Lingering concerns about accounting and related issues, namely at Qwest Communication ( Q) and Tyco International ( TYC), kept major averages under pressure today.

Skeptics will no doubt note that volume picked up as market internals -- and the S&P 500 and Nasdaq Comp -- weakened. Still, the symptoms of "Enronitis" proved unable to exact significant losses on broader market averages while the Dow Jones Industrial Average eked out a small gain.

While the big picture is still unresolved, corporate credibility issues still dog individual names. Which brings us to Polycom ( PLCM), whose shares have been under pressure of late, as discussed here on Tuesday and again Wednesday.

Today, Polycom shares fell 13.3% to $26.31 despite an upgrade to strong buy from buy by Thomas Weisel Partners, one of the co-managers of the company's recent secondary offering.

Polycom CFO Michael Kourey attributed the decline to a report in a publication entitled Off the Record, a service provided by OTA Ltd., a San Francisco-based stock broker/dealer that provides research for institutions.

In recent interviews of 40 resellers and distributors of Polycom and PictureTel's videoconferencing equipment, Off the Record found that "optimism associated with video conferencing since Sept. 11 has waned and demand associated with the terror attacks has disappeared completely for 17 sources."

Although 30 of 40 resellers expect first-quarter sales to be flat or up vs. the fourth quarter, "they are off to a slow start," the report continues, adding "overall videoconferencing sales in January were flat while Polycom's sales underperformed the category at flat-to-down 5%."

Off the Record, which reportedly does research at the behest of clients including some ( gasp) short-sellers, did not return phone calls seeking additional comment.

Kourey said the claim Polycom is losing share is contradicted by a recent report by Wainhouse Research, a Boston-based research firm. In a survey released Feb. 12, Wainhouse reported Polycom had a 61.5% share of the group conferencing systems market in the fourth quarter, which Kourey said was up from 57% (Polycom and PictureTel combined) in the third quarter. (Not a direct comparison, I know, but his point is that Polycom gained share in the fourth quarter, according to a well-respected independent research firm, which is more significant than an anecdotal survey about one month.)

Jason Ader, who follows Polycom at Thomas Weisel Partners, also took umbrage with the Off the Record report.

Noting that January is historically the weakest month for videoconferencing, flat sales is "phenomenal," Ader said. Similarly, expectations for a flat-to-up first quarter "couldn't be more resounding evidence that things are very healthy," given the quarter has historically seen declines of 5% to 10%.

Off the Record "missed the point," Ader argued. "Their spin is negative but if you use historical context I don't think there's anything in the report even the least bit damning."

Off the Record also suggested Polycom will push into Internet-protocol voiceover "to fill any videoconference gap and here it will compete against Cisco ( CSCO)," which the analyst said is factually incorrect.

Polycom and Cisco are partners in IP voiceover, he said; " Off the Record published it without checking facts."

Defense! Defense!

Another Issue

Kourey also said there may be lingering concerns about the recent report by SEC Insights regarding the Securities & Exchange Commission's investigation into earnings at PictureTel, which Polycom acquired last year.

In an interview this morning, Kourey reiterated what a spokeswoman told me yesterday, as reported in RealMoney.com's Columnist Conversation: The July 5, 2001 letter referenced by SEC Insight was a procedural matter, and Polycom believes the investigation will be concluded shortly with no impact on Polycom.

"There is no new investigation of PictureTel and no investigation of Polycom," Kourey said, stressing that the SEC's investigation is "strictly related" to PictureTel's earning restatements in 1997-1998, several years prior to Polycom's acquisition.

Polycom and Kourey took things a step further later today, issuing a press release on the matter, which noted the investigation of PictureTel was fully disclosed in PictureTel's SEC reports prior to the acquisition, and in Polycom's S-4 registration statement and in PictureTel's Schedule 14D-9 relating to the acquisition.

"We believe that this 1997-98 period investigation will be concluded within the next few months with no impact on Polycom," Kourey is quoted as saying in the press release. "We trust that the completely unwarranted speculation of the last few days, which only confuses and potentially harms investors, will now come to a prompt end."

Judging by today's session, that hope seems unlikely. Having dropped 24.8% since Jan. 31, Polycom is rapidly becoming one of those "battleground" stocks where only the most steadfast investors dare tred.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to Aaron L. Task.

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