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The Five Dumbest Things on Wall Street This Week

5. Lanny Davis Blues

Though we at the research lab aren't permitted to invest in individual stocks, we have developed some guidelines about where in the stock market people should not be putting their money.

Rule No. 1, for example, is to never invest in technology companies based in Boca Raton. Rule No. 2: Avoid stocks with cutesy ticker symbols.

Well, we just added a new commandment to our list: Think long and hard before investing in a company represented by Lanny Davis.

Davis, to refresh your memory, achieved his greatest fame as special counsel to Bill Clinton during the Monica Lewinsky scandal. But what's more relevant here is the attorney's usual specialty -- serving as public relations adviser for companies in desperate need of some good public relations.

Why, just last week Davis -- these days a partner at Orrick, Herrington & Sutcliffe -- was speaking to the Associated Press on behalf of Innovative Communication Corporation. The Virgin Islands-based telecom company apparently aroused the wrath of the government of Belize by buying the country's biggest telephone provider last year but neglecting to fork over the $57 million purchase price.

But that's only the tip of Davis's iceberg. Over the past few years, Davis has counseled all of these eyebrow-raising companies:

  • HealthSouth and its former CEO Richard Scrushy, now on trial for fraud.
  • Fog Cutter Capital, which, when its CEO went to prison for two felonies, agreed to pay him not only his full salary, but also a $2 million bonus.
  • NovaStar Financial (NFI), the subprime lender last year accused by critics -- and the state of Nevada -- of spotty compliance with lending laws. (Earlier this month, the company's executives were overheard congratulating themselves for avoiding painful questions on their earnings call -- except for one that got through from "one d--khead.")
  • First Command Financial Services, a financial services company ordered in December to pay $12 million in fines for its habit of selling high-cost mutual funds, with the help of misleading sales pitches, to captive audiences of military personnel.
  • Allied Capital (ALD), a business development company accused by short-sellers of inflating the value of its assets.
  • The granddaddy of all high-tech stock frauds, Lernout & Hauspie -- the Belgian speech recognition software developer that collapsed after booking millions in suspect revenue from suspect related-party companies.

Now, we're not saying that all these companies are actually guilty of everything people have accused them of. Nor do we begrudge these companies the opportunity to get the best combination of attorney and crisis public relations manager they can get.

But given Davis's illustrious client list, it's occuring to us that hiring Davis to solve a PR crisis creates a whole new one: It sets off alarm bells that a company may have done something way beyond the pale of a respectable business.

Davis, you may not be surprised to hear, disagrees with our interpretation. He says it's important to remember that he isn't just a public relations specialist, but an attorney whose attorney-client privilege enables him and his team to do the best job helping a company get bad news out in crisis situations. "We have a track record," he says, "where we are in many instances able to turn bad news into better news by bridging the gap between attorneys and public relations."

Discussing the importance of the tranparency that he advises his clients to embrace, Davis cites the example of two companies -- broadcaster Cumulus Media (CMLS) and the seismic mapping firm Seitel -- whose stock emerged either relatively unscathed or higher after he advised them on their release of restated financials.

Davis implies that focusing on his misrepresents the extensive behind-the-scenes work he does. "Ninety-nine percent of the clients I work for, nobody knows I work for," he says.

And Davis suggests his name is actually a plus on Wall Street. "On the rare occasions where I allow my name to surface," he says, "people in the world of journalism and in the public markets have told me [that] when they learn we've been hired, it's an indication that the company will handle its crisis. And our track record has demonstrated that."

So be it. We still can't help thinking that if you're reaching out to Lanny Davis for your problem, it must be a very big problem indeed.
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