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Thursday, September 14, 2006

Circling Vultures: Funds Buy Option Scandal Companies (JNPR)(BRCM)(RBAK)

It seems to be news that mutual funds and other institutions are buying shares in the 100 or so companies caught up in the options dating scandal. Reuters reports that famous old line firms like Wellington Management and T Rowe Price are snapping up shares in companies like Juniper and Redback, companies embroiled in the backdating problem. And, Fidelity has tripled its holding in Broadcom, another options scandal company.

What is amazing is that anyone is surprised or that any of this is news. Money seeks its best perceived return. Period.

Although it is rarely acknowledged on Wall St., investing is just a very sophisticated form of gambling. If that were not the case, well, everyone would make money. Especially the large institutions with their quants and analysts.

The gamble on options scandal companies is very simple. Most of them will do fine. Most will restate earnings without cash implications. Most will not lose their managements to prosecution. Most will remain listed on Nasdaq. Most will go on about their business in the next few quarters.

And, most have depressed stock prices as the market sorts out what will happen. Any company that dodge a bullet will probably see its stock price move up smartly.

So, what's new?

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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