SCOTTSDALE, Ariz. — A small stock-research firm based in this desert city is suddenly getting showered with attention, and it's not the kind of notice a company appreciates.

CEOs of two companies featured in critical research by Gradient Analytics are accusing the company of a market-manipulation scheme to drive their stock prices down.

Sunday evening, that legal battle made it into average Americans' living rooms. The CEO of Canadian drugmaker Biovail took his message to the CBS newsmagazine "60 Minutes" to outline his charges that Gradient colludes with big hedge funds to produce negative research and unfairly drive down stock prices so the hedge funds can make huge profits. That echoed the often-vocal allegations of the CEO of Internet retailer Overstock.com.

The Securities and Exchange Commission has weighed in, requesting information on Gradient's communications with investors and journalists, according to a person with direct knowledge of the SEC request. Adding to the firm's woes, Gradient on Friday was named in a Biovail-related class-action lawsuit.

The leaders of the alleged conspiracy aren't exactly characters worthy of a John Grisham novel. Instead, Gradient is the creation of two former tenured college professors, Carr Bettis and Donn Vickrey, who say they have created software that dispassionately sifts through the stock market's white noise to reveal when companies are not as financially healthy as they appear.

From their outpost here, Bettis and Vickrey head up a team of 18 analysts who use computers stuffed with proprietary software that ferrets out companies that could be manipulating their earnings. Their machines look for patterns, based on formulas created through years of academic research, to find companies bending accounting rules to make their earnings look good. Gradient uses its data to write "Earnings Quality" reports that it sells to investors.

Together, the men say, they are challenging how stock research is done and academia's near-gospel belief that no one can beat the market. "We are a trusted name," Bettis says. "Our models work."

Gradient's roots go back to 1992 when Bettis, a Ph.D. in business and a professor at Arizona State University, and Vickrey, a Ph.D. in accounting and a professor at the University of San Diego, were introduced through Vickrey's father, a professor at Arizona State. They teamed on academic research: Vickrey specialized on accounting and earnings; Bettis focused on executive incentive compensation plans. Four years later, having refined their technology, they launched a business identifying inefficiencies in the market.

Their computerized approach caught on quickly. Vickrey and Bettis learned, though, that money managers didn't just want data dumps, they wanted someone who would interpret the data for them. So they hired analysts to write reports based on Gradient data. Subscribers, including hedge funds and mutual funds, now pay about $40,000 a year for the data and reports.

Early successes made Gradient must-have research for some large money managers. Their most famous call was flagging the brewing problems at doughnut maker Krispy Kreme before the company's stock plummeted amid revelations of earnings manipulations.

Other prescient calls included research on March 14, 2003, on medical company Impath, which later filed for bankruptcy protection. Most recently, Gradient won recognition for bearish calls on Overstock.com and Biovail.

But notoriety has had its price. Overstock CEO Patrick Byrne has waged a high-profile legal fight against Gradient, suing it and a hedge fund it says uses its research, Rocker Partners.

Overstock alleges in its lawsuit that Gradient is a critic for hire and has let clients read reports before they were published and request negative information be inserted. The lawsuit also says Gradient secretly controls its own hedge fund, which trades based on unreleased reports.

Separately, Biovail is suing Gradient along with dozens of hedge funds for similar reasons.

Bettis and Vickrey won't comment on any pending litigation or if they received any requests from the SEC. They deny the allegations. They say Gradient's software determines which companies they do reports on.

Bettis says CEOs who don't like the research Gradient generates don't have to sue to prove their point. "All you have to do is prove us wrong," he says. "You just have to perform."