re: FindProfit.com on Andrew Left
Interesting backgrounder imho..
biz.yahoo.com
Indie Research
Full Disclosure: Shortchanging Financial Journalism
Monday August 21, 9:20 am ET
By Ben Silverman, FindProfit.com
(Note: This article was originally scheduled to be published on Friday August 18th, but was delayed due to technical issues.)
Mark Cuban's Lemon: Sharesleuth.com, the investigative stock website backed by billionaire Mark Cuban, launched with a bang two weeks ago, publishing an extremely negative story on Xethanol Corporation (AMEX: XNL - News). Cuban readily admitted that he took out a short position in Xethanol and Utek Corp. (AMEX: UTK - News), a major Xethanol shareholder, ahead of the story's publication, a move that has brought criticism from journalists, ethicists, and others.
While some of the criticism leveled at Cuban is deserved - Why promote Sharesleuth.com as journalism when it's obvious that it's just another stock tipsheet? - Sharesleuth.com is not treading on virgin soil.
Andrew Left, a California investor, has been publishing Stocklemon.com for five years now, blowing holes in the stories behind and business plans of companies such as iMergent (AMEX: IIG - News), YP Corp. (OTCBB: YPNT - News), and HouseValues (Nasdaq: SOLD - News). Left, like Cuban, takes out short positions in the stocks he "slams," but he's never suggested he's embarking on a journalistic enterprise.
Investors should understand that publications such as Sharesleuth.com and Stocklemon.com are not published in an effort to provide third-party SWOT (strengths, weaknesses, opportunities, and threats) analysis or in-depth fundamental research on companies. Instead, the aim of these publications is to provide one-sided reports aimed at raising questions about a company's business and management. These are the questions that many sell-side analysts often ignore as they pour over data and do channel checks, while neglecting public record queries of unknown executives and exhaustive due diligence.
The only difference between Cuban and Left that I can see is that Cuban has hired a journalist, former St. Louis Post-Dispatch business reporter Chris Carey, to serve as his editorial voice and investigator. Left doesn't have a billionaire backer, and he's not going to win any writing awards, but he knows how to dig into a company's and a management's background as well as any seasoned journalist.
As it stands, I don't have a problem with what either Cuban or Left is doing. Sharesleuth.com and Stocklemon.com are, as long as they are publishing the truth, providing a public service. I'm willing to give them their profits in exchange for their findings.
The Flipside: While critics and investors are quick to attack short sellers feeding the market negative information, even if it is true, it's rare that anyone complains about people unleashing positive information into the market, even when there's no corroboration from the company.
For example, on August 3rd, shares of auto parts marker Visteon Corp. (NYSE: VC - News) rose 28% after various media outlets reported that the auto parts maker had hired investment banks to pursue a possible sale. Visteon refused to comment on the subject, and the sources used in all of the media reports were unnamed.
On August 17th, additional media reports surfaced indicating that French rival Valeo would submit a bid for Visteon, moving the stock up another 5%.
News from Ford Motor Co. (NYSE: F - News) saying that it would cut its North American auto production during the second half of the year sent shares of Visteon down -2% on Friday. Nonetheless, as of the market close on Friday, the stock was still up more than 32% since the opening bell rang on August 17th, and Visteon has refused to confirm or deny any reports regarding its hiring of an investment bank to pursue a sale.
I don't think it's unreasonable to suggest that someone was in a position to profit from "floating" the Visteon stories. We don't know the identity of the sources Debtwire, Reuters, Bloomberg News, and The Financial Times used for their respective stories on the subject, and there is no disclosure as to whether the sources held a position in Visteon ahead of any of the stories' publications.
For the record, I am not saying that I don't trust the stories, I do. However, timing is very important in the world of financial news, and the gap between a report and confirmation from on-the-record sources (such as the company involved in the story) is often the difference between profits and losses.
The Xethanol and Visteon situations are certainly different in a number of aspects, but at least where Xethanol is concerned, we understand the motives of those bringing the information to the public. We can't say the same where Visteon is concerned, and the complaints of investors short Visteon are as valid as those of investors long Xethanol.
Mark Cuban's New Best Friend: The person who should probably be most excited about the criticism being directed at Mark Cuban is Patrick Byrne, the chief executive officer of Overstock.com (Nasdaq: OSTK - News).
Cuban, by promoting Sharesleuth.com as a journalistic endeavor, has given Byrne more ammunition for his misguided war against the financial media. I imagine Byrne, if asked, could point to Sharesleuth.com as an example of how "miscreants" can wreak havoc on the public markets, and in doing so, throw the words "responsible journalism" out.
This is the perception versus reality problem. If Carey wants to continue to hold himself out as a journalist, it has a negative impact on other financial journalists, and opens doors for bullies like Byrne to try to squelch the media's ability to do its job. Carey and Cuban are essentially telling the public that Sharesleuth.com is operating under the same standards at The New York Times and Wall Street Journal, but no one I know at those newspapers is tipping off their publishers about potentially profitable stock trades.
Perhaps it's just a matter of semantics - after all, "journalism" is a rather ambiguous term in this day and age. The financial journalists I've talked to about the matter all have a lot of respect for Carey, and more than a few are envious of the fact that he was able to find a backer to do the type of investigative work that journalists crave and that is missing from too many business publications (I'm no different, and after Sharesleuth.com was announced, I sent a Carey a note saying so).
Nonetheless, not one journalist I've spoken to about Sharesleuth.com believes that Carey is acting in the role of a journalist, and it's for no other reason than the fact that he is providing pre-publication information to someone who is trading on it.
"You just don't do that," one well-known financial journalist told me. "I can't imagine working on an investigative story and telling people what I'm about to publish, and that they may want to trade a particular stock. It's unfathomable for a journalist."
Exactly, but it's not unfathomable for a stock researcher. A stock researcher with a singular client, no less.
Love Hurts: If there is one advantage to being single, it's that you don't have to share your stock with anyone. Lyor Cohen is learning this the hard way.
Cohen, the CEO of U.S. Recorded Music for Warner Music Group (NYSE: WMG - News), sold 750,000 shares of his company's stock from August 11th to August 16th. The sales grossed Cohen about $17.2 million, and in a Form 4 filed with the Securities and Exchange Commission, the executive noted that he "has informed the Company that he does not anticipate further sales for at least the next six months."
So why sell the stock?
"Such shares were sold to address financial needs arising from the anticipated divorce settlement with the spouse of the Reporting Person," Cohen disclosed.
Quote of the Last Several Weeks: "You know, I can't always control events. The dropping a bomb as far as the CFO was concerned I am afraid had nothing to do with the existing management of the company. The reason for Charles Murphy's departure I am not prepared to discuss on this conference call but there were very good reasons indeed. And, you know, 's#@! happens' and it's a question of how you deal with it." - Timothy Aitken, chairman and CEO of Allied Healthcare International (Nasdaq: AHCI - News), discussing the recent departure of the company's chief financial officer on an August 8th conference call.
Ben Silverman is a Contributing Editor for FindProfit.com and the Director of Research for InsiderScore.com. Silverman was formerly the founder and publisher of DotcomScoop.com, a business columnist for The New York Post, and an executive in the Internet and music industries. He does not have any long or short positions in any company mentioned in this column. Indie Research has a disclosure policy. Silverman can be reached at fulldisclosure@findprofit.com.
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