Jaws II: Has Radicati Found a New Niche?

Just when I thought it was safe to go back in the water, Tom Duff has written about a new venture for the Radicati Group: Radicati Ventures, a service offering to help companies with mergers, acquisitions, raising venture capital, selling of the companies, etc. All of this with Sara Radicati's personal involvement (maybe she just does not sleep or she is suffering along with the rest of the analyst groups as companies hire them less and less). Duffbert has raised questions about how this could be effective in this new era of increased oversight, demands for transparency, and regulations driven by laws such as Sarbanes-Oxley.

So with Duffbert's questions in mind, I spent the better part of my drive back to Atlanta on the phone with Greg Gehlmann, a partner with Washington, DC law firm Manatt, Phelps & Phillips, LLP. Greg specializes in Sarbanes-Oxley as well as mergers and acquisitions, with much of his work being done with financial institutions and technology companies. I gave Greg a brief overview of how the Radicati Group came to be on my radar screen, emphasizing the ethical and business control issues I have written about previously with respect to this particular company. I asked him if he saw anything wrong with this scenario.

Greg said that, unfortunately, "mergers and acquisitions are rife with every kind of unethical behavior". He went on to say that if an analyst firm such as the Radicati Group were providing reports and analysis that potential shareholders relied on, they would be required to disclose who or what organization(s) funded the study. In addition, the report would have to be filed with the Securities and Exchange Commission. This is in stark contrast to what we have seen with recent reports published by Radicati and the Meta Group.

Greg and I continued our conversation about the Radicati incident and the "astroturfing" that had occurred, as well as the fake name e-mails sent to peoples' employers demanding their firing. He likened this to the "pump and dump" schemes you often see in internet chat rooms (and I have seen in spam e-mail I receive). People enter these chat rooms with fraudulent name and e-mail addresses to "talk up" a company to push the short term price of a stock up. He said that all too often, it is hard to trace the real identity of the person or persons engaged in this behavior (I need to introduce him to Volker;-)). This is one of the main reasons he tells his clients to stay out of the chat rooms, lest they get into trouble.

This is where our conversation turned to what responsibilities companies like Radicati, as well as companies that hire a group for services such as those Radicati are offering, have when establishing this type of relationship. Greg said that the responsibility of due diligence falls on the company doing the "hiring". If they know about allegations of unethical behavior on the part of a company, they will likely still hire them if they have a solid track record of performance, as this always is the deciding factor as to whether or not to hire a consulting firm. What they have to be careful of, said Greg, is that the are careful that the issuance of any reports by the hired firm contain full disclosures so they do not get caught up in a "pump and dump" scheme. If they do not know of any allegations of unethical behavior by a firm, they had better be ready to face the music if problems do arise.

So as I look at this new offering of the Radicati Group, I have to agree with Duffbert's concerns. For me, the best solution may not be the breakout of a separate company, but that all analyst firms publish the people and/or organizations that funded the studies/reports (regardless of purpose). I extend this also to reports that have been written with the intention of getting a company written about to purchase a report. In addition, a form such as the Radicati Group had better put tight reins on all of their employees so that there are no repeat "astroturfing" incidents.

Is it safe to go back in the water yet?