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the criticisms I had made in the speech. Though Allied and its supporters claimed Greenlight was behind the lawsuits, we had nothing to do with any of these lawsuits, and we were surprised by them. The lawyers were simply reacting to the news of the day and rushing to court hoping to earn fees. It seemed Allied wanted people to sympathize with them as victims of an intricate, though, in fact, imaginary conspiracy.

Later that day, Allied’s investment banker, Merrill Lynch—which earned millions in fees underwriting Allied’s recent equity deals—published a report titled “The Song Remains the Same.” Though our view was outside Wall Street’s thinking about Allied, the company and its supporters pretended that Greenlight offered nothing new, so no one needed to pay heed. Of the conference call, Merrill opined, “The company provided meritorious defenses to all the criticisms leveled.”

“As a business development company, the company is required to mark its investments to long-term value, and disclose these investments to investors quarterly in their SEC filings,” the Merrill report declared. “From time to time, the company has had investments in publicly traded companies (equity and debt) where the mark to market on the investment differs from where the investment trades in the market (or where a deal has been announced). There have been both undermarket gains (such as WyoTech currently) and debt and equity that has traded below where Allied has carried it (such as Velocita debt currently).” Then, Michael Hughes, the Merrill analyst, underlined his next sentence for emphasis. “The nuance here is that Allied is required to mark to long-term value, not mark to market.” That would have to be some nuance, because it was clearly wrong. As I said in my speech, the Merrill Lynches of the world would defend the stock to the death.

Indeed, the next morning Wachovia resumed coverage of Allied with a “Strong Buy” rating and a $29 price target. Joel Houck, its analyst, published a report that might as well have been written before my speech. It talked about the business model, Allied’s long history, and how cheap the stock was. The report discussed how the business model evolved after 1997 when Walton became CEO and Allied’s predecessors merged. Allied made larger deals, raised capital, and took more control positions, such as BLX, Hillman, and Wyoming Technical Institute (Wyotech). When Houck presented his recommendation to the Wachovia sales force, he also said that I “didn’t raise anything new.”

At my request, a few hours later we had a call with Houck. Houck told us that he had drilled down on our issues for twelve to eighteen months, and while Allied’s transparency isn’t where it needs to be, the weaknesses in tech-oriented names are where their long-term approach to valuations doesn’t really hold up well. Because the transparency isn’t good, he can judge only the portfolio-wide results, and, as Sweeney said, since exit events occur at valuations consistent with Allied’s most recent marks, there is no reason to question the portfolio valuation as a whole.

While he acknowledged that Velocita, Loewen Group, and NETtel valuations are “almost indefensible,” he thought there was offsetting upside in the valuations of Hillman, WyoTech, and BLX. I pressed him on his admission of “indefensible” valuations. He tried to clarify, “What I meant was, absent the proprietary information Allied is sitting on, the valuations are indefensible.” I pointed out Velocita is a public company with SEC-filed financials. What proprietary information could they have to justify carrying it at cost at the end of last year?

He asked if I had seen the internal documents Allied used to value its portfolio. I told him that I hadn’t, but if he could show us a document to justify the year-end valuation of Velocita, we would publicly recant our entire analysis. He said he would pass that along. He also said that the investment company valuations allow the company a hold-to-maturity approach to valuation. I called him on that by pointing out that the Investment Company Act of 1940 doesn’t permit that. Suddenly, he didn’t seem to know everything. “What does it say?” he asked.

I said the Act says you have to use fair-value. He quibbled over the difference between “fair-value” and “market value,” so I asked him to explain the distinction.

He responded, “Value is a tricky concept, David.”

Then, I pressed him on his claim that I had not said anything new. I pointed out that he didn’t hear my speech and he hadn’t called to find out what I said. He said that the audit letter was a new issue, but it was “easily dismissible” because the Audit Guide had changed. I challenged that, and he said he would look into it further. Then, he asked me what I thought was new. I questioned how the portfolio survived a recession without significant credit losses. I compared Allied to a high-yield bond portfolio and pointed out that Allied’s loans were generally riskier because the companies are smaller than high-yield issuers and had less access to capital. According to Allied, it had performed even better than Finova, a senior lender.

He said, “Finova was fraud.” In fact, Finova was not a fraud, just a company that mismanaged its credit and liquidity risks.

“How do we know this isn’t fraud?” I asked him.

“David . . ., nobody knows. Nobody can say definitively whether it is fraud or it isn’t fraud,” Houck acknowledged.

“How do you know Finova was fraud?” I asked him.

“Well, you know it was fraud after the fact,” he replied.

Then, he told me we had spoken to the “wrong people” at Allied. This continued the story that we hadn’t done our homework. I told him that we went over our issues through normal investor-relations channels. He said that we needed to talk to Sweeney, not Roll. “Joan Sweeney is the chief operating officer, has her finger on the pulse of all these companies,” Houck said. “Do you know where she was before Allied?”

“Where was she before?” I asked. “I don’t know her history.”

“She came from the SEC