Friday, March 03, 2006

Financial Journalists and Manipulation

Writing in the SABEW blog today, Chris Roush reflects on the coverage of the SEC subpoena controversy and is not happy. The coverage, at least in three major periodicals, "missed the boat." The SEC, he feels, is treading in dangerous waters by probing reporters in the first place.

Says Chris, "The SEC needs to take a step back and review what it's doing. To involve reporters in trying to discipline those in the marketplace conveys that the SEC dozen't know how to do its own investigative work."

I would take that thought one step further. To me, this investigation -- inspired, apparently, by CEO-conspiracy-theorist Patrick Byrne of Overstock.com -- demonstrates pretty conclusively that that the SEC's priorities have been turned on their head.

The agency, inspired by the allegations in a suit Overstock filed against analysts, is probing reporters engaging in tough reporting on companies, using a research firm that serves short-sellers (horrors!) as a source.

That's not a problem. The real problem facing financial journalism -- which is also none of the SEC's business -- is reporters serving as a conduit for Wall Street hype and sleaze.

There were numerous examples of that during the 1990s bull market, and numerous examples of that today. Even the sleaziest stock promoters were not above at least trying to get their viewpoint before the audiences of major publications.

I can site a whole bunch of examples of that. However, there's only one that I can talk about, because I already wrote about it in my book Born to Steal (Warner Books: 2003).

A drug dealer-turned-stock promoter by the name of Ralph Torrelli was pushing a crappy stock called Internet Holdings, and in the summer of 1997 he sent a "due diligence package" to Business Week. It was routed to me because I was writing the Inside Wall Street column while the regular columnist was on vacation. In it was a handwritten note from Torrelli, apparently included by mistake.

I didn't write about Internet Holdings. But what if I had? I'd have committed a major journalistic blunder. But something the SEC would have been warranted to probe? No way.

Journalist naivete is a major problem. You saw it some of the coverage of the naked short-selling conspiracy nuts, as I recount in Wall Street Versus America, and in the coverage of the Brad Abelow hearings in Trenton last week. One of the persons testifying in Trenton was an anti-Semitic conspiracy theorist who used to be a penny stock broker. Another was a CEO recently sanctioned by the SEC. The reporters covering the hearings quoted these mutts without mentioning their background.

That kind of thing is a problem for journalists, not the SEC.

What is a problem for the SEC, however, are newsletters and websites that purport to engage in "journalism" and "independent research" when they are actually shills for companies and stock promoters.

Cox mentioned yesterday that people "masquerading as journalists" are a problem -- and he's absolutely right. To my surprise and disappointment, Cox's comment, reported by Reuters, was not wide widely disseminated today.

A good example of the foregoing, as I noted in an item yesterday, is the "santitycheck" website, run anonymously by a buddy of Overstock's CEO who carefully conceals his identity. Its principal purpose is to intimidate journalists, particularly critics of Byrne, and to advance the cause of stock fraud by spinning nutty "naked shorting" conspiracy theories.

The SEC should investigate "sanitycheck" and its ilk, but should keep its cotton-picking hands off honest journalists and research firms and market commentators who are doing what regulators are supposed to be doing -- policing real Wall Street fraud.

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Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

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