Value Line motto: Deny! Deny! Deny! By Crain's New York Business on August 23, 2010 2:43 PM | Share | Comments (0) | TrackBacks (0)
Value Line used to market itself with the slogan: "The most trusted name in investment research." But according to a recent court filing, the publisher of the venerable The Value Line Investment Survey newsletter didn't really mean it.
Last November, Value Line suffered a devastating blow when federal regulators said that the company's money management division had for nearly 20 years defrauded customers by charging inflated commissions for mutual fund trades and collecting kickbacks from favored brokers. Value Line was forced to pay $45 million in penalties and the company's chief executive, Jean Bernhard Buttner, was barred from her business. In addition, she was given a year to dispose of her 86.5% stake in the company that was founded by her father 79 years ago. Read more about Mrs. Buttner and Value Line.
In a court document filed Friday, Value Line and Mrs. Buttner "deny the allegations" of a shareholder who alleges that the company's slogan meant that "trust and integrity are an important part of its cache[t] and draw for potential clients." I've called the lawyer for Value Line and Mrs. Buttner and will provide an update if he has any comment.
Buttner_Jean_CharlesWaller.jpgNow, to be fair, Value Line and Mrs. Buttner deny just about everything alleged by the shareholder, Alan Kahn, who filed his suit in New York state Supreme Court. The co-defendants' legal response is both admirable in its brevity and remarkable for its stubborn, unyielding adherence to blanket denials of even the most uncontroversial statement of fact.
For example, the defendants' lawyers attempt to obliterate the most elemental statement contained in Mr. Kahn's complaint, that Value Line paid millions in fines and has suffered from adverse publicity from arising from the whole legal mess. Value Line's response: "Deny the allegations in paragraph 1 of the complaint."
Later in his suit, Mr. Kahn reviews Value Line's history contained in last year's order from the Securities and Exchange Commission, pointing out that Mrs. Buttner became a director in 1982 and served as CEO from 1988 until her resignation last year.
Mrs. Buttner's response to this recitation of the record? "Deny the allegations of paragraph 20 of the complaint."
Multiply this by six double-spaced pages and you'll get the idea.
Meanwhile, some former board members are trying to extract themselves from the shareholder suit. They point out that the SEC order from last year says Mrs. Buttner and her deputies "misled" independent directors about their fraudulent activity. The independent directors included Herbert Pardes, who is CEO of New York Presbyterian Hospital; Edward Shanahan, headmaster of boarding school Choate Rosemary Hall (of which Mrs. Buttner is an alum); and Marion Ruth, a Los Angeles real estate agent.
All three were removed from the board "without cause" by Mrs. Buttner in April. The actions that may have upset the former CEO include their decision to launch a litigation committee, which probably would have tried to settle the suit. They also opposed Mrs. Buttner's desire to award herself a special dividend of $3 a share, or $26 million. At the special meeting to unseat the independent directors, Mrs. Buttner's son, Edgar Buttner, resigned from the board.
Meanwhile, Value Line's value continues to erode. Its stock trades for less than half its 52-week high, and the company reported a 32% decline in net income for the fourth quarter ending April 30. For the full year, the firm posted a $23.2 million net loss.
It turns out the company may never really have put much stock in its "most trusted" slogan, anyway. Category: Wall Street Tags: finance , Mean Jean , professional services , Value Line