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Trading With the Enemy – Using Media to Pump Up Stocks?

I saw an interesting article [3] (technically it’s a book review) on Forbes.com [4] written by Robert Lenzner and Victoria Murphy and wanted to bring it to you folks to see what you thought. It was written three years ago but the book is interesting and the darkness it sheds light on is intriguing.

Basically they reviewed Trading With the Enemy: Seduction and Betrayal on Jim Cramer’s Wall Street [5] by Nicholas Maier, a former employee of Cramer & Company. The book alleges that James Cramer used his own TV appearances and CNBC anchors to pump up stocks that his hedge fund would then dump, taking the gains the security made after the media attention. Maier says that Maria Bartiromo and David Faber were the two unwitting anchors who Cramer used in the scheme and they were eager to break stories, to no fault of their own because they’re reporting news, so the sham was easy to set-up.

A quote from Maier after Cramer went on TV to promote a great long-term investment: “Our real strategy, however, was all about taking profits now. Back at the office, we were supposed to dump stocks after a quick half-point gain. On TV, Jim would tout a stock we owned, but if it moved up, we would sell.” The book keeps on going with other schemes and plots used by Cramer & Co. I mean things like after-market orders on the hot 90s IPOs so they’d stay hot the next day were commonplace according to Maier. Since then, three pages from the book were removed, they accused Cramer of using insider information, and it was republished.

My own take? I’m sure these backroom type deals happen all the time just like I’m sure insider trading on tiny scales happens too. That’s just the nature of the markets and everyone will try to get an edge wherever they can. The SEC just needs to be diligent and make sure the egregious offences are taken care of. If I find this book in a library I’m going to pick it up but I doubt it’s worth buying a book on speculation and unsubstantiated accusations.

Any thoughts?