Rocker/Cramer and Thestreet - The Ugly Truth
Over the past year, I have invested in four companies which have been subjected to serious short selling attacks. Those four Companies were ACAS, MCGC, ACF and NFI. Fortunately I bought after the attacks, so this has been extremely profitable to me thus far. In addition, I have witnessed the impact of these attacks on two other companies, PPD and ALD. The common thread here is that all of these are relatively small companies. The short interest for all skyrocketed in a few months. And, all six had a series of negative articles written by people working for Thestreet.com. Many of the articles were written by Herb Greenberg, the Street's number one guy. But, others were written by hedge fund managers themselves. And Herb even managed to get a really nasty article about ACAS (a fine company in my opinion) printed in Fortune magazine. Go to the ACAS web site, and you will find much that has been written about that there.
It is also important to realize that Jim Cramer was first a writer. While an undergraduate at Harvard, he was the editor for the prestigious Harvard paper "Crimson". After graduating from Harvard and prior to returning to it for Law School, he worked as a writer for several magazines and newspapers. One magazine he worked wrote for was American Lawyer! He has also written numerous articles for Financial Times, Money and The Wall Street Journal. The relevance of all of that experience is that he knows the value of the press and he has the contacts. So, to believe that he and his cohorts might actually be willing to compensate someone for writing and running a well placed article which could move a stock they are playing, does not require much imagination, IMO. Anything is possible.
I contacted several CEOs to complain, and although they were frustrated, they seemed incapable of doing anything that could stop the attacks.
I believe that this is actually more serious and sinister then it appears. I am certain that other hedge funds are involved in shorting some of the stocks which I listed. Greenlight Capital - David Einhorn for instance appeared to participate in the thrashing of ALD, ACAS and MCGC. And, there are a half dozen hedge fund managers who are regular contributors to Thestreet.com. Also, one of Jim Cramer’s original partners (along with David Rocker) is a man named Marty Peretz. He is the guy responsible for Cramer going into the hedge fund business to begin with. He is on the Board of Directors for TSCM. He is also a former Harvard professor, and the author of the New Republic magazine. And, at one time, he was on the BOD for several hedge funds. There are other writers who freelance who I suspect are also in on this from time to time, and who are actually being paid to write these trashing articles. Last Spring an article ran in Forbes which I found to be very suspect, because I find it hard to believe that the author - a financial writer with years of experience - was actually dim enough to believe what she has written. If she wasn't that dim, the most logical reason for a smart person to write something that is easily proven as wrong, is because it somehow paid her to do so. I also have my suspicions about a few other reporters who regularly write for financial publications. And, from time to time, I have wondered about a couple of reporters who work for one of the major financial news channels. Some of the comments that they make about stocks which are apparently in play with Rocker and his pals are all too timely for my money. I sometimes wonder why these people would go on and on about small cap companies like MCGC, ALD, PPD etc., but they do. And they usually do so in a negative way while a short attack is in process. As you are certainly aware, Jim Cramer knows many of these folks well.
There is one part to this short selling effort which may not be that apparent. But, I am quite certain that it happens. Thestreet.com bio for Herb Greenberg that was written by Jim Cramer read something like this. "When Herb Greenberg writes about something rotten in a company, watch the stock fall like a rock right before your eyes (paraphrasing the quote here, but the gist is accurate). Now, what Jim Cramer is doing here in my opinion, is recruiting hundreds of day traders to act as his army for the frontal assault. When Herb writes one of his trashing articles, I believe what he is really doing is pointing this army toward its victim for the day! Many of the short sales for these attacks come from the subscribers of one of Thestreet.com's rags. If you read JC's book, he acknowledges early in the book (pg 93 I think) that he understood the value of putting the spin out on stocks he held.
Jim Cramer also has a Harvard law degree. According to what he writes in his book, he has a close relationship with several attorneys who are securities attorneys. The relevance of this is actually three-fold. First, Cramer knows what the laws are and what he needs to do to circumvent them should he choose. And that is why he uses an army of subscribers to augment his short attacks. He knows that there is little the SEC can do when hundreds of people respond by selling or buying a stock following an article. It happens all the time. Second, Cramer knows a lot of attorneys and can use them to influence an awful lot that goes on. For example, he is a friend of Elliot Spitzer's and he was classmates with numerous other NYC attorneys.
And finally, and this may be the most sinister play of all, I suspect that one of the techniques which they might use to bash a stock is to encourage a sympathetic law office to file a shareholder class action lawsuit over some nonsensical issue. This happened with ACF, ALD and MCGC. After one class action lawsuit is filed, many other law firms always pile on because they know that the courts will eventually consolidate all similar cases under the lead law firm, but all other law firms are compensated at a hefty rate of $300 an hour or more, for the work they "claim" to have done. After these numerous law firms file class action lawsuits against a company, to many investors the issue will seem to be legitimate. But, in the case of MCGC, and ALD, the cases were ultimately dismissed. However, when these lawsuits are filed, investors always bail and the stock prices drop dramatically in a few days. To see how these lawsuits impacted some stock prices, check out the press releases for ALD, MCGC and ACF last year, and then look at the subsequent impact on the stock prices. I am not suggesting that the law firms themselves are engaged in any unethical activities. It is very likely that the way this happens is that a few supposedly injured shareholders are rounded up by the short sellers and pointed to a ready, willing and able law firm.
The investors and the company should be prepared for this type of frivolous lawsuit, as occasionally it is used by this cabal of conspirators to manipulate the price down when they are really underwater. Perhaps if this document receives more visibility the company and the shareholders will be able to anticipate this move and counter it by telegraphing that any class action will be viewed as just another confirmation that the conspiracy is alive and afoot, and that the perpetrators have hit the wall of desperation. It loses impact if everyone understands the tactic.
I hope this is of some help. These arrogant parasites need to be stopped, IMO. They are single-handedly responsible for too much damage to let it continue.
The opinions are those of the author, who has expressed the desire to remain anonymous. Any errors or ommissions are not intentional, and will be corrected once they are pointed out.
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