When Companies Doth Complain Too Much

I was taken somewhat aback when I read how Lehman Brothers responded to an inquiry about allegations made by short seller David Einhorn. “We will not continue to refute Mr. Einhorn’s allegations and accusations,” an unnamed spokeswoman told The Wall Street Journal. "Mr. Einhorn cherry-picks certain specific items from our quarterly filing and takes them out of context and distorts them to relay a false impression of the firm’s financial condition which suits him because of his short position in our stock. He also makes allegations that have no basis in fact with the same hope of achieving personal gain."

It’s understandable that Lehman would vehemently deny Mr. Einhorn’s allegations questioning the firm’s accounting. However, the statement seems a tad personal, particularly since Mr. Einhorn has made no secret of his short position. Lehman’s essential public defense appears to be that Mr. Einhorn’s allegations are wrong simply because he benefits handsomely if they are right.

I’m not going to take sides on this one, as I’m not privy to all the facts. Still, Lehman’s seemingly personal attacks on Mr. Einhorn hardly inspire confidence if history is any indication.

Back in 2001 a young reporter at Fortune named Bethany McLean began questioning the accounting of a then highly revered Houston-based company called Enron. Jeffrey Skilling, the company’s then chief executive, called her unethical for failing to do more research. And Kenneth Lay, Enron’s former chairman, complained to Fortune’s editor that McLean was relying on information provided by a short seller who wanted to drive down the price of the company’s stock. Turns out, that short seller had good reason to be short on the stock.

Then there were the attacks by L. Dennis Kozlowski when he was the CEO of Tyco International. In response to a report by David Tice questioning Tyco’s accounting, Mr. Kozlowski said he was outraged by the “false and baseless” report. ''There is no risk that investors will wake up one day and find out'' that ''there's something wrong with the way we've been recording revenue or the way we've been recording margins.'' Mr. Tice, too, was also a short seller.

Finally, there was the press release Calpine International issued on August 27, 2004 attacking a report by an independent research firm called Rate Financials questioning Calpine’s accounting. The release said the report was riddled with “flagrant, misleading and inaccurate allegations.” Sixteen months later Calpine filed for bankruptcy.

For the sake of the public markets, I truly hope that Lehman ultimately defies a disturbing trend that suggests a possible inverse relationship between reality and the vehemence of a company’s denials.