth over time.
Though he was somewhat vague, it sounds like Asensio was saying that his compensation is based on an assessment of what his activities have been worth to clients. Another fact worth noting: in 1996, one of his targets claimed to possess a letter which read:
This letter provides written documentation regarding a request offered to me by a Manuel Asensio, representing Asensio & Co., New York, New York in September of this year, to perform a negatively biased engineering analysis on the Sattel products and organization for a fee of $5,000 dollars plus a percentage of the profits made short-selling Diana Corp. stock.
For what it's worth, Asensio denied having made such an offer. Diana Corporation no longer exists. But this does not mean that the letter never existed, or that Asensio's compensation is unrelated to how much his campaigns affect his clients' short positions.
There is an obvious solution that
could end this mystery. Asensio could hold himself to the same standards he
expects others to meet. He could disclose his compensation arrangements. His clients
could insist on it. While they are at it, they could also insist that he
disclose any positions they hold in his targets.
It's the honorable thing to do--whether Asensio is truly a technical advisor or
a hedge fund flack masquerading as one.
Page created 11/01/03