NYT: MEDIA: James Cramer Says He Was Often Bad, but Not That Bad
Publication Date: Monday May 13, 2002
Business/Financial Desk; Section C; Page 9, Column 1
By DAVID D. KIRKPATRICK
Fifteen years ago, standing in the small kitchen of a financial firm's
office, James J. Cramer had his first conversation with a trader named Karen
Backfisch and learned a vital lesson about the stock market.
''She explained to me that I should never take a position unless I knew
something that no one else knew,'' Mr. Cramer, who is now best-known as
co-founder of TheStreet.com and a voluble talk-show host on CNBC, writes in
''Confessions of a Street Addict,'' his new memoir from Simon & Schuster, a
unit of Viacom. ''I told her that was inside information. Not at all, she
said, you need a legal edge.''
Mr. Cramer married Ms. Backfisch and he took her advice to heart when he
founded his own money management firm. But just what that ''legal edge''
entailed has recently become the subject of a flurry of new interest. A
former employee, Nicholas W. Maier, has recently written another book about
Mr. Cramer, ''Trading With the Enemy,'' which vigorously attacks his trading
tactics as unethical and possibly illegal. Last week, Mr. Maier renewed his
assault by disclosing that the book's allegations have sparked enough
interest from securities regulators and federal prosecutors that they asked
to interview him about it.
Mr. Cramer, who had already forced the book's publisher, HarperCollins, to
retract some of the most damning allegations, vows to sue. In an interview,
he accused HarperCollins executives of deliberately attacking him as part of
a larger corporate vendetta, because he appears on a rival to the Fox News
Channel, which, like HarperCollins, is part of the News Corporation. ''I
think Nick is working hand-in-glove with Fox and Roger Ailes,'' the
network's top executive, Mr. Cramer said. (A spokeswoman for HarperCollins
said the book was published on its merits alone.)
But in his new book, Mr. Cramer, who has retired from managing money,
offers his own denunciations of his professional past. He frankly describes
his own ruthless efforts to exploit his position as a Wall Street insider
and profit at the expense of less well-connected investors. As a result,
behind all the verbal and legal jousting, the two books present a
surprisingly similar portrait of Mr. Cramer and his industry, albeit with
some stark differences over just where he drew the line to obtain that
''legal edge.''
Mr. Cramer acknowledges that he sees a few similarities in both books,
especially in portraits of his telephone-hurling and monitor-smashing
temper. But he said Mr. Maier invented his most serious allegations. ''He
has some kind of nut-job thing against me,'' he said, his voice rising. ''I
have a lunatic out there who dislikes me.''
But Maier shows no signs of going away. Even though HarperCollins was
forced to retract Mr. Maier's most damning allegation -- that Mr. Cramer
traded on inside information from an executive of the computer company
Western Digital -- the publisher has reissued new copies of the book with
only small revisions. That left in place a host of allegations that Mr.
Cramer exploited his ties at investment banks and in the media for other
forms of advance word about news that would affect stock prices, like
changes in Wall Street analysts' ratings on stocks or upcoming reports of
financial news on CNBC.
Lisa Herling, a spokeswoman for HarperCollins, said, ''We have carefully
considered and responded responsibly to every allegation Mr. Cramer has
brought to our attention.''
Last week, as Mr. Cramer's own book was about to appear, Mr. Maier, 33,
sought to bolster his accusations by disclosing that lawyers for the
Securities and Exchange Commission sought to question him about details in
his book, and that those conversations led to others with the United States
attorney for the Eastern District of New York. Although the securities
regulators asked him mainly about investment banks' allocations of initial
public offerings, officials in the United States attorney's office were more
interested in Mr. Cramer's conduct, Mr. Maier said.
''I have told the complete truth and that is why I am still talking -- I am
trying to expose what I saw,'' Mr. Maier said. He attributed the retraction
to an isolated error.
Just what the regulators and prosecutors made of Mr. Maier's book remains
unclear. A spokesman for the United States attorney declined to comment. Mr.
Cramer said he knew of no inquiries from that office.
But if not illegal, Mr. Cramer does agree that some of his methods may
raise eyebrows outside Wall Street. To do well for his firm and himself, Mr.
Cramer writes, he played games with Wall Street firms -- a common practice
among elite investment funds like his. Realizing that Wall Street analysts'
recommendations to their firm's brokers and clients can run up the price of
a stock, Mr. Cramer strove to get in early and ride the ''levitation'' that
ensued. The first key trick, he said, was paying heavy commissions to all of
the big Wall Street firms. Brokers let their biggest-paying clients know new
recommendations first, so they can trade ahead of the firm's other clients.
He traded heavily, generating fees for the firms' brokers, and in turn
gathered new information in time to make more quick trades.
The same friendly brokers and traders passed along word of other major
funds' buying or selling large amounts of stock, allowing his smaller fund
to ride the movement in the stock price. Sometimes, he would pass the
information along to analysts to spur changes in their rating.
''We became merchants of the buzz, getting long stocks and then schmoozing
with analysts about what we saw and heard that was positive,'' Mr. Cramer
writes in his memoir. ''Or we would get short stocks''-- that is, bet on
their declines -- ''and talk to analysts about the negatives. We would work
to get upgrades or downgrades because we knew, cynically, that Wall Street
was simply a promotion machine.'' After the analysts picked it up, ''we
would then be able to liquidate the position into the buzz for a handsome
profit.'' Such tactics may not be fair to the average investor, but they are
neither new nor illegal.
Mr. Cramer, who worked as a journalist and television commentator while
managing money, kept up extensive contacts with the press as well,
especially his good friends at CNBC. He writes in his book that he talked
and shared ideas with reporters, and for a time he said he talked almost
daily with CNBC's Maria Bartiromo, who called to find out about analysts'
reports that had not yet become public. If, in the course of his contacts,
he ever managed to guess the nature of a story from a reporter's questions,
he acknowledged that he would trade ahead of the news. ''Yeah, I did that
game,'' he said. ''It's found money.''
But, Mr. Cramer said, there were limits on his ''buzz'' business that were
well short of what Mr. Maier alleged. He never traded on explicit advance
notice of an analyst's report before its release, and he never planted a
story in the press to take advantage of the resulting stock price.
''I wrote a book about what a scummer I had become but not for the reasons
Nick said,'' Mr. Cramer said. ''He makes me sounds like an unethical,
illegal scummer. I quit because I was the kind of scummer who does
everything legal he can to make money and messes up his family and the rest
of his life.'' |
