Boots Asensio's Brokerage
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Advisor or Hedge Fund Flack? Pt 2
More and more, it looks as though Manuel Asensio has cleverly crafted an image that bears little resemblance to reality. His claim of independence is hard to reconcile with evidence that he initiates coverage at the behest of clients seeking help with problem short positions. His claims to write his own reports are belied by his ignorance of their content and lack of training in the subject matter. His recent commentaries don't help either.
His most recent "pick" is Multimedia Games, initiated in early October. MGAM has performed impressively this year. It doubled between March and September, creating a nightmare for short-sellers.
As always, investors and the financial media were
see MGAM as an independent pick. But a little probing
turned up evidence that Asensio's longtime client, West Highland Capital, has been
following MGAM closely for at least a year and a half. The
transcript of an April 2002 conference call, for example,
features the fund's Dave Scially interrogating management in familiar
Whatever the answer, the campaign could be going better. The stock has made several new highs since Asensio took aim.
Holdings reports filed by Blue Ridge Capital and West
Highland show that they held small long positions in On2, consistent with a strategy involving a much larger short
position, months before Asensio contacted the SEC.
West Highland also held such a position in Rica Foods, Epicedge, and Emagin during
the quarters before the letter was sent.
In 2001, West Highland reported small long positions in ATSI and Med
Diversified, two more stocks mentioned in the complaint. It is
possible that these shares were bought to protect short positions taken during
Another question is whether it is appropriate for Asensio to complain to a federal agency without disclosing that his clients are positioned to benefit handsomely from regulatory action. This question applies not only to agencies, but to Capitol Hill.
According to Asensio's version of events, his letters to members of Congress have stimulated investigations by the General Accounting Office and SEC. Would these have occurred if he had disclosed that his clients stood to gain from the announcement of an investigation? It's possible, but not nearly as likely. Which perhaps is why clients prefer that letters to Congress and the SEC bear Asensio's signature, not theirs.
Asensio and his clients can hardly
claim a lack of knowledge about what is expected in such a situation.
Between them, they
hold at least five MBA degrees; four teaching
positions at well-known universities; and many decades of experience.
John Griffin, president of client Blue Ridge Capital, is also vice-chairman of the
board of trustees of the University of Virginia McIntire School of Commerce.
Surely they must realize that seeking
regulatory action without disclosing potential windfall benefits to one's
clients is highly questionable. Especially if compensation for
services is tied
Whether Asensio's compensation depends in any way on the magnitude of damage he does is not clear. He hinted that this might be the case in recent courtroom testimony. Asked by his attorney to explain how his clients compensate him, Asensio said:
Though he was somewhat vague, it sounds like Asensio was saying that his compensation is based on an assessment of what his activities have been worth to clients. Another fact worth noting: in 1996, one of his targets claimed to possess a letter which read:
For what it's worth, Asensio denied having made such an offer. Diana Corporation no longer exists. But this does not mean that the letter never existed, or that Asensio's compensation is unrelated to how much his campaigns affect his clients' short positions.
There is an obvious solution that
could end this mystery. Asensio could hold himself to the same standards he
expects others to meet. He could disclose his compensation arrangements. His clients
could insist on it. While they are at it, they could also insist that he
disclose any positions they hold in his targets.
Page created 11/01/03