Investors Bet Against Stock in Harvard Professor’s BlogJohn Hechinger and Jesse Westbrook
At least five investors betting against Internet video and advertising company Blinkx Plc benefited after a blog posting by a Harvard Business School professor last week triggered the stock’s biggest plunge ever.
The investment companies are Luxor Capital Group LP, Blau GmbH, Jericho Capital Asset Management LP, Valiant Capital Management LP and Oxford Asset Management LLP, according to European regulatory filings.
In the Jan. 28 blog, entitled “The Darker Side of Blinkx,” Benjamin Edelman, an associate professor of business administration, said his research indicated that the London-based company used deceptive software to inflate traffic counts and capture commissions. Edelman wrote that he prepared the research for an unnamed client.
Edelman, 33, added this week that he had been paid for the work by two U.S. investors, which he still declined to identify. That expanded disclosure came after the stock tumbled and Harvard Business School, citing its conflict-of-interest policy, asked Edelman for more information. It’s unclear if the investors who paid for the research profited from its publication.
Harvard’s push for more information demonstrates how universities are adapting their policies to protect the integrity of scholarship as the Internet expands opportunities for faculty to magnify the impact of their work. The policy at Boston-based Harvard Business School, which applies to blog entries, as well as academic articles, was drafted and put into place 18 months ago.
Blinkx, which also has a San Francisco headquarters, “strongly refutes the assertions made and conclusions drawn in the blog post,” it said in a Jan. 30 statement.
Luxor and Blau increased their bearish bets in January, while Jericho first disclosed a short position on Blinkx last month. In a short sale, traders bet stock prices will fall by borrowing shares from a broker, hoping to return them at a lower price and pocket the difference.
Luxor had a short position of $28.6 million in Blinkx shares as of Jan. 14, filings show. Jericho had a short of $7.9 million on the same date. Blau’s short position was $12.4 million on Jan. 21.
Valiant reduced its bet against Blinkx by 1.6 million shares on Feb. 4, a week after the blog posting, according to U.K. filings. Oxford hasn’t changed the size of its short since November 2012.
Hedge funds and other investors are required to reveal their short positions against U.K. companies under European Union rules that took effect in 2012. Bearish bets of at least
0.5 percent of a company’s issued share capital must be publicly disclosed, while wagers exceeding 0.2 percent must be reported to regulators.
Adam Dilworth Miller, chief operating officer of Luxor, based in New York, and Martin Byman, chief operating officer of Oxford, based in Oxford, England, declined to comment. Miller said the company never discusses individual investments.
Jericho, through a spokesman, declined to comment. Blau couldn’t be reached.
“Valiant is not one of the two investment firms Professor Edelman cited as having engaged in his blog post,” Ruby Sekhon, Valiant’s general counsel and chief compliance officer, said in an interview today. In an e-mail today, Edelman also said Valiant wasn’t one of the two firms.
Investor Carson Block told Bloomberg Television on Wednesday that he is short Blinkx shares. He said his Muddy Waters LLC research firm was working on a potential report on the company when he was preempted by Edelman.
The shares rose 6 percent to 122 pence in London trading today, giving the company a market value of 487 million pounds ($799 million). Before the rebound, Blinkx had slumped 43 percent since the blog post. On Jan. 30, the stock retreated 32 percent, the biggest one-day decline since the company went public in May 2007, according to data compiled by Bloomberg.
Edelman’s initial disclosure said he prepared a portion of the article “at the request of a client that prefers not to be listed by name” and who let him include the research on his blog.
In updates Feb. 4 and Feb. 5, Edelman said he was paid by two U.S. investment firms, which he declined to identify. The investors haven’t changed their positions on Blinkx since the Jan. 28 posting, he said. He didn’t specify whether they were shorting Blinkx shares.
In an e-mail, Edelman said he did the work for the two investors under one contract, so he considers them a single client.
Edelman’s amended disclosure said his clients’ “primary interest was in learning more about Blinkx’s business, not in assuring I tell others.”
The professor’s first disclosure “lacked clarity” and didn’t satisfy the “reasonable reader test” -- or giving the consumer enough information to “identify potential conflicts and interpret the work product with appropriate care,” Harvard Business School said in an e-mailed statement.
The business school’s conflict-of-interest policy requires that faculty disclose relevant paid and unpaid outside activities related to work available to the public.
“This is new territory and we are learning as we go -- building case law, providing positive examples as best practices, using outside feedback to determine where we are falling short,” Brian Kenny, Harvard Business School’s chief marketing and communications officer, said in the e-mail. “Our objectives have been clear from the start: we hope to avoid anything that would discredit the faculty’s scholarly work.”
In an interview, Edelman said he had received many questions about the disclosure and that it should have been more precisely worded.
“I appreciate their pointing out that the disclosure could have been better, and I was happy to revise it,” Edelman said of the business school. “Obviously, I wish I had chosen better wording. I certainly expect to spend more time on the disclosure next time around.”
In his latest disclosure, Edelman said he performed the research in December and January for the U.S. investors and that his agreement didn’t “oblige me to circulate my findings.”
“The client tells me that it did not change its position on Blinkx after reading my article,” Edelman wrote.
Edelman, whose scholarly research focuses on the Internet, has a history of exposing questionable advertising practices, including at Zango Inc., an Internet advertising company.
In 2006, after Edelman wrote about Zango, the company agreed to pay $3 million to settle a Federal Trade Commission complaint that it used unfair and deceptive methods to put advertising software on consumers’ computers. Blinkx is using Zango’s software, Edelman said in his blog post.
In his e-mail, Kenny said Edelman “has been thoughtful about raising questions related to his outside activities throughout his time at HBS” and has “put care into crafting a disclosure intended to satisfy the school’s policy.” Harvard supports Edelman’s efforts to expose questionable activities on the Internet, Kenny said in an interview.
“It’s important to note this isn’t inconsistent with his line of work,” Kenny said. “He’s written controversial things about Google and Microsoft and other industry giants. He sees it very much as his area of interest and appreciates being able to research something he feels isn’t right and expose it.”