I applaud its managers for coming to their collective senses.

As I discussed in an earlier column, Hertz announced on September 28 that it had sued Audit Integrity and its CEO Jack Zwingli for defamation.  This alleged defamation occurred because Audit Integrity asserted in one of its research reports that Hertz faced significant risk of corporate bankruptcy.

Audit Integrity had named 19 other firms that also faced a significant chance of corporate failure, and managers at Hertz attempted to convince them also to sue Audit Integrity.  Executives at the other business enterprises did not make the same error.

I described this case here in mid-October in my essay “Hertz Diverts and Subverts”.  My response indicated surprise that Hertz managers felt that they had a chance of surviving early motions to dismiss the case.  One look at the financial report would have revealed the unhealthy state of the business entity.  Negative earnings and negative retained earnings and a terrible debt-to-equity ratio are signals of distress to the investment community.

Further, anybody could have employed Altman’s well known model of predicting bankruptcy and discovered Z-scores for Hertz that displayed very poor results.  It wouldn’t take a rocket scientist’s nanny to figure out that Hertz faces financial troubles.

I assume that some Hertz managers or directors read my column.  After seeing the impeccable logic of my op-ed, they reconsidered the lawsuit against Audit Integrity.  Then, on or about November 15, Hertz dropped the lawsuit.  Publicly Hertz said that it had a good third quarter and wanted to move forward.  I accept their wanting to save face and not credit my logic for their decision.  It was a wise move even if I didn’t obtain proper attribution.

I was not successful on all counts, however.  In that essay I also encouraged the SEC and its chair Mary Schapiro to stop the intimidation of research analysts.  Audit Integrity also complained to the SEC about issuer intimidation, and in a letter to the firm, Mary Schapiro said she could not do anything.

Nothing?  I find it incredible that she cannot make a speech decrying corporate interference with legitimate work by research analysts.  I find it amazing that she cannot call up members of Congress and express her view that there ought to be a law against issuer intimidation.  I find it perplexing that she cannot or will not use the bully pulpit to stand up for investors, which I thought was the SEC’s raison d’être.

The Hertz decision is a win for everyone; unfortunately, it is marred by the inexplicable inaction of the SEC.  The battle for truth in accounting continues.