Tenet Critics Split

M. Lee Pearce 'recently learned' of Jeff Villwock's short position in the stock.
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The Tenet Shareholder Committee -- a group pushing for major changes at

Tenet Healthcare

(THC) - Get Report

-- has undergone a shake-up of its own.

The committee announced Friday that it will no longer rely on Caymus Partners as its financial adviser because Caymus analyst Jeff Villwock holds a short position in Tenet's stock. Villwock, who has been warning about problems at Tenet for years, revealed his short position to

TheStreet.com

last month. He declined to comment about the development on Monday, other than to say when asked that he had been betting against the stock "for a few months."

Tenet didn't comment, but a former enforcement attorney for the

Securities and Exchange Commission

sees possible problems with Villwock's short position.

"What I can say with certainty is that it's a potential conflict of interest," says Ron Geffner, a partner at Sadis & Goldberg in New York. "It probably should have been fully disclosed."

M. Lee Pearce, who serves as chairman of the committee, claims that he himself has not traded any Tenet stock "since at least some time prior to the end of 2001." Still, Pearce's ties to Villwock look deep. Notably, he is listed as a member of the board of advisers at the investment banking firm where Villwock still works.

Caymus counts Villwock as one of two founding partners of the firm. It also claims to offer "knowledgeable advice and superior execution free from biases or conflicts."

The Tenet Shareholder Committee has long focused on exposing potential conflicts involving the company. Late last month, for example, the committee suggested that

Citigroup

(C) - Get Report

had recommended buying Tenet's stock because of all the investment banking business the firm had been receiving from the company. Tenet's stock, down a penny to $7.03 on Monday, is currently trading near a 12-year low.

"It seems that Citigroup just has stars in its eyes when it comes to Tenet Healthcare," the committee wrote last month. "Or are those dollar signs?"

Citigroup declined to comment on the committee's claims.

To be fair, the committee has offered far more accurate predictions about Tenet's plight than most analysts on Wall Street. Indeed, even some of the committee's more bearish calls have looked downright optimistic when compared to the company's actual performance.

Tenet itself has always portrayed the committee as conflicted, however. In the past, Tenet has suggested that the committee's chairman is more interested in acquiring one of the company's hospitals -- which he founded -- than he is in protecting shareholders. That hospital, North Ridge Medical Center, is among several Tenet-owned facilities identified by the committee as underperformers that need to go up for sale.

The committee cited a recent article by the

South Florida Business Journal

when pushing for the sales. That article reported that just four Tenet-owned hospitals, including North Ridge, had racked up $253.6 million in losses during 2004.

Meanwhile, the committee noted, Tenet itself has lost an estimated $5 billion in the three years it has spent supposedly turning itself around.

"Pardon our Broadway allusion, but 'Springtime for Tenet' is wearing thin," the committee wrote in an article posted on its Web site early last week. "The producers at Tenet need a new play. (And) it must begin with a rapid sale of the hospitals bleeding cash."

Tenet has, by now, already carried out two rounds of asset sales that have reduced the company's size by one-third to roughly 70 "core" hospitals. The first set of hospitals sold for an average of $154,000 a licensed bed, the committee estimates. The second set brought in just $109,000 per licensed bed -- with as much as $30,000 of that coming from tax benefits, the committee says. A third set, including as many as 15 underperformers, could generate even less, the committee suggests.

"Waiting for a miracle cure is, in our view, a mistake," the committee wrote earlier this month. "Tenet needs to take decisive action now. Hanging on to losing hospitals and selling them later for less cash is not a winning strategy."