How's this for an attack? I don't expect that anyone will read it at TSCM.
James Cramer is mutual fund manager and one of the greedy guys who work on Wall Street. With his excessive zeal for making money for himself and his fund, did he step over the line and commit violations of the laws which prohibit securities fraud? It's my opinion that he did. <BR>
Cramer wrote in The New Republic (January 9-16, 1996) that "...fund managers talk up what they own." In the February 1995 issue of , SmartMoney, Cramer attempted to talk up the stock of Rexon. (SmartMoney is a magazine owned by Dow Jones & Company and The Hearst Corporation.) Cramer wrote, "I wrote about this $5 stock last October in a column on technology plays, in which every other stock I mentioned flew away at light speed. But this maker of backup storage systems for computer networks went nowhere because nobody is out there to push it. Meanwhile, insiders have gone on a buying spree, snapping up more than 100,000 shares in a couple of weeks." The correct number of shares purchased by Rexon insiders Ruel and Gene was 25,000 according to their Form 4 disclosure statements on file with the SEC. (I have altered their names slightly here.) But this was not simply a case of Cramer lying or exaggerating the number to make things sound better.<BR>
Cramer's source that Rexon insiders were going to be buying was a tip, and the tip was not reliable. (Anyone who doubts this could call or e-mail Cramer at jjcletters@thestreet.com and ask what his source was when he wrote that Rexon insiders had snapped up more than 100,000 shares. According to Gentlemen's Quarterly of August 1997, he never forgets anything.) Cramer wrote his column in early December 1994, before the Rexon insiders had made their purchases on December 9, 13, and 14. Cramer would have been surprised when the news came out, but probably wasn't too concerned. After all, Rexon wasn't going to go bankrupt, was it? That's exactly what happened in September 1995. According to a chart in Money magazine (April 11, 1995, page 11), a spike occurred in Rexon's volume curve of about 1,000,000 shares in the week following the publication of Cramer's recommendation. Those shares represented about $6,000,000 of small investor's money which disappeared when Rexon went bankrupt. <BR>Shortly after Cramer's column was published, he was criticized in The New York Times, Newsweek, The Boston Globe, The Village Voice, US News and World Report, and twice in The Washington Postincluding once on the front page. He defended himself in The Washington Post and was defended in Time by Joseph Nocera. The New York Times had written that after submitting his column for publication, Cramer had purchased 165,000 shares of Rexon in the last half of December. Nocera wrote, "Cramer concedes that he bought stock during that period; a large block became available, and he felt he had no choice but to purchase it." However, his 13D disclosure statement shows that the 165,000 shares were purchased in seventeen different transactions, including 110,000 shares purchased in four different transactions on the last trading day of the year. Also, The Times did not report on Cramer's purchases for the first half of December, which were reported in another 13-D statement and amounted to another 169,000 shares. (Considering his false statement to Nocera, should anyone have believed him last winter when he said that he hadn't sold short WavePhore, or didn't intend to sell it short?) The SEC has never publicly cleared Cramer for this incident. That's only a rumor. <BR>
Dow Jones announced that they had made a thorough review of the situation and found that Cramer had done nothing wrong ( Wall Street JournalMarch 10, 1995). However, they later admitted that they did not know if what Cramer wrote was true or not, and that they did not know what his sources were.<BR>
The Securities Exchange Act of 1934 prohibits the use of a material false or misleading statement to induce another person to buy or sell a security, when the writer knows the statement to be false or misleading or has no reasonable grounds to believe the statement to be true. The idea is to prevent people from seizing rumors and publishing them as a means of manipulating stock prices. Because Cramer's source was a tip and what he wrote about hadn't happened yet, he would not have had reasonable grounds to believe that his statement was true. <BR><P>Also, SEC rule 10b-5 prohibits the use of an artifice, scheme or device to defraud another person in the purchase or sale of a security. There are five elements of fraud, (1) a false statement, (2) scienter, or knowledge of falsity, (3) intent to induce reliance, (4) reasonable reliance, (5) damages. Cramer's excuse on the front page of the Washington Post (February 18, 1995), about not blowing out, i.e., selling to the readers, is not a defense for fraud. According to the book by Witkin, an accused fraudfeaser does not even need to own an asset in order to be guilty of the charge. Also, according to the book by Binder, the Supreme Court found that in the case of Gagne vs Bertran, intent is intent to induce action. The Civil Code states, "One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers."<BR>
According to Ken Kurson in Salon, "Cramer told me some time later that the section that disclosed his interest in the stocks had mistakenly been omitted by SmartMoney"s editors." I had read similar accounts some time back, so I went to the main library and looked up all of the previous issues. The magazine wasn't very old at the time. I didn't find any disclosure statements on any of Cramer's columns. Did those mean old editors at Dow Jones leave out the disclosure statements on all of Cramer's columns? Did he neglect to remind the editors to put them in?<BR>
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