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Until a few weeks ago, dissension ruled the ranks of several hedge fund defendants who have been accused of stock manipulation by




Last summer, Steven A. Cohen's $3 billion SAC Capital Advisors complex sued two former top portfolio mangers, Arthur Cohen and Joseph Healey, claiming they breached their employment contracts by leaving SAC to launch their own hedge fund, HealthCor Management, last May. SAC Capital alleged the former managers were engaging in "unfair competition'' by running a health care fund that was similar to the one they had managed for their former employer.

SAC Capital also began simultaneous arbitration proceedings against three former health care analysts who left the Connecticut-based hedge fund to join HealthCor, a New York-based outfit that says it has about $500 million in assets.

In pursuing the arbitration claims, SAC argued its former employees effectively violated the provisions of a noncompete clause in their employment agreements, some of which were 48-pages long.

But the warring hedge fund managers quietly settled their dispute right around the time that Biovail filed its controversial lawsuit in February, alleging a conspiracy between SAC Capital, a stock research firm and others to drive down shares of the generic drug manufacturer.

Steven Cohen, Arthur Cohen (no relation), and Healey were all named as defendants in the Biovail civil lawsuit filed in New Jersey state court. The complaint also names the fund formerly managed by Cohen and Healey, SAC Healthco, as a defendant. Other defendants include

Bank of America

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healthcare analyst David Maris and the principals of Gradient Analytics, which previously was called Camelback Research Alliance.

The terms of the settlements involving SAC Capital and its former employees are not public, since the arbitrations were private proceedings. A related lawsuit, filed late last year in New York state court, was sealed by the trial judge to protect "the confidential and proprietary business information discussed in the parties' papers.'' One of the sealed documents was titled, "Description of Investment Strategy.''

Officials with both SAC and HealthCor declined to comment. But a person familiar with the dispute said the parties had recently settled the matter.

Lawyers who work with hedge funds say disputes with former portfolio managers are not uncommon. However, it's rare for the disputes to become public because it's in the interest of all parties to settle the matter quickly and quietly.

The most common dispute concerns allegations that a former portfolio manager is soliciting investors of his old hedge fund. One lawyer familiar with such issues says most employment contracts prohibit former employees from openly soliciting investors of their former fund for a minimum of a year.

It's not known if the Biovail litigation had any bearing on the parties' decision to resolve their dispute. The parties reached a settlement soon after New York Supreme Court Justice Eileen Bransten in January rejected a motion by Cohen and Healey to consolidate all the arbitrations into one.

In contrast to the employment dispute, the Biovail lawsuit is generating a lot of attention. The unusual litigation recently was the subject of a segment on the CBS' "60 Minutes.''

Biovail alleges that SAC Capital and some of its portfolio managers conspired with Camelback, a stock research firm, to drive down the price of shares of the Canadian-based company in 2003 and 2004. Biovail contends Camelback published negative research reports on the company at the behest of SAC Capital, which was shorting shares of Biovail. The lawsuit also alleges SAC got Camelback to delay publication of its reports while it built large, bearish positions in the company's stock.

A short-sale is a bet a stock will fall in price.

All the defendants have denied the allegations of a conspiracy to drive down shares of Biovail. An SAC spokesman has called the lawsuit "outrageous and defamatory,'' and promised the hedge fund will defend itself and its investment practices vigorously.

Indeed, critics of Biovail point out that there were plenty of reasons for the stock to plunge from $51 a share in June 2003 to below $15 a share in November 2004. Throughout that period, the company's earnings fell short of analyst expectations on a number of occasions. Questions were also raised about an October 2003 traffic accident that the company claimed caused it to miss quarterly profit targets.


Securities and Exchange Commission

opened an investigation into Biovail's accounting and financial reporting practices in November 2003, in the light of the questions raised about the accident. The company had blamed the traffic accident for an earnings shortfall, saying some of its drugs were lost in transport. It later turned out the company overstated the quantity of drugs destroyed.

The SEC, meanwhile, opened an investigation into Gradient last year. Regulators are looking into allegations that reports issued by the research firm are not truly independent and more often than not reflect the views of their paying customers.

Regulators began looking into Gradient around the same time another company,

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, filed a lawsuit claiming the research firm had conspired with a group of hedge funds to drive down its stock. SAC Capital is not a defendant in the lawsuit filed by Overstock.

In conjunction with the Gradient investigation, the SEC issued subpoenas to a number of journalists and news organizations, including


and its co-founder and major shareholder, James J. Cramer. Those subpoenas sparked outrage on Wall Street, and SEC Chairman Christopher Cox directed his staff not to pursue them.

Instead, the SEC recently sent a subpoena to Gradient seeking information about its contacts with nine journalists. People familiar with the inquiry say the SEC is trying to determine whether the reporters were unwittingly manipulated by either Gradient or its hedge fund customers into writing critical stories on certain companies.