Hitachi Zosen (LSE:HTZ)
Historical Stock Chart

From May 2019 to May 2024

Audit Integrity, a research firm, wrote to the Securities and Exchange Commission saying Hertz Global Holdings Inc. (HTZ) is trying to "silence" its independent analysis, an effort that "warrants an investigation by the SEC."

Hertz had filed a lawsuit in Superior Court in Bergen County, N.J. against Los Angeles-based Audit Integrity last month, alleging Audit defamed it in a report.

Audit produced a research report, based on quantitative analysis, called a Bankruptcy Risk Model, and identified the 20 large-capitalization companies it said were most at risk of declaring bankruptcy. The report stated that Hertz, along with 19 other firms, was likely to file for bankruptcy protection within the next year.

The lawsuit, and Audit's response, raise the issue of retribution against research firms and analysts who publish negative reports. Similar confrontations have occurred in the past. Rochdale Securities analyst Dick Bove, who at the time worked at Ladenburg Thalmann, was sued for defamation last year by BankAtlantic Bancorp (BBX) after he issued a report called "Who is Next?" following the collapse of IndyMac Bancorp Inc.

The lawsuit is "very much alive," Bove said, adding it has cost him about $50,000 a month in legal fees since it was filed last summer, and it impacts his ability to write independent research.

According to Audit Integrity's founder and chairman James Kaplan's letter to SEC Chairman Mary Schapiro, Hertz "has offered no evidence of factual errors or inaccuracies in our analysis."

A Hertz spokesman said the company isn't concerned about the SEC letter.

Kaplan wrote in the letter, "The SEC would serve the markets and investors well by insisting that companies with material financial risks not be allowed to deny these problems exist without providing substantiating evidence."

Kaplan told Dow Jones Newswires that Audit feels protected under the First Amendment, and it did review the Hertz data again to make certain there were no factual errors with the hundreds of datapoints used with the model.

Audit has taken issue that Hertz has tried to rally the other 19 companies to file a lawsuit against Audit as well. Kaplan noted his concerns in the SEC letter about Hertz's "blatant attempt to induce more than 19 companies to consider legal action against Audit Integrity."

Hertz is seeking injunctive relief and unspecified monetary damages, including punitive damages, for "false and harmful" information about Hertz.

-By Jessica Papini, Dow Jones Newswires; 212-416-2172; jessica.papini@dowjones.com