As we've been hearing for years now, the securities analyst is an endangered species. Between bank cost-cutting and new regulations, those who scrutinize stocks for a living might want to be making some backup plans now. But this delightful Reuters story of two analysts who decided to use their expertise in the service of the law shows that there might be a way out: professional whistleblowing.
The two analysts, who remain unnamed in the story, didn't set out to be heroes. They just had a habit of emailing each other when they came across numbers that reeked of bullshit. Medical device manufacturer Orthofix International evidently fit that bill.
"I am always on the lookout for something unusual, either just unusually good and under appreciated, or unusually bad," the analyst told Reuters. "This one showed up as a company that looked like it had the potential to be unusually bad." In the spring of 2013, he e-mailed his spreadsheets to a fellow analyst and a friend of more than a decade, with whom he regularly chatted about companies and sectors.
"The way we work together is one person makes a suggestion and the other person challenges it," that friend told Reuters. "It is like a war game."
One thing led to another, and eventually the two brought their tip to the law firm Labaton Sucharow, which filed the whistleblower complaint on their behalf. In January of this year the SEC reached an $8.5 million settlement with Orthofix over charges of channel-stuffing. The two analysts will see at least $2.5 million of that.
Granted, the whole thing took 4 years to proceed. But split the award two ways and it equates to an annual salary of more than $300,000, which, hey! Not bad. The lesson for analysts: if you can uncover a multimillion-dollar fraud at a publicly traded company and successfully run it up the flagpole at the SEC every few years, you've still got a future in this business.