Journalists’ & Financial Analysts’ Groups File Amicus Briefs On Behalf Of Gradient, Urge Court To Dismiss Overstock Lawsuit

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The Reporters Committee for Freedom of the Press and the Chartered Financial Analysts Institute filed amicus briefs on behalf of Gradient Analytics, urging the court to dismiss's lawsuit against the independent stock research publisher.

Two nonprofit organizations representing journalists and financial analysts have filed amicus briefs in support of Gradient Analytics, Inc., urging the court to dismiss’s lawsuit (#A11397, California District Court of Appeals) against the company. Both briefs argue that the First Amendment protects the “serious tone and content” of Gradient’s analysis and that allowing the lawsuit to proceed will harm the rights of the investing public, journalists and other financial analysts.

The Reporters Committee for Freedom of the Press and the Chartered Financial Analysts Institute filed the briefs recently on behalf of Gradient’s appeal of its motion to dismiss in the California District Court of Appeal, which accepted the briefs yesterday. The Marin County Superior Court ruled against the motion to dismiss this past March.

Gradient’s Director of Communications, Leland Bettis, said the briefs are “significant because two highly-respected organizations representing both journalists and financial analysts have looked at the law and the facts in the case and found the lawsuit to have no merit. They share our concern that, if this lawsuit proceeds, independent financial analysis, whether written by a journalist or an analyst, will become a thing of the past.”

Arguing that the media’s ability to report financial information to the investing public will be damaged if the lawsuit succeeds, The Reporters Committee for Freedom of the Press wrote in its brief: “This case involves an important issue…whether statements of opinion, when supported by true facts, may be punished as defamatory….

“Gradient reports…used factual statements to back up its opinions…. Overstock seeks to punish Gradient for reaching conclusions it disagrees with about certain facts -- a practice California law clearly protects.…Overstock is attempting to use litigation to fight a battle it is unable to win using the marketplace of ideas.”

If upheld, the Marin County court decision will, the brief stated, “punish those who offer serious financial opinions about the value of publicly traded companies….(and) may inadvertently chill investigations and oversight on businesses. Any media outlets that provide an opinion about a company – even if supported by numerous facts – can face tort liability.”

The Committee provides free legal assistance to journalists. Since its inception in 1970, the Committee has played a role in virtually every significant press-freedom case that has come before the Supreme Court. The Committee also is a major resource on free speech issues.

The Committee’s brief described the work of financial journalists and independent analysts as “nearly identical” and said both helped reveal the scandals of Tyco, Enron, WorldCom and Adelphia. “Without the media’s involvement, companies such as these could have taken even more money from their investors and customers….The kinds of independent research performed by the news media–and companies like Gradient-- are necessary to help to provide corporate openness and ensure that the public remains fully informed.”

The CFA Institute brief differed with the lower court’s earlier decision which suggested that “serious” analysis was not protected by the First Amendment. “To suggest that public corporations can silence ‘serious’ analysis while ‘loose’ or ‘hyperbolic’ analysis is protected, gets things exactly backwards.”

The brief stated: “Bringing negative yet truthful information and opinion to the market that is contrary to the almost consistently rosy outlook of management is not manipulation of the market….Gradient did what analysts are supposed to do – critically analyze a company’s reports without ‘rose colored glasses’ …. Analysts … should be free to disagree when disclosing fully the reasons for that disagreement.”

The CFA Institute is a global membership organization that awards the CFA designation. The CFA Institute leads the investment industry by setting the highest standards of ethics and professional excellence and vigorously advocating for fair and transparent capital markets.

Representing 83,000 financial analysts, the CFA Institute said in its brief that independent analysis about publicly traded companies contributes to marketplace efficiencies and therefore a stable U.S. economy. However, faced with the possibility of lawsuits, analysts will “simply forbear to involve themselves in such work when exposed to the risk,” and the marketplace will suffer as a result.

The Institute’s brief also warned that “Mom and Pop” investors will “pay the price when independent analysts like Gradient are forced out of business” because the managers of their pension and 401K funds will no longer have access to information about companies they’ve invested in.

Calling the Overstock lawsuit a “frontal attack” against independent analysts as well as investors, the CFA brief said, “The role that independent analysis plays in ensuring a transparent market system can’t be overestimated ….Investors are harmed when poor business models or simple mismanagement go unchallenged, leading to undue optimism like that seen during the Internet stock bubble in the 1990s.”

Copies of the amicus briefs are attached.

Gradient Analytics Inc.

Founded in October 1996, Gradient Analytics, Inc. is an independent research publisher providing both analyst-written research work through its Earnings Quality Analytics and Equity Incentive Analytics services, and quantitative stock ratings for institutional clients through its Gradient Factor Suite. Gradient has developed models, expert systems and analytical tools for asset managers and investment advisors with many related products being distributed exclusively via strategic partners and alliances such as Thomson Financial. Gradient is also the creator of the highly acclaimed MSN/CNBC Money's StockScouter rating system for individual investors.

Contact: Karen Hinton

Hinton Communications

1215 19th Street, NW

Washington, DC 20036

703.798.3109 (tel)

480.275.3554 (fax)

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