Cramer Book Dispute Continues
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."
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