The Meltdown of SFBC Intl-SFCC

On Thursday morning, one would get the sense that SFBC International, Inc. (NASDAQ: SFCC), after months of dread due to allegations of clinical trial wrongdoing, would be vindicated. The company put out a press release saying that an independent counsel report rejected Bloomberg's allegations, the
stock was trading higher in early action and things looked like they had bottomed out. That was until the conference call started, or that is the Q&A session started.

The mood on the call to start was one of redemption, of a step in the right direction. Sell-side firms were asking the normal softball questions and the management was confidently answering them. Then a question came from Daniel Loeb of Third Point, a notorious shareholder activist and rabble-rouser. Loeb commented sarcastically, "Congratulation on answering the questions raised in the Bloomberg article, you guys did an outstanding job!"

Then Loeb went on the attack. Loeb said the company's VP of Legal Affairs, Gerald Seifer, was a rouge employee. Loeb said Seifer, a key figure in the matter, was sanctioned by the SEC for commodities trading in addition to being sanction by the FCC related to Gerald Wireless and Applied Telemedia. Possibly more astonishing, Loeb said Stifer has a Bentely, a Rolls Royce and a home with Dr. Lisa Krinsky, the company's Chairman. The Miami Herald said the company would not respond to questions about the two's relationship, which Loeb says is either a husband-and-wife or common law husband-and-wife relationship.

Loeb then questioned how the company can put someone with such a questionable background in charge of the legal affairs at a company in such a highly regulated industry (the company indicated he was not a lawyer). Loeb also said Stifer has been "potentially" washing sales of the stock through his relationship with Dr. Krinsky, who he claims got her degree from a mail order institution in the Caribbean. Loeb said he will marvel in watching the company melt down, once their clients find out what is really going on.

So when holders or onlookers watch in wonderment at the complete disintegration of the market value of SFBC, know that it really comes down to one thing, "trust". When clients find out that the Chairman of the company is in a "secret" relationship, spending millions with a gentlemen that is being accused of threatening test subjects, they will likely flee. It looks like it is time for the company to make some major management changes, and quick, before a complete meltdown.

What about Loeb? What are his intentions for the company? Most likely he is short, although when we contacted him he wouldn't disclose. What about long? Maybe not now, but it could be conceived that Loeb does see value without the current management in place. Loeb's strategy could be to accumulate stock on the cheap once all the skeletons are out. But where that is is anyone's idea. We will be watching.

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