Extra3/23/2007
4:30 PM ET
Jim Cramer: Here's how to cheat
The popular CNBC host, a former
hedge fund manager, could draw scrutiny from federal
regulators after telling an interviewer about
methods for manipulating the stock market.
By Reuters
Stock market commentator and CNBC
television host Jim Cramer has raised eyebrows after
describing illegal activities used by hedge fund
managers to manipulate stock prices.
In a December video interview on
the Web site of TheStreet.com (TSCM, news, msgs), a
financial news company he co-founded, Cramer, while
never saying he used such tactics himself, described how it was possible to push stocks higher or lower
at his previous job running a hedge fund.
The interview, which has received
widespread attention only after being posted to
online video site YouTube, may be studied by
government and stock market regulators, said hedge
fund experts and legal sources.
Cramer: It's a fun, lucrative
game
The interview
described methods, including
tactical buying,
shorting and using options, to
create an impression
in the market that could prompt other traders and
investors to buy or sell a stock.
"A lot of times
when I was short at my hedge fund . . . meaning I
needed (a stock) down, I would create a level of
activity beforehand that could drive the futures,"
said Cramer. "It's a fun game and it's a lucrative
game."
Cramer, host of
the popular CNBC television show "Mad Money,"
described other tactics that could be used to drive
down technology stocks such as Research in Motion (RIMM,
news, msgs) or Apple (AAPL, news, msgs) to make them
cheaper to purchase later. CNBC is owned by General
Electric (GE, news, msgs).
In the
interview, Cramer said a hedge fund manager's
favorite tactic is to get a rumor about a stock to
an unwitting reporter -- at The Wall Street Journal
or at his current employer, CNBC -- and hope that
it moves the stock in the direction the manager wants.
Cramer said some tactics are
"blatantly illegal" but sometimes essential for
poorly performing hedge funds.
Cramer said if
a market participant wanted to get shares of a
company like Research in Motion lower, then he
should first get investors "talking about it as if
there is something wrong with RIMM. Then you call
the (Wall Street) Journal and get the bozo reporter
in Research in Motion and you would feed that
(rival) Palm's (PALM, news, msgs) got a killer it's
going to give away," he said. "These are all the
things that you must do on a day like today and if
you're not doing it, maybe you shouldn't be in the
game."
"It might cost me $15 million or
$20 million to knock RIMM down but it would be
fabulous because it would beleaguer all the moron
longs who are also keying on Research in Motion,"
Cramer said.
He also said
the Securities and
Exchange Commission does not understand some illegal
activity.
Challenging financial
regulators?
Hedge fund
lawyer Ron Geffner of Sadis & Goldberg called the
interview a "somewhat surprising confession to make
publicly, which definitely invites suspicion by
regulators."
"Whether he violated the law is
unclear," Geffner said. "That is dependent on his
trading records. But it's clear that he seems to be
challenging regulators to come and examine him."
A spokesman for the SEC declined
to comment on whether the agency is looking at
Cramer's comments. A decade ago Cramer faced an SEC
investigation over a column he wrote for SmartMoney
magazine that touted four stocks without disclosing
his holdings in them. He was eventually cleared of
wrongdoing, according to news reports.
Other legal experts criticized
Cramer's comments for suggesting that
stock
manipulation is widespread among the growing legions
of hedge funds, which are investment vehicles that
typically trade much more actively and use more
complex strategies than mutual funds.
"This makes it sound like
everyone is doing it, and the reality is that most
hedge funds are not engaged in this kind of
manipulative behavior," said Laurel FitzPatrick, a
hedge fund lawyer with Ropes & Gray.
Cramer could not be reached for
comment following calls to both TheStreet.com and
CNBC. Spokespeople for CNBC and TheStreet.com were
unavailable for comment.
Cramer said in the interview that
he would not make such comments on his CNBC show.
Cramer, who regularly gives
opinions on stocks on his daily TV show, also said
stock market movements are often unconnected to the
fundamental qualities of the underlying company.
"Who cares about the
fundamentals?" he said. "The great thing about the
market is that it has nothing to do with the actual
stocks."
This article was reported and
written by Dane Hamilton for Reuters. Hamilton
previously worked for TheStreet.com. |
