Guidant's Poor Relations

Shares are halted in after-hours trading. Everyone turns to the company for answers. They get an explanation from an analyst instead. This may have been a common scene in the days before selective disclosure became a corporate no-no, as Wall Street's chosen few were granted privileged access. But this took place last night.

Shares of Guidant (NYSE: GDT  ) were halted in after-hours trading yesterday. The medical device maker hadn't even issued a press release to explain the move when a J.P. Morgan (NYSE: JPM  ) analyst revealed that Guidant had told him that it was recalling certain lots of its vascular stents.

The magnitude of the recall process may be insignificant. Mistakes happen. Mistakes are rectified. But why do we have to hear this from an analyst? According to J.P. Morgan's Michael Weinstein, the company told him that it had stopped shipping its Vision cobalt-chromium stent on Monday, presumably because it already knew that there was a problem. So instead of the natural speed bumps associated with the logistics behind a defective lot, we investors are left with even greater questions.

When did the company confide in Weinstein? If Guidant knew that the news was material enough to justify a halt in trading, why didn't it issue a press release before it leaked the news to the analyst? Who lined the birdcage with fair disclosure's rulebook?

Guidant and J.P. Morgan are quality companies. And while you can't fault a company for reacting quickly to a recall situation, or an analyst for doing his job, where do we draw the line? Thanks to the wonders of web-enabled communications, dispensing news to every investor or potential investor at once is a breeze.

Corporate America needs to learn this. If you have something important to say, would you like to share it with the rest of the class?