BlackBerry shares suffered when the report was released Thursday, dropping about 9 percent at one point. The company’s top brass responded aggressively by asking the Securities and Exchange Commission to investigate, touching off an unusual public showdown between company and analyst in the regulatory arena.
As overseer of the nation’s capital markets, the SEC gets thousands of tips and complaints each year, some of them from publicly traded firms accusing their detractors of engaging in foul play to push down stock prices. But it’s uncommon for public companies to accuse research analysts of fraud. Detwiler Fenton denied the allegations.
“Analysts get a great deal of First Amendment protection,” said Scott Kimpel, a securities lawyer at Hunton & Williams. “But if an analyst knowingly publishes information that was untrue to manipulate stock prices, then the First Amendment protections fall off.”
Thorsten Heins, BlackBerry’s chief executive, said he suspects manipulation may be at play. The Z10 smartphone, which went on sale in the United States last month, is critical to the future of the lagging mobile phone maker.
In a statement, Heins said company data shows that Z10 sales are meeting expectations and return rates are in line or below what BlackBerry expected.
“To suggest otherwise is either a gross misreading of the data or a willful manipulation,” Heins said. “Such a conclusion is absolutely without basis, and BlackBerry will not leave it unchallenged.”
The company’s chief legal officer, Steve Zipperstein, said everyone is entitled to their opinion on a product’s merits, “but when false statements of material fact are deliberately purveyed for the purpose of influencing the markets, a red line has been crossed.”
The company is also asking Canadian regulators to investigate. Formal requests with the U.S. and Canadian governments should be filed in the next few days, Zipperstein said.
Verizon Wireless, which sells BlackBerry smartphones, also ventured into the fray on Friday. “After the first 15 days, performance of the Z10 has been in line with similar devices we’ve launched,” Verizon said in a statement.
Detwiler Fenton responded to the pushback with folded arms and stuck by its report.
“We are confident in our research methodology and we welcome any regulatory inquiry,” Anne Buckley, the firm’s general counsel, said in a statement. “Detwiler Fenton is not the only research provider publishing similar reports regarding customer reactions, sales and returns of the BlackBerry Z10.”
The analyst at issue and the officers and directors at Detwiler Fenton have no financial interest in BlackBerry, Buckley said.
BlackBerry stock closed at $13.64 per share on Friday, up 0.66 percent for the day but down about 9 percent for the week.
While Detwiler Fenton is accused of dragging BlackBerry down, the research analyst community got a black eye for doing the opposite for technology companies during the dot-com bubble. To lure underwriting business, investment banks would allegedly hype a company’s stock by having the bank’s researchers publish frothy reports about the company. A firewall was put in place between researchers and bankers after the dot-com bust.