Goldstein"s letter to PATCH follows:
David PATCH
Author
Stockgate Today
I am the General Counsel of TheStreet.com, Inc. (?TheStreet.com?), which publishes, among other things, articles by James J. CRAMER, a columnist and our co-founder, Michael Comeau and William Gabrielski, both research associates. I write to you regarding two articles you have written in your online newsletter Stockgate Today, the first entitled ?Regulation SHO; Results Leave Questions More than Answers,? which is dated December 29, 2005, and the second ?If Short Sellers are so smart, why do they need to cheat to succeed?? which is dated January 1, 2006. Your newsletter appears to be published on a web site that you control, <investigatethesec.com>, and distributed by Investrend Communications, Inc,, a company controlled by Gayle Essary. These articles contain numerous factual inaccuracies and misleading characterizations and insinuations, which should be promptly and fully retracted.
The December 29th article begins as a discussion of the Regulation SHO threshold lists and rapidly descends into a conclusory attack on short sellers, in particular Rocker Partners, the hedge fund managed by David Rocker, and then into a hatchet job against Mr. CRAMER and TheStreet.com. After noting that Mr. CRAMER criticized Patrick Byrne, CEO of Overstock.com, Inc., for focusing too much on his campaign against short sellers rather than his business, you go on to describe Mr. CRAMER as ?a self-proclaimed short seller extraordinaire,? as a way of linking him rhetorically to the short sellers you have just vilified. In fact, Mr. CRAMER never so proclaimed himself. CRAMER Berkowitz, the hedge fund he managed from 1987 to 2000, was primarily a long fund. But far more important, he has not shorted a stock since retiring from his hedge fund at the end of 2000 and in fact has been prohibited from shorting stocks since 2001 under CNBC?s editorial policy. You use these and other false statements in the January article to create a false and misleading picture of the activities of Messrs. CRAMER, Comeau, Peltier and Gabrielski, painting them as short sellers who ?gang up to achieve success.? Since none of them is permitted to sell short, and only Mr. CRAMER is permitted to trade individual securities at all (and even then, under strict trading restrictions), this characterization is misleading, particularly given the false light in which you cast short sellers in the two articles. Your statement that Mr. Comeau ?admit[ed] to ganging up on Overstock? is false as well. You should review the record of public commentary in TheStreet.com?s publications concerning Overstock. Mr. Comeau made a grand total of one public comment on the company, a post on December 28, 2005 in which he pointed to a study showing that firms taking anti-shorting action have tended to perform poorly in the subsequent year.
You also assert in the December article that Mr. CRAMER ?brought his own company public in 1999 at an offering price of $70.00/share? and that ?Mr. CRAMER?s profits in the IPO far exceed the return he has provided to his shareholders.? You make similar statements in the January article, asserting that the Company ?went IPO in May 1999 at $70.00/share and hasn?t seen an upside since? and that we?ve suffered a ?90% market loss? since going public.? These statements are completely false. In fact, TheStreet.com?s public offering price was $19.00, not $70.00, and while there can be no doubt that some fortunate few may have been able to reap profits by selling their stock at or near the high of $70.12 on the day of the IPO, or at some lower price since that time, Mr. CRAMER could not be among them, since he has never sold a single share.
But facts do not deter you from using guilt by association, rhetorical questions and other devices to create the misleading impression that you?ve got the goods on ?Jim and the boys,? as you cavalierly call them. After your false recitation of TheStreet.com?s alleged IPO misdeeds, you point out that ?For the record Peltier never responded to any of the exchanges and Gabreilski [sic] responded by asking to be removed from the communication thread,? as if their responses were the result of a successful argument on your part instead of frustration over your insistence on making baseless accusations. Similarly, after a cursory description of the late trading/market timing scandals, particularly the malfeasance of hedge fund manager Israel Englander, you ask your readers (as you did in the article?s title) why a billionaire hedge fund manager would need to ?cheat to succeed,? and again attributed the lack of response to this rhetorical question to your having made a successful argument, that you ?had them there.? These insinuations are deeply misleading. TheStreet.com?s employees, even one who is a former hedge fund manager, could not possibly know why Israel Englander engaged in illegal late trading abuses. Furthermore, as you well know from your email exchanges with them, they made a good faith effort to engage in a dialogue with you until your offensive insinuations and accusations caused that dialogue to deteriorate and they simply stopped responding.
It is clear from reviewing the email exchanges and the two articles, as well as the rest of your website <investigatethesec.com> and Investrend?s publishing of your newsletter, that you and Mr. Essary have an agenda, which is to rally the investing world?s attention to the evils you believe are caused by so-called naked short selling, particularly as allegedly practiced by short-selling hedge funds such as Rocker Partners. The California courts have yet to rule on the claims brought by Overstock against Rocker Partners and others. But regardless of their merits (and I think it is curious that the lawsuit does not include any allegations that defendant Rocker Partners engaged in naked shorting of Overstock), these claims do not involve TheStreet.com, as even Mr. Byrne has publicly admitted. And while you are of course free to use the presses to persuade others to your viewpoint, you may not, without consequence, defame others in so doing.
In an email to me this afternoon, you agreed to remove the December article from your website pending your review of our comments, and claim that your goal is not to defame anyone with ?purposeful intent.? Unfortunately, your actions belie that claim. Although you were advised more than once in your email exchanges with Mr. CRAMER and the others that much of your information was wrong and your accusations baseless, you nevertheless went ahead and published anyway. Such reckless disregard for the truth of the statements you published is the very definition of ?actual malice? under New York Times Co. v. Sullivan, 376 U.S. 254 (1964), and its progeny.
On behalf of Mr. CRAMER and TheStreet.com, I hereby demand that you immediately cease and desist from publishing further false or misleading statements about Messrs. CRAMER, Comeau, Peltier and Gabrielski, and issue a prompt and full correction of the false statements, characterizations and insinuations I have detailed above. Your retraction must be full and unqualified, and given the same prominence as the initial publication. Furthermore, if you persist in stating, directly or by implication, that any of the above individuals are shorting stocks or are part of a ring of short sellers, we will bring legal action against you to set the record straight.
Your continued publication of false and misleading statements following your receipt of this letter may expose you to punitive and/or exemplary damages under libel and other related laws, in addition to payment of attorneys? fees and costs for TheStreet.com and Messrs. CRAMER, Comeau, Peltier and Gabrielski.
Please confirm to me, within five (5) days of your receipt of this letter, that you will fully and promptly retract your false and misleading statements, characterizations and insinuations. This letter is without prejudice to any of TheStreet.com?s or Messrs. CRAMER, Comeau, Peltier and Gabrielski?s rights or remedies at law or in equity, all of which are specifically reserved. [END OF LETTER.]
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CRAMER Hasn?t Shorted Anything Since 2000; Has Never Sold A Share Of TheStreet.com / FinancialWire®
January 6, 2006 (FinancialWire) James CRAMER, the ?Mad Money? guy at General Electric?s (NYSE: GE) CNBC and co-founder of TheStreet.com (NASDAQ: TSCM) has not shorted a stock since retiring from his hedge fund at the end of 2000, and he is prohibited from shorting stocks since 2001 under CNBC?s editorial policy, according to TheStreet.com General Counsel JORDAN Goldstein. CRAMER has also not sold a single share of TheStreet.com, said Goldstein.
January 6, 2006 (FinancialWire) James CRAMER, the ?Mad Money? guy at General Electric?s (NYSE: GE) CNBC and co-founder of TheStreet.com (NASDAQ: TSCM) has not shorted a stock since retiring from his hedge fund at the end of 2000, and he is prohibited from shorting stocks since 2001 under CNBC?s editorial policy, according to TheStreet.com General Counsel JORDAN Goldstein. CRAMER has also not sold a single share of TheStreet.com, said Goldstein.
These revelations came in a letter from Goldstein to David PATCH, whose Stockgate Today articles of December 29 and January 1, at investigatethesec.com, became involved in a controversy after CRAMER claimed PATCH, in his articles, defamed him. Intertwined in all this is notorious short-seller David A. Rocker, whose most recent 13F filings show significant positions in Overstock.com (NASDAQ: OSTK) and Taser International (NASDAQ: TASR), among many others, along with ownership of 2,220,810 shares of TheStreet.com, just slightly less that CRAMER?s own holdings of 2,412,246.
Rocker holds 8.77% of the company?s shares, valued at roughly $9,280,000. Only CRAMER?s and Clark Estates holdings exceed his ownership level.
Some claim that Rocker is a significant reason many companies are on the Regulation SHO list, which the government has mandated to demonstrate the pervasiveness of fails-to-deliver.
Rumors have been circulating that TheStreet.com might have a buyer in the wings. CRAMER, a co-founder, no longer serves as its CEO. It went public in May 1999 at $19 a share, traded up to $70 a share and after the rumors surfaced, recently has been trading in the $7 range after having slid to around $6.50 a few days ago.
FinancialWire, which had republished the Stockgate Today articles under PATCH?s byline, removed them from its website after PATCH, the author, withdrew them.
PATCH is a well-known critic of the manipulative trading practices known as naked short selling, and CRAMER has suggested the practice either doesn?t exist or is not as widespread as PATCH and others, including Overstock CEO Patrick Byrne, believe it to be. The argument has grown more heated recently, and feathers ruffle more easily.
Byrne and CRAMER have recently exchanged unpleasantries, and CRAMER has ridiculed Byrne at TheStreet.com, especially in light of Overstock?s recent tumbles.
Byrne, on behalf of Overstock has sued Rocker Partners along with Gradient Analytics for conspiring together, basically writing reports that were negative but holding them back until Rocker, an acknowledged short-seller, could position ahead of their release.
In its most recent court filings of January 3, found at shareholder.com, Overstock states that David Rocker and Marc Cohodes via Rocker Partners, Rocker Offshore Management and Rocker Management, ?profit by selling the stock of a publicly-traded company that they do not own and then having the price of that company?s stock decline.?
The suit notes that Rocker subscribed to Gradient, at a cost of $40,000 per year to include Gradient in their campaign to drive down Overstock?s stock price, and claims that reports were false, and that ?the content and timing of those reports were actually dictated? by Rocker. This allowed Rocker, the suit alleges, ?time to position their portfolios to benefit from negative analyses the Rocker Defendents and Gradient published, under the guise of an independent report, regarding Overstock.?
This is where the ?thick plottens,? as the saying goes.
Gradient was previously named Camelback Research. An August, 2005 declaration by Camelback research subscription salesman Robert Ballash that is associated with the lawsuit states that Camelback/Gradient?s marketing material specify that ?the customer has the opportunity to influence the reports? prepared by the provider, and that ?it was very apparent to me that Rocker Partners either had a short position in the shares of Overstock or that he intended to be short prior to the Camelback reports? publication.?
TheStreet.com is not named in the Overstock lawsuit, but Ballash said in his affidavit that Herb Greenberg, then an editor at TheStreet.com, was a regular who ?logged in to review recent research reports.? At one point, he stated, ?Brian Harris, an editor of TheStreet.com, was retained by Camelback to draft research reports on particular companies.? He said he was listed as associate editor of Street Insight, a major hedge fund information component of TheStreet.com, and that there was no disclosure as to Harris? moonlighting at Camelback/Gradient.
Other reports stated that Harris? name disappeared from TheStreet.com website very quickly after the affidavits were first published by TheDeal, Motley Fool and FinancialWire. FinancialWire has no independent corroboration for this alleged event, but Goldstein did not respond to an inquiry about it, although he responded to virtually every other communication.
Ballash also said that Camelback/Gradient opened a ?special office in Seattle, Washington? for Harris and another individual.
Another affiant, former employee Demetrious Anifantis, had a similar recollection, and stated that ?it appeared to me that Rocker, Vickery (Gradient principal) and Greenberg were coordinating their attacks on Overstock,? and that Vickery and Greenberg ?coordinated the content and timing of their various reports on Overstock to please Rocker.?
Many of these allegations have been denied by those named.
A spokesperson said FinancialWire was not involved in the research, or writing of the PATCH articles, however; and with no independent corroboratons of any statements that may have been made, is unable to comment on them or Goldstein?s letter. Thus it was decided to publish the Goldstein letter in its entirety, in the perspective of the intertwining of relationships and allegations described in the filings above.
Goldstein?s letter to PATCH follows:
David PATCH
Author
Stockgate Today
I am the General Counsel of TheStreet.com, Inc. (?TheStreet.com?), which publishes, among other things, articles by James J. CRAMER, a columnist and our co-founder, Michael Comeau and William Gabrielski, both research associates. I write to you regarding two articles you have written in your online newsletter Stockgate Today, the first entitled ?Regulation SHO; Results Leave Questions More than Answers,? which is dated December 29, 2005, and the second ?If Short Sellers are so smart, why do they need to cheat to succeed?? which is dated January 1, 2006. Your newsletter appears to be published on a web site that you control, <investigatethesec.com>, and distributed by Investrend Communications, Inc,, a company controlled by Gayle Essary. These articles contain numerous factual inaccuracies and misleading characterizations and insinuations, which should be promptly and fully retracted.
The December 29th article begins as a discussion of the Regulation SHO threshold lists and rapidly descends into a conclusory attack on short sellers, in particular Rocker Partners, the hedge fund managed by David Rocker, and then into a hatchet job against Mr. CRAMER and TheStreet.com. After noting that Mr. CRAMER criticized Patrick Byrne, CEO of Overstock.com, Inc., for focusing too much on his campaign against short sellers rather than his business, you go on to describe Mr. CRAMER as ?a self-proclaimed short seller extraordinaire,? as a way of linking him rhetorically to the short sellers you have just vilified. In fact, Mr. CRAMER never so proclaimed himself. CRAMER Berkowitz, the hedge fund he managed from 1987 to 2000, was primarily a long fund. But far more important, he has not shorted a stock since retiring from his hedge fund at the end of 2000 and in fact has been prohibited from shorting stocks since 2001 under CNBC?s editorial policy. You use these and other false statements in the January article to create a false and misleading picture of the activities of Messrs. CRAMER, Comeau, Peltier and Gabrielski, painting them as short sellers who ?gang up to achieve success.? Since none of them is permitted to sell short, and only Mr. CRAMER is permitted to trade individual securities at all (and even then, under strict trading restrictions), this characterization is misleading, particularly given the false light in which you cast short sellers in the two articles. Your statement that Mr. Comeau ?admit[ed] to ganging up on Overstock? is false as well. You should review the record of public commentary in TheStreet.com?s publications concerning Overstock. Mr. Comeau made a grand total of one public comment on the company, a post on December 28, 2005 in which he pointed to a study showing that firms taking anti-shorting action have tended to perform poorly in the subsequent year.
You also assert in the December article that Mr. CRAMER ?brought his own company public in 1999 at an offering price of $70.00/share? and that ?Mr. CRAMER?s profits in the IPO far exceed the return he has provided to his shareholders.? You make similar statements in the January article, asserting that the Company ?went IPO in May 1999 at $70.00/share and hasn?t seen an upside since? and that we?ve suffered a ?90% market loss? since going public.? These statements are completely false. In fact, TheStreet.com?s public offering price was $19.00, not $70.00, and while there can be no doubt that some fortunate few may have been able to reap profits by selling their stock at or near the high of $70.12 on the day of the IPO, or at some lower price since that time, Mr. CRAMER could not be among them, since he has never sold a single share.
But facts do not deter you from using guilt by association, rhetorical questions and other devices to create the misleading impression that you?ve got the goods on ?Jim and the boys,? as you cavalierly call them. After your false recitation of TheStreet.com?s alleged IPO misdeeds, you point out that ?For the record Peltier never responded to any of the exchanges and Gabreilski [sic] responded by asking to be removed from the communication thread,? as if their responses were the result of a successful argument on your part instead of frustration over your insistence on making baseless accusations. Similarly, after a cursory description of the late trading/market timing scandals, particularly the malfeasance of hedge fund manager Israel Englander, you ask your readers (as you did in the article?s title) why a billionaire hedge fund manager would need to ?cheat to succeed,? and again attributed the lack of response to this rhetorical question to your having made a successful argument, that you ?had them there.? These insinuations are deeply misleading. TheStreet.com?s employees, even one who is a former hedge fund manager, could not possibly know why Israel Englander engaged in illegal late trading abuses. Furthermore, as you well know from your email exchanges with them, they made a good faith effort to engage in a dialogue with you until your offensive insinuations and accusations caused that dialogue to deteriorate and they simply stopped responding.
It is clear from reviewing the email exchanges and the two articles, as well as the rest of your website <investigatethesec.com> and Investrend?s publishing of your newsletter, that you and Mr. Essary have an agenda, which is to rally the investing world?s attention to the evils you believe are caused by so-called naked short selling, particularly as allegedly practiced by short-selling hedge funds such as Rocker Partners. The California courts have yet to rule on the claims brought by Overstock against Rocker Partners and others. But regardless of their merits (and I think it is curious that the lawsuit does not include any allegations that defendant Rocker Partners engaged in naked shorting of Overstock), these claims do not involve TheStreet.com, as even Mr. Byrne has publicly admitted. And while you are of course free to use the presses to persuade others to your viewpoint, you may not, without consequence, defame others in so doing.
In an email to me this afternoon, you agreed to remove the December article from your website pending your review of our comments, and claim that your goal is not to defame anyone with ?purposeful intent.? Unfortunately, your actions belie that claim. Although you were advised more than once in your email exchanges with Mr. CRAMER and the others that much of your information was wrong and your accusations baseless, you nevertheless went ahead and published anyway. Such reckless disregard for the truth of the statements you published is the very definition of ?actual malice? under New York Times Co. v. Sullivan, 376 U.S. 254 (1964), and its progeny.
On behalf of Mr. CRAMER and TheStreet.com, I hereby demand that you immediately cease and desist from publishing further false or misleading statements about Messrs. CRAMER, Comeau, Peltier and Gabrielski, and issue a prompt and full correction of the false statements, characterizations and insinuations I have detailed above. Your retraction must be full and unqualified, and given the same prominence as the initial publication. Furthermore, if you persist in stating, directly or by implication, that any of the above individuals are shorting stocks or are part of a ring of short sellers, we will bring legal action against you to set the record straight.
Your continued publication of false and misleading statements following your receipt of this letter may expose you to punitive and/or exemplary damages under libel and other related laws, in addition to payment of attorneys? fees and costs for TheStreet.com and Messrs. CRAMER, Comeau, Peltier and Gabrielski.
Please confirm to me, within five (5) days of your receipt of this letter, that you will fully and promptly retract your false and misleading statements, characterizations and insinuations. This letter is without prejudice to any of TheStreet.com?s or Messrs. CRAMER, Comeau, Peltier and Gabrielski?s rights or remedies at law or in equity, all of which are specifically reserved. [END OF LETTER.]
Despite FInancialWire?s disclaimer in each article that PATCH?s views are his own, and are not necessarily shared by FinancialWire or its publishers, Goldstein persisted in identifying the FinancialWire publisher as personally allied with PATCH in a common ?agenda,? which he said is ?to rally the investing world?s attention to the evils you believe are caused by so-called naked short selling.?
When told these statements, unproven, bring discredit to the journalistic integrity of FinancialWire and defame its publisher at a personal level, Goldstein softened his allegation to ?you share Mr. PATCH's agenda of seeking to rally attention to what you see as the problem of naked short selling,? but never explained how he was able to determine the ?personal views? of the publisher through the publication of a columnist?s views, in which even the accompanying disclaimer stated it was not.
The sole purpose of FinancialWire is to distribute news and views, and items are not censored to fit the views of the editors or publishers. Goldstein was told if he wishes to publish conflicting views, FinancialWire?s distribution is available for him to do that.
He did not respond to the invitation.
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