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For One Whistle-Blower, No Good Deed Goes Unpunished

It has been noted repeatedly that almost no top bankers have faced serious consequences for their actions in the financial crisis. But there is a Wall Street corollary that might be even more pernicious: good guys are punished.

It has been noted repeatedly that almost no top bankers have faced serious consequences for their actions in the financial crisis. But there is a Wall Street corollary that might be even more pernicious: Good guys are punished.

Whistle-blowers, truth-tellers and fraud-spotters pay a miserable price on Wall Street. They are vilified. They are fired. Sometimes they are even sued. Instead of being sought after, they become persona non grata.

Recently, I caught up with David Maris, a one-time star pharmaceutical analyst for Bank of America who became embroiled in one of the most notorious bull/bear battles of the last decade. His story encapsulates just how broken Wall Street culture is.

In 2003, Mr. Maris put out a sell report on Biovail, a Canadian drug company. He fixed on the company's bizarre explanation of why it had missed its earnings estimates: A truck carrying a supposedly huge amount of medicine crashed at the very end of the quarter. Mr. Maris detailed why this was wildly implausible.

Desperate to deflect the attention, Biovail took the offensive. It sued Mr. Maris and Bank of America in early 2006. It also sued SAC Capital Advisors, the hedge fund, and Gradient Analytics, an independent research firm, claiming a giant conspiracy to drive down its stock price with false reports.

For a time, Bank of America stood by Mr. Maris. But it eventually caved and fired him—two weeks before the end of 2006, enabling it to not pay his bonus. Mr. Maris is now in arbitration, seeking $21 million in back pay.

"For the first few days, there were high-fives and a lot of media attention," Mr. Maris said. "People said this is what research should be. But then reality strikes the bank." Lawsuits and media coverage are unpleasant and unwanted.

Bank of America said: "Mr. Maris's departure was not connected to Biovail issues or to his research regarding that company. Bank of America values the independence of its research and has a longstanding practice of protecting that independence."

It turns out there was a fraud and a stock-manipulation scheme all along. But regulators said that it had been perpetrated by Biovail, not the analysts and hedge funds.

In March, Biovail settled with the Securities and Exchange Commission, which had accused the company and four current and former officers, including its former chief executive, Eugene Melnyk, of accounting fraud. Mr. Melnyk, who at one time was reported to be a billionaire, left in 2007.

Only this year, he settled with the SEC and the Canadian securities regulators, paying paltry fines. Biovail didn't admit or deny wrongdoing. (Biovail settled with the regulators over other, unrelated charges in 2008. The company merged last year with Valeant Pharmaceuticals International, losing the Biovail name.)

In recent years, Biovail retreated from virtually every allegation it made in its lawsuit. It dropped its claims against Mr. Maris and Bank of America in 2007. As part of a settlement, Mr. Maris agreed not to countersue.

The company also paid $10 million to SAC and forked over $138 million to settle a shareholder lawsuit.

So, here's the final Biovail vs. Maris scorecard: Mr. Maris was right on the facts. He was right on the stock. He was right with the law.

For his success, he was sued, fired and stripped of compensation. He also lost access to the world of bulge-bracket Wall Street, was shunned by some institutional investors, and because of the settlement that he said he felt he had no choice but to enter, he couldn't sue Biovail to seek vindication.

It's well known that analysts rarely put sell ratings on the stocks they cover. Typically, the explanation for this is that banks don't want to jeopardize their investment banking business.

The reality is much more complicated. Skeptics and whistle-blowers risk huge career costs that go beyond conflicts of interest. Investors think they want unvarnished advice, but many don't truly appreciate it. Most banks don't want employees to play detective. Regulators abandon whistle-blowers, acting tardily and ineffectually.

After he was fired, Mr. Maris found that other big banks didn't want to hire him for research jobs. Even some institutional investors and hedge funds, which one might imagine would appreciate a skeptical voice, wanted no part of him. Many investors think an analyst who is picking fights with companies is a glory hound, and the last thing they want is publicity. No matter how frivolous, a lawsuit tars both sides. This is the "Tonya and Nancy" problem, after Tonya Harding and Nancy Kerrigan. One was linked to the perpetrators, and one was the victim. But now they are forever linked, and the difference between the two almost becomes blurred.

I don't want to create the impression that Mr. Maris is suffering. He isn't. He works at CLSA, a relatively unknown but important research shop, owned by a French bank that encourages its analysts to pursue independent lines of inquiry. Another analyst who has long been a truth-teller on banks, Mike Mayo, has also landed there.

But because Mr. Maris is willing to be publicly negative on stocks, he continues to face obstacles. He is prevented from asking questions on conference calls. Companies don't allow him to bring clients on visits. Some clients seem concerned about the lawsuits in his past.

"If you asked me what's my advice for a young analyst who wants to be in business for a long time, I wouldn't tell them to follow the path I went," he says. On Wall Street, "everyone knows you play ball or live with the consequences."

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