Sharesleuth Hones in on a Naked Shorting Gasbag

Pitt is partners with a barred broker

Interesting article in Sharesleuth today, describing a cellular company's ties with a variety of shady characters--including a barred broker who has built a business catering to companies that use "naked short selling" to divert attention from their own wrongdoing.

The company at issue is called Lenco Mobile, and the site describes how the company is hooked up with a "recidivist SEC offender" named Michael Crow, and also is tied in with an odious character named Thomas C. Ronk.

Ronk is a regular on the naked shorting conspiracy carnival circuit:

Ronk operates several investment web sites, including BuyIns.net, which purport to identify companies whose stocks have been targeted by illegal "naked shorting'' and are poised for price jumps.

He also is partners with former SEC Chairman Harvey L. Pitt in RegSho.com, a site created to help short sellers locate shares to borrow so that they can remain in compliance with market rules.

Dealbreaker had an item a while back on Pitt's involvement in that creepy outfit, and how it constituted a conflict of interest. Pitt, arguably the worst SEC chairman in recent history, resigned in disgrace in 2002 after doing such a bad job that he just couldn't go on.

It's not news that Ronk has a regulatory history a mile long, or that he is in the business of helping crappy penny stock companies lure investors--as I described in this item in 2007--but Sharesleuth provides an interesting description of Ronk's pedigree.

Ronk was a stock broker in Southern California before running afoul of regulators.

In 1999, he was fined $50,000 and suspended for 30 days by the NASD. Without admitting or denying the allegations against him, Ronk consented to the entry of findings that he participated in private securities transactions without providing prior written notification to his firm, describing the proposed deals or his role in them.

Ronk's securities registration was later revoked for failure to pay the fine.

Ronk now is proprietor of several web sites, including BuyIns.net and SqueezeTrigger.com, that purport to identify stocks that have been the subject of heavy shorting and are poised to rise in price as traders cover their positions.

Ronk has been one of the most vocal proponents of a theory that a shadowy network of hedge funds and other investors have been driving down the stock prices of U.S. companies through so-called "naked shorting'' of their shares.

Two of the companies that complained most loudly about the issue - Universal Express Inc. and Pegasus Wireless Corp. - later became the subject of SEC cases alleging that they improperly dumped vast amounts of stock on the market, undercutting their own share prices.

True, but Ronk is even more closely tied in to stock scams than that. His Buyins.net suckers in hapless small investors looking for "short squeezes" in crappy penny stocks, including the Utah pump-and-dump Cyberkey Solutions, whose CEO, James E. Plant, was indicted for lying to the SEC about a pump and dump scheme involving his company. He pleaded guilty and was sentenced to 97 months in prison for promoting his bogus "homeland security" company, witness tampering and obstructing the SEC probe. (What's interesting about the latter charge is that he obstructed the SEC investigation far less blatantly than some other people I know.)

In this 2006 press release from Cyberkey, the now-imprisoned Plant uses Buyins.net "short squeeze" data in an effort to lure in more suckers. It's yet another indication of how the naked shorting conspiracy types provide a ready-made excuse for stock manipulators, or (as in the case of CEOs like Richard Altomare of Universal Express and Patrick Byrne of Overstock.com) are themselves cooking the books or otherwise ripping off shareholders.

Now, the one fly in the ointment here is that, as I've pointed out previously, Sharesleuth is financed by trading profits from shorting stocks mentioned in its articles. Such arrangements cross ethical boundaries. However, according to a disclosure in the article, "No one associated with Sharesleuth has any investment position, short or long, in Lenco Mobile."

Great. So why not make that a rule? My suggestion to Mark Cuban, who owns Sharesleuth, is that he drop this "profiting from shorting" stuff and figure out another way of financing the site. More frequent items would be nice, and, of course, exposing the naked shorting crooks on a regular basis would certainly put his website on the side of the angels.

Cuban is involved in an insider trading case (dismissed but still being pushed by the SEC) that is increasingly appearing to be a waste of SEC resources. If he removes the "legal insider trading" aspect from Sharesleuth -- and continues to crank out good stories like this one -- he's going to get a lot more public support.

UPDATE: A reader brings to my attention that Ronk used to work for the L.T. Lawrence chop house, one of the most notorious fraud factories of the 1990s, belatedly shuttered by the NASD in 2000. Lawrence was one of the numerous employers of Louis Pasciuto, the subject of my book Born to Steal.

It's not clear from the filings whether Cyberkey paid Ronk for its "research" (nondisclosure, of course, would be spitting on the sidewalk compared to the companies other crimes). Overstock.com paid him $18,910 in 2007, and other crummy little companies also pay him handsome "data fees."

© 2010 Gary Weiss. All rights reserved.

RIP, Sharesleuth Business Model

When Mark Cuban opened his Sharesleuth website three years ago, with a "business model" based on his trading in advance of Sharesleuth items, Cuban smugly heralded the site as the Next Big Thing in financial journalism in a series of arrogant blog posts.

It hasn't turned out that way, as is evident from the latest item. Today the site had an item on Michael J. Xirinachs, a "financier" enmeshed in the fraud involving naked shorting poster child Universal Express. As usual, Cuban hasn't taken a position in any of the stocks mentioned in the item.

That's significant because Cuban is supposed to be financing this site by doing just that. And he hasn't taken a position in any Sharesleuth stocks since this item on a Chinese company in March 2008.

Maybe the reason is his ongoing insider trading case. But I suspect that he hasn't been trading in advance of these items because he can't. There are a lot of good shorting opportunities available among microcaps, but very few of these stocks can be shorted.

In fact, I think it's pretty plain by now that the Sharesleuth business model is dead. Good riddance. It's failure was pretty obvious back in 2007, after it emerged that his trading wasn't the money machine he had anticipated.

This disclosure, if current, shows that Cuban has taken positions in a grand total of three companies, and that just two of his short positions are still pending.

Sharesleuth also has been pretty much of a flop from a journalistic standpoint, and not just because of the obvious ethical issues. It just has not been a particularly useful website. Sharesleuth's output has been sparse--he has embarked on full-scale "investigations" on a grand total of five companies in the past three years, and "short takes" on a few others. The items tend to be overlong and written in police-report fashion, with little context.

When he startd up Sharesleuth, Cuban said as follows in a blog post entitled "Business Journalists Should be Thankful":

If Sharesleuth is successful, you can bet that any of the above with billions of dollars at stake will gladly hire the best and brightest business journalists they can find.Bigger the rolodex, the better. Old is the new young. Crusty is the new Yuppy.They will unleash those journalists to uncover stories that can give them an edge.

That hasn't happened and you know what? I don't know of any investigative journalists who are too broken up about it.

© 2009 Gary Weiss. All rights reserved.

Mark Cuban Nailed By the SEC

Mark Cuban in happier days

I'm not a fan of Mark Cuban's more or less defunct Sharesleuth website, which he financed by grotesquely unethical, though apparently not illegal, pre-publication trading in stocks mentioned on the site. So I was intrigued to learn that Cuban was nailed by the SEC today for alleged insider trading in the stock of something called Mamma.com.

Here are the particulars from the SEC website.

It's an interesting complaint, by the way. According to the SEC, Cuban became an "insider" because the CEO of the company told him about an upcoming PIPE deal. Does that mean that if I own shares, a CEO can make me an "insider" by calling me and blurting out some inside information?

I guess so. Doesn't seem fair, and it will be interesting to see how this plays out. I see that Cuban is vigorously protesting his innocence. I also see that, for now at least, he is not being criminally prosecuted.

Here's what I wonder: if this case is as open and shut as the SEC makes it out to be, why did it take four years to bring charges?

© 2008 Gary Weiss. All rights reserved.

'History and Mystery' on Sharesleuth

As I've said in the past, I'm no fan of Sharesleuth because its owner, Mark Cuban, finances it (or tries to) by shorting in advance of articles on the website. That's a no-no for anything purporting to be journalism.

Sharesleuth's business model has been a flop for the same reason it has been editorial failure: over the past two years it has written about a grand total of four companies. Compare this with ProPublica, which churns out a constant stream of investigative articles and is funded by a nonprofit group. When it was commenced two years ago, Cuban hyped it as the savior of financial journalism. It has been anything but.

In fact, you get more timely share-sleuthing from Zac Bissonnette on AOL in one month, than you have from Sharesleuth in its two years of existence.

All that aside, I think that the latest Sharesleuth offering is worth reading -- a detailed depiction of the matrix of stock fraud and overseas boiler room schemes. Some of these were targeted by Internet sleuth Floyd Schneider, making him a target of the stock fraud aficionado Judd Bagley, the nauseating cyberstalker who makes his living harassing critics of Overstock.com's nutty CEO Patrick Byrne.

Sharesleuth would have proven its value, despite its business model, if it had produced articles frequently, dealing with overpriced or fraudulent shares that are currently in the public eye, whether or not its owner was able to make a few bucks. Instead, its readership has dropped, embarrassing, to pretty much nothing.

That's a shame, because there really is a need for a "share sleuth." ProPublica is an outstanding news outlet (despite an annoying technical glitch that cuts off the left side of the page). But its business section lacks hard-hitting financial journalism.

What's needed is a truth squad guarding against ongoing hype in the markets, not historical overviews or massively documented hits against companies on a once-per-blue-moon basis. So when Byrne tells outlandish lies about Force Protection Inc., describing that financially quaky company as a "victim of naked short selling" (as he did on Fox Business News yesterday), the truth squad could roll into action.

Perhaps ProPublica could fill that role. There are lots of journos being cast out of newspapers around the country, and it would be great to put them to work doing some real share-sleuthing -- in the public interest, not to make a billionaire richer.

© 2008 Gary Weiss. All rights reserved.

A New Approach to Investigative Journalism

In discussing Mark Cuban's Sharesleuth insider-trading website -- a project that really sticks in my craw for a number of reasons -- I've lamented how no public-spirited rich guy has stepped up to the plate to offer a real investigative journalism website for the public interest, not private profit.

Well, that has happened. The New York Times reports today that an organization named ProPublica has been established, to offer investigative reporting for magazines and newspapers.

The public-spirited rich people are Herbert M. and Marion O. Sandler, the former chief executives of the Golden West Financial Corporation. The Sandlers deserve a standing ovation from journalists everywhere for doing this, and creating a nonprofit operation in the public interest.

It's too bad that Cuban, in creating Sharesleuth, decided to create that supposed "investigative journalism" project to rake in a few extra bucks, masking his greed by calling that a "new business model."

I think ProPublica is an outstanding idea, and may well be the only really good news to come out of the journalism profession in... oh, I don't know.... fifteen years? Twenty?

ProPublica has a tough road ahead. As I recall from my brief tenure in the news syndication biz in the early eighties, newspapers and magazines are notoriously reluctant to punlidh investigative and enterprise stories from outside sources.

I note that my former boss Steve Shepard was quoted in the Times article. The reporter should have asked him how many outside stories we ran at Business Week. The answer, of course, was zero.

However, ProPublica will do fine as long as it is willing to swallow that, and accepts that some of its best work may be relegated to its own website. If so, that will reflect on the news business, not ProPublica.

UPDATE: A journalist I know wrote in with an interesting comment, which I'm quoting below with his permission:

Must say: I disagree with you about ProPublica... I think the venture will end up patronizing journalists. Are we now all charity cases? In the future will we all be working for the Poynter Institute or ProPublica or some other touchy feely nonprofit. Somehow I don’t see nonprofit groups as bastions of confrontational journalism.. Also makes journalism into another form of foundation-supported activism. Like: I work for NARAL, you work for Human Rights Watch, he works for Pro Publica. I think people will stop paying attention to journalism when that happens.

© 2007 Gary Weiss. All rights reserved.



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Wall Street Versus America was 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, gary-weiss.com.

Should the Justice Department Investigate Sharesleuth?

A detailed article on Mark Cuban's Sharesleuth insider trading project, appearing in Wired magazine, has prompted an interesting item in a Reason Magazine blog. The title is "A New Business Model for Financial Journalism; Should the Justice Department Investigate?"

I had always assumed that Sharesleuth was merely unethical but not illegal, and that it falls under some kind of loophole in the insider trading laws. Blogger Brian Doherty suggests otherwise:

After all, he's making money using knowledge he received through connections (with Carey, his employee) that the typical trader couldn't easily know. And it's just possible that some of Carey's information may have come from some Samuel Waksal-like company insider, directly or indirectly, saying something to someone he isn't legally allowed to say about his company. So I do wonder if insider-trading law mavens think a Justice Department investigation of Cuban is in order, and why or why not.

This is a valid concern and needs to be explored, I think. The Reason item points up, once again, why it is a bad idea for would-be publishers to trade in advance of things they publish. Sharesleuth has only gone after two public companies, and if it continues to push against the envelope I suspect that it is going to fall under regulatory scrutiny.

One thing I find objectionable about Sharesleuth is the canard that what this outfit does in any way benefits investors. It does not. It is purely a money-making operation, and it is not clear to me if it is effective even as that.

© 2007 Gary Weiss. All rights reserved.



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Wall Street Versus America was 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, gary-weiss.com.

Mark Cuban Gets Mushy With Moi

Mark Cuban has some surprisingly mushy words about yours truly in a softball nterview with Portfolio Online. The 170 (and counting) derisive reader comments were a lot more interesting than the interview, but I thought his latest defense of the Shareleuth insider trading project was worth noting.

Referring to my criticism of Sharesleuth, Cuban said:

Gary Weiss is a nice guy, and I actually like checking out and reading his blog. We agree on more than we disagree on, but Gary’s commenting on Sharesleuth is nothing more than trying to get his name in the paper or a magazine somewhere.

Me, a "nice guy"? Aw, gee, shucks. Wish I could return the compliment. He goes on to say that he's "more than covered my costs with trade ideas brought to me by Chris"--which in my view is not a heck of a lot less sleazy than trading ahead of Shareseluth. I can't recall Terry McGraw ever asking me for "trading ideas" when I worked at Business Week.

This goes back to the view I've expressed before, which is that Cuban shouldn't be allowed within a quarter-mile of a newsroom. Whether or not he "agrees" with me or I "agree" with him is beside the point. The issue is Sharesleuth's "business model," which violates a bedrock principal of journalism -- you don't personally profit from articles published on your website.

Also, he's dead wrong on the last point. I turned down a chance to appear on network TV to talk about Sharesleuth not long ago, and I wouldn't even cooperate off-camera. A reporter for magazine X (Cuban knows what I'm talking about), can attest to how reluctant I was to talk about it for an upcoming article. OK, I did, but reluctantly. I'd have preferred to just rest on my previous items in this blog.

I just wasn't interested in giving Sharesleuth any oxygen via publicity (and no, I don't view my little hobby bloggie as publicity). As I've said, Sharesleuth is a flop, both commercially and journalistically. Let it die quietly. But the important thing is, let it die.

Bad as Sharesleuth is, let's put this in perspective. Mark Cuban has done a lot worse things than created that stupid website. Just look at how he financed the distribution of a film called "Loose Change" that regurgitates every nutty, discredited conspiracy theory about Sept. 11. It's disgraceful that he would promulgate such crap. On the "stupid" chart, Sharesleuth is a solid 7 while "Loose Change" is a 13, on a scale of 1 to 10. Odd that the subject never came up in the interview. (No, not odd, this being Portfolio.)

If he doesn't know what to do with his money, why doesn't he put it in a pile and light a match?

© 2007 Gary Weiss. All rights reserved.



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Wall Street Versus America was 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, gary-weiss.com.

Happy (?) Birthday, Sharesleuth.com!

Mark Cuban's much-ballyhooed, trading-financed "investigative journalism" website Sharesleuth.com has "celebrated" (quote, unquote) its first birthday -- its first post was on July 31, 2007. It was no great surprise that the great day came and went without anyone noticing. The site is that much of a flop.

When first inaugurated by Cuban last summer, it was pushed by the self-promoting billionaire as a new "business model" for financial investigative journalism, notwithstanding that its very premise was an insult to financial investigative journalism.

Cuban has been trading ahead of his Sharesleuth picks, skirting insider trading laws and mocking fundamental journalism ethics. Cuban's response to protests was something along the lines of "ethics, shmethics," and he babbled that journalists should be "thankful" that he views their profession as a source of data to line his pockets through a slimy trading strategy.

"If Sharesleuth is successful, you can bet that any of the above [hedge funds] with billions of dollars at stake will gladly hire the best and brightest business journalists they can find," Cuban said. Well, Sharesleuth hasn't been "successful," but even if it was I doubt that most self-respecting journalists would rejoice at the idea of selling out to hedge funds as he envisioned.

Indeed, Sharesleuth has been a flop in every way imaginable. Editorially (I won't say "journalistically," as this is not journalism), Sharesleuth has been a disaster. The site has focused on a grand total of two public companies -- Xethanol and UTEK -- over the past year. Sharesleuth flayed at these two related companies repeatedly, all for the profit of Cuban and pretty much nobody else. Then, repudiating its own business model, the site trashed a private company.


Cuban was squeezed on some of his trades, so it is hard to imagine that the site could be self-supporting, much less profitable.

I'd bet that a small-town Dairy Queen stand (to harken back to one of Cuban's idiotic publicity stunts) rakes in more money in a week than Sharesleuth has in its whole sorry existence. There's no chance the site can support itself legitimately by selling advertising -- not with readership numbers this lousy.

Say, isn't it a shame that this clown couldn't make a ton of money trading ahead of his "journalism" vehicle? I weep for him.

Despite the publicity that has accompanied Sharesleuth's launching and subsequent foundering (such as this New York Times piece), no public-spirited rich guy has funded a website that would engage in investigative journalism for the public interest. So all that's left are a small number of beleaguered, unappreciated journos and one billionaire-financed travesty.

© 2007 Gary Weiss. All rights reserved.



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Wall Street Versus America was 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, gary-weiss.com.

You Read it Here First

According to the New York Times today, there is a growing consensus that Tony Soprano was killed in the last scene of the last episode.

Now, I don't mean to brag, but I do believe that I was the first person to make that point, in this item.

The Times also has a nice piece on Sharesleuth and my item thereon.

One technical point: it is contrary to organized crime "best practices" (so to speak) for mob "hits" to take place in front of the family of the victim. However, since Phil Leotardo was killed in front of his wife and kids, it is conceivable Tony could have been killed in front of his family.

I don't believe, however, that the entire family would have been killed, as some have speculated. Though the Sopranos took liberties with mob reality (to say the least), I don't think such a thing would be consistent with the way the series was produced.

P.S. One thing needs to be kept in mind: This is fiction. So your guess is as good as mine.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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, gary-weiss.com.

Sharesleuth 'Business Model' Succumbs to Reality

Mark Cuban's "business model" for Sharesleuth is now, officially, dead. At least that is how I interpret the latest item on the website, which -- for the first time -- concerns a private entity for which Cuban cannot profit by short selling, as he has previously.

When Cuban began Sharesleuth a year ago, he made a big stink about how this was a new "business model," in which he would trade ahead of the stocks criticized in the website.

But the weakness with that approach -- apart from the self-evident ethical issues -- is that it will tend to focus on stocks that can be profitably shorted. After all, if you don't write about shortable stocks, your publisher can't trade in advance on the items and the site must inevitably succumb.

As I and others pointed out at the time (see here and here), a good many bad stocks don't have shares that can be borrowed to permit a short sale.

Sharesleuth has turned out to be a bust, both journalistically and as a "business model." The site has written about a grand total of two stocks since it began last July and, as I said last week, Cuban's shorts have not been cashed out and have not been great money-makers. Indeed, it seems that Cuban was squeezed in one of his recent trades.

Is this the beginning of a new approach at Sharesleuth or just another archtypical Mark Cuban P.R. stunt -- such as the day he spent working at a Dairy Queen? Time will tell.

Hat tip: Talking Biz News and an alert reader.

© 2007 Gary Weiss. All rights reserved.

Digg this!

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Wall Street Versus America was 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, gary-weiss.com.

Mark Cuban Squeezed?

Mark Cuban's Sharesleuth insider-trading project has a new item up on its website -- the first in a long time. Nothing really notable in it, just a hammering away at shady associates of one of Sharesleuth's targets/Cuban short positions, Utek Corp.

What's interesting, though, is evidence of what I've been saying from the start, which is Sharesleuth is a boneheaded idea from pretty much every standpoint -- journalistic and as a business venture. I say that because it looks as if Cuban has been squeezed. Most of his short position in Utek has been closed out against his will.

The latest item contains the following disclaimer:

(Disclosure: Mark Cuban, the majority member of Sharesleuth.com LLC, has a current short position in UTEK of 12,512 shares. He had sold short as many as 90,488 shares, but most of those were bought in over the past few months. He did not intentionally cover his position. Cuban also is short 10,000 shares of Xethanol Corp.,another company that is mentioned in this story. Christopher Carey, editor of Sharesleuth.com, does not invest in individual stocks and has no position in the shares of UTEK or Xethanol.)

Note the discrepancy between the above disclosure and Cuban's most recent one, on Feb. 25, in which he reported having a 99,000 share short position.

Remember that Sharesleuth reported on Oct. 25 that Cuban had a 75,000 share short position at an average of $20 a share. That did not go up as of Dec. 12, according to a comment on Sharesleuth.

So obviously the 24,000 (or was it 15,000? What happened to that 9,000?) shares were shorted between Dec. 12 and Feb. 25. As you can see, the price of the shares hovered mainly in the $10-$12 range during that time.

And then, after Feb. 25, kaboom! The Big Squeeze. Look at the chart. Stock bounced up to $18 and now is at about $15. Oh my. Sometime after Feb. 25, Cuban's broker bought the shares back -- the hated "buy-in." I imagine he realized some kind of profit on the shares he shorted at an average of $20, but he would have taken a loss on the shares he shorted over the winter.

He certainly wasn't able to keep the short position as long as he had wanted. Poor dear.

My point is not to gloat (well, not entirely to gloat) but rather to point out that this so-called "business model" ain't working. You can't reliably finance a "news operation" by trading ahead of the stocks you write about. Cuban is proving it with his Utek buy-in imbroglio. Apparently you can't make more than pocket change doing this.

Still wanted is the public-spirited billionaire who will finance a financial investigations website without thought to personal profit. Does such a creature exist?

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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, gary-weiss.com.

Is the Media Ignoring Pump and Dump?

I was critical of the Securities and Exchange Commission in my book (and in other venues), but I must admit that the SEC has been busy lately against pump-and-dump stock operators.

Just today, the SEC announced administrative action against a Florida brokerage, in a boiler room scheme involving offshore accounts. This case is interesting for several reasons, including the use of the Patriot Act to snare stock-related money laundering.

This and other cases, which you can see in regional newspapers almost every day, leads me to believe that pump and dump scams are alive and well.

Yet I have not seen much in the way of press coverage of this trend. Incidentally, if it is not a trend, if for the first time in history pump-and-dump has been wiped out -- and I don't believe that for a moment -- that's also a story.

At times like this I think about Mark Cuban's bloviating about his Sharesleuth website, which he claimed was a new "business model" that could be used to hone in on stock fraud. By "business model" he means flushing journalism ethics down the toilet, by trading in advance on Sharesleuth's stock picks.

In practice, Sharesleuth has been a major dud, focusing on just two related stocks since it was established last July. Sure, there are dozens if not hundreds of crappy stocks out there, but Sharesleuth must be selective in its approach, picking them not on merit but on "shortability."

The vast majority of stocks involved in pump-and-dumps are difficult if not impossible to short-sell. So are many stocks that are not outright frauds, but simply doggie. The slim pickings generated by Sharesleuth demonstrate the shortcomings of this approach.

Since Cuban's venture is crapping out, I guess that leaves the job of policing microcap stocks to the financial media, and-- with some notable exceptions -- lately we've not been doing a very good job.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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, gary-weiss.com.

Sharesleuth Shows (Again) Why It's Not Journalism

Sharesleuth.com slammed Xethanol for the third time the other day, proving yet again the difference between a billionaire's private insider-trading tinker-toy and a genuine investigative reporting outlet.

A genuine investigative reporting vehicle on the stock market (or a genuine investigative markets reporter like Herb Greenberg or Chris Byron) would have found more than two interrelated, marginal stocks to "investigate" in a four-month period.

A billionaire's private insider trading vehicle, caring not a fig about the public interest, is free to pursue its owner's profit to its heart's content -- in this case by again slamming a company it has already beaten into the ground.

Sharesleuth is apparently wearing on its readers, judging from the snippy comments on the site. This one hit the nail on the head:

Does the company have to go belly up before you write an article that deals with something else? I understand that this appears to be a shill corporation, and I think that any info you've discovered should be turned over to the SEC so they can perform a formal investigation into the company. If it is a shill, it should be delisted.

When I signed up for this site, I was hoping to see an article at least every other week on different companies and industries so that the top brass across Wall Street would start to feel the squeeze of investigative journalism and start to bring their activities more towards honesty than profit.

The flaw in the above logic is that it swallows Cuban's propoaganda that this is some kind of new journalism "business model." Wall Street is not "feeling the squeeze of investigative journalism" via Sharesleuth, because investigative journalism serves the public interest -- not the portfolio of a billionaire.

The comments (one called for an SEC investigation of Sharesleuth) were a far cry from the sycophantic stuff previously posted on the site. They prompted Mark Cuban to say defensively that he hasn't traded any more shares of Xethanol or Utek.

Woop-de-do.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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.

Mark Cuban's Unfinished Business

When Mark Cuban's Sharesleuth insider-trading vehicle performed a hatchet job on a little company called Xethanol in early August, Cuban disclosed some unfinished business: he had taken a short position in not just Xethanol, but also a company called UTEK, a Xethanol shareholder.

The UTEK short position was "underwater," Cuban disclosed at the time.

Well, Sharesleuth's second article has come out, and it is about a company called (surprise surprise) UTEK!

Cuban has come out from under water. His short position, initially 25,000 shares, has swelled to 75,000 at an average price of $20. The shares are now trading at about $12, thanks to Sharesleuth.

Cuban's new "business model" sure is working! All you have to do is to hire a journalist to write market sensitive articles, and trade in advance of each story's appearance. Disclose your trading position and it's all legal.

Unethical as "journalism" and slimy as all hell, but legal.

Gee, I wonder what Sharesleuth's next target might be? I guess only Sharesleuth, Mark Cuban -- and his stockbroker -- know the answer to that.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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.

Brickbats Keep Falling on His Head....

...if I may continue borrowing from the old Burt Bacharach song...... but that doesn't mean Mark Cuban's eyes will soon be turning red. Crying's not for that guy. Neither is even the slightest sense of shame -- or a shred of intellectual honesty -- judging from his response to a well-reasoned critique of his Sharesleuth moneymaking scheme by blogger and journalism prof Jeff Jarvis.

Jarvis makes a series of good points, among them the following:

If Cuban had just started a new journalistic endeavor to show the way and shame the business press into reporting and investigating — not to mention to create jobs for reporters — he might have been welcomed with open arms. I’ll bet that there are plenty of ripped-off shareholders out there who’d have gladly contributed to make this a success. And advertisers would want to talk to an audience of smart investors. But by turning this into a personal and shady profit center, by trying to play the bad boy in this arena as he does in the basketball arena, he harmed his endeavor, his reputation, and even the nascent movement in independent journalism. Just so he could make a few bucks. Now that’s what I call dumb money.

Jarvis makes a bunch of comments like that, which penetrated Cuban's cement-covered ego and he responded. But he did so not by dealing with the merits of Jarvis's comments, but by personally attacking Jarvis and recounting how the latter has criticized the poor darling in the past.

I tell you, Cuban is acting more and more like the shameless corporate journalist-baiter Patrick Byrne every day.

Jarvis points out that Cuban is keynote speaker at the Online News Association annual meeting-- which is something akin to Jeffrey Dahmer being guest speaker at the Culinary Institute of America. What will be the topic of his speech? "How to Corrupt Financial Journalism for Fun and Profit"?

P.S. For those unfamiliar with it -- that Burt Bacharach song I alluded to at the top ("Raindrops Keep Fallin' on My Head") was from the 1969 movie Butch Cassidy and the Sundance Kid.

I sometimes think that Cuban views himself as a Butch Cassidy character -- a merry bandit with humor and integrity -- except that he omits the "humor and integrity" part.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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.

'Shortchanging Financial Journalism'

That's the title of a really good analysis of Mark Cuban's "Sharesleuth" profiteering scheme by Ben Silverman, posted on the Yahoo financial website today.

I thought this was particularly insightful:

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.

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.

The article can be found here.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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.

The Brickbats Continue

There's a terrific editorial in the Fort Worth Star-Telegram today, excoriating Mark Cuban's trading/reporting vehicle Sharesleuth.com. It drives home a point I've made a bunch of times, which is that -- hype to the contrary -- what he has created is not "journalism" but a run-of-the-mill stock tip sheet.

"Why is Mark Cuban so ... well, so Mark Cuban? Why is he so focused on Mark Cuban all the time? The latest example of this is really disappointing because it sullies what otherwise is a noble effort on his part," says the Star-Telegram.

Personally I'm not sure about the "noble" part, given his singleminded focus on making a buck and his contempt for business journalism, which he set forth in a condescending blog item. ("Business journalists should be thankful" for his slimy enterprise, says Cuban.)

Apparently Cuban is more than just another self-centered billionaire with an ethical tin ear. Securities Litigation Watch, written by an ex-SEC lawyer named Bruce Carton, yesterday suggested that Cuban may be twisting the insider trading rules more than it can bear. (Hat tip: Dealbreaker.com)

Cuban, he said, "has found the previously unexploited Achilles' Heel of the insider trading laws and fired an arrow deep into it." That is, "for first time, a legal form of what most people would consider 'insider trading' exists and can be replicated by anyone with (a) the resources to hire a skilled investigative journalist, (b) the ability to generate a readership on the Internet."

The piece goes on like that and notes that the aforementioned Achilles' Heel "is that the law does not flatly prohibit insider trading based on material, nonpublic information. Rather. . . it prohibits some such trading, but excuses other trading if there is no legal 'duty' under the circumstances not to trade."

Carton concludes that, if indeed Cuban can make money by this scheme, "the first company that makes its money from legal insider trading will have been created—with a business model that can be duplicated by anyone with similar resources and abilities. If this occurs, Congress and the SEC may need to give serious thought to whether it is time to refine the insider trading laws."

Carton has hit on yet another of the many disturbing aspects of Cuban's scheme, which is as troubling from a legal perspective as it is by making a mockery of real financial journalism.

I'm sure there will be more brickbats like these from journalists and the legal profession.

It's a shame that an ethical rich guy-- one with the public spirit Cuban lacks -- hasn't stepped into the breach and set up a genuine financial investigative reporting outlet to examine crummy stocks. But as a public service, not as a source of pocket money.

Of course, there is yet another alternative, which is that mainstream media outlets crank up their coverage of stock fraud.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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.

Winans on Cuban: 'At Least You Know He's Screwing You'

One of the dumbest things that Mark Cuban has said about his trading/reporting site Sharesleuth.com -- and he has said many, many dumb things on that subject -- is that he has a new "business model" at work here, one that us bozos in the "mainstream media," being unimaginative, have failed to grasp.

In fact, what Cuban is doing -- front-running his reporters' work -- is hardly a new idea. Every financial journalist and editor knows that you can make money by trading on nonpublic information. So Cuban is merely being more unscrupulous, not more innovative.

One ex-financial journalist who is familiar with the Cuban "business model" is a gent by the name of R. Foster Winans. That is, of course, the former Wall Street Journal reporter who was caught up in a famous insider trading scandal in the early 1980s. He traded in advance of the Journal's Heard on the Street column, got caught, and served a prison term. It was an illegal version of what I must emphasize is Cuban's perfectly legal scheme.

Winans has a website and an email address, so I dropped him a line to ask for his take on the Cuban situation. His response was interesting so (with his permission) I am duplicating it below:

My take on Cuban, off the cuff without doing much research, is that in a world of institutional thievery, hidden fees, undisclosed conflicts of interest, "legal" insider trading, engineered and misleading mutual fund returns, false and rigged analyst rankings, and all the other self-dealing behavior that is business-as-usual in the investment racket, Mark Cuban is by comparison a goddamned Mother Teresa. At least you know he's screwing you.

You know, I think that is a pretty ringing endorsement, and from a man who knows whereof he speaks.

That last line is a good one. A corporate slogan, perhaps?

Winans, by the way, has also answered the insincere rhetorical question that began Cuban's recent blog item: "Sharesleuth.com. Such a big controversy. The question is why?"

I think Cuban knows perfectly well "why," but for the record I will answer: Because he's doing something that is sleazy and unethical, and because it is the kind of thing that (when done without "transparency") has gotten journalists fired, their careers ruined, and put in prison.

Don't take my word for it. Ask R. Foster Winans.

UPDATE: Cuban tonight gave a new dimension to the word "clueless" in a blog item entitled "Business Journalists should be thankful."

This man should not be allowed within 500 feet of a newsroom, except to buy a newspaper. Here is what he says:

"You dont know it yet, but Chris Carey and Sharesleuth broke new ground that will result in a 'business journalists employment act'.

"Hedge Funds, Private investors, Mutual Funds employ analysts by the boatload. They get paid quite nicely. Those analysts spend their waking and probably a good portion of their dreaming moments trying to figure out ways to get an edge that can improve their returns.

"They hire or put on contract, experts, consultants, investigators, anyone who can help them outperform their peers.

"If Sharesleuth is successful, you can bet that any of the above with billions of dollars at stake will gladly hire the best and brightest business journalists they can find. Bigger the rolodex, the better. Old is the new young. Crusty is the new Yuppy. They will unleash those journalists to uncover stories that can give them an edge."

Yoo hoo! Mr. Cuban! Mutual funds et al have been hiring ex-journalists for years. And I mean openly hiring 'em -- I'm not referring to the naked shorting kooks' conspiracy theory that journos are "on the payroll" of hedge funds. One former colleague of mine at Business Week just got a job as chief flack for the mutual fund trade association. Other journos has been moving to the Street in various capacities since Zenger.

Also note the condescending premise, that there's nothing financial journalists would love more than going to work for the Street. Nothing wrong with that, of course, but it is hardly a universal career goal. I'd much rather see journalists encouraged to stay in journalism, to work in the public interest and not for the goal of making guys like Mark Cuban even richer.

But anyway, thanks again, Mark Cuban! You're really working hard to bring down the repute of business journalism, and to feed the naked shorting knuckleheads' conspiracy fantasies.

Cuban also proves by this item that, when it comes to the news business at least, he is either dangerously ignorant or without any ethical grounding whatsoever -- or both. I vote for "both."

UPDATE: In a thoughtful analysis, Loren Steffy of the Houston Chronicle compares Cuban to Michael Bloomberg, and not favorably:

Bloomberg learned early on that owning a news operation means setting aside personal agendas. To be credible, his news service might have to write tough stories about some of his biggest customers. Those customers might get angry and cancel their contracts for the financial data terminals that are his company's lifeblood. Bloomberg. . . asked only that his reporters be painstaking in their accuracy. Cuban has a different agenda. . .

Based on its first project, Sharesleuth is simply a tout sheet for short sellers. It exists primarily to make a billionaire basketball maven even richer. . . Cuban simply owns a Web site to flog his own investments. When announcing the venture, he used the headline 'why journalism matters.' If Sharesleuth is his answer, it's clear that what matters to Cuban has nothing to do with journalism."

He went on to opine that Sharesleuth "reads like a software manual" and lacks the basic journalistic requirement of "readability and credibility."

Steffy also quoted a law professor as saying that Cuban is trying to "manipulate the market." I'm not so sure about that, but this is precisely the kind of allegation that is going to dog Sharesleuth as long as Cuban uses it as a front-running vehicle.

There are many, many other problems with this scheme, legal and otherwise. One is this: What if Cuban shorts a target of his reporters, and then the reporters turn up information that is positive? Do they go with it? Downplay it at their boss's expense?

What if his reporters come up with a great scam story on a company that is ripping off investors right and left. But like a lot of such companies, it unfortunately can't be shorted. Does Sharesleuth ignore that company in favor of a less egregious stock that boss man can short?

Well, here's Cuban's answer to such concerns. As he put it in his blog item last night, "our obligation is not to the reader, it is to the trading activities of our owners." Or to put it more succinctly, "screw you." Hey, I think we have here another possible corporate slogan.

A further update: The brickbats continued over the weekend, and no doubt have only just begun. Distorting the purpose of financial journalism is just one of the problems posed by Sharesleuth.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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.

Mark Cuban Responds!

Mark Cuban responded today to my criticism (here and here and etc.) of his trading-vehicle-reporting-website Sharesleuth. I think he was mad at me for reading him the riot act on CNBC yesterday (though, interestingly, he hid under his desk and declined to appear on air).

I read through his rambling, disjointed Patrick-Byrne-style rant a few times and still can't comprehend his point. He seems to be saying that "transparency" is the virtue of his website. I.e., he is upfront about using his site to front-run his reporters -- thereby profiteering in the same manner as sleazy penny stock newsletter publishers.

But after saying that he is transparent in his sleaziness, he takes a few shots at me and seems to say that I'm not transparent and that, in fact, nobody is transparent.

He also mischaracterizes the problem that I (and a lot of others) have with his scheme. He says I suggest that "what I am doing with Sharesleuth is not responsible journalism because I am trying to make a profit by trading on the information that we uncover.”

No, I am suggesting that was he is doing is not responsible journalism because he trades on his reporters' scoops before publication. As Andrew Sorkin pointed out in the New York Times Dealbook, that would be a hanging offense at any media outlet: "Having a direct financial stake in the articles published — especially investigative articles that tend to be negative — is about as basic an ethical violation as there can be, whether that stake is disclosed or not. "

He also.... now this is painful... accuses me of "pimping" my book. Good heavens! What an accusation. An author using a blog to promote a book! The scandal. He found me out. What a sharp guy. Definitely right up there with Cuban front-running his reporters.

Dealbook called Cuban's smoke-blowing re my blog "a labored attempt to equate his methods with the simple acts of advertising and promotion." I call it just plain goofy.

Think about it. If that trade in Xethanol works out for him, we'll be able to put a precise price tag on how much the reputation of financial journalism is worth, at least to one irresponsible billionaire: 10,000 shares times 12.65, or $126,500.

Lance Gay (a former longtime political reporter for Scripps-Howard), responded on Cuban's blog as follows:

"I'm not sure that I would have a problem with what you are doing if you made your investments upon publication where everyone would have a fair shot at the information you have gathered. But you acknowledge you bought short in May. Now through Sharesleuth, you appear to be trying to ensure you gain financially from the advance knowledge you obtained with an disparaging article.

"Journalism cannot work that way. We do not all have vested interests in what we write or choose to publish. I'm a rank innocent on the ethics of investing, and I don't have the necessary legal background to say whether or not what you are doing passes SEC security. But as a reporter I find what you have done is plain damn wrong."

Sorry, Lance. You're not talking in a language Cuban can understand.

XETHANOL REPONDS: In a response to the Sharesleuth article this afternoon, Xethanol, not surprisingly, used Cuban's trading against him:

"Xethanol questions the real purpose of this article, particularly in light of Mr. Cuban's professed intention to 'short the shares of this company.' Although we are not alleging that there has been any improper stock trading in this case, articles such as this provide fertile ground for such activities to occur."

I hate to say it, but I told you so.

Nope. Come to think of it, I don't hate to say that.

UPDATE: More from Mark Cuban and R. Foster Winans -- yup, that R. Foster Winans -- weighs in. Over at the Houston Chronicle, Loren Steffy is troubled by Sharesleuth even more than I am. He calls it a "tout sheet" to flog Cuban's short positions, and he quotes a law prof calling the enterprise "market manipulation."

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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.

Mark Cuban's Excellent Trade

I've been wary of Mark Cuban's "investigative reporting"/short-selling effort Sharesleuth.com, because of his plan to trade in advance on the stuff gathered by his staff. Well, turns out I owe Cuban an apology. It wasn't a bonehead idea at all -- from the trading perspective, that is. I'd say it was brilliant.

Brilliant as a trade. Troubling as hell from a journalism perspective. In my book I skewer the media from pulling back from tough coverage. But Cuban's approach is precisely the wrong way to go about filling that gap.

The first article in Sharesleuth came out yesterday. It describes the shortcomings of a company called Xethanol. It's a good article, a Barron's-style piece mainly based on the public record. It's not especially nasty, but was serious enough to draw a shot across the bow from Xethanol managment.

But here's the interesting part, which is not Cuban's self-righteous disclosure of his short position at the end but this paragraph, in italics, tucked in the middle of the piece:

(Disclosure: Mark Cuban, the majority member of Sharesleuth.com LLC, sold short 10,000 shares of Xethanol’s stock at a time when the price was around $12.65. Cuban also has sold short about 25,000 shares of UTEK Corp.(UTK: AMEX), a Florida company that is a large Xethanol shareholder.)

Now that's a great trade when you look at the historical prices. In the month before the story came out, Xethanol (now priced at about $7) was trading at no higher than $9.90. In fact, you have to go all the way back to May 12th before you find the share price reaching the neighborhood of $12.65!

Sharesleuth was established on July 1, and it was first announced by Cuban in a post on his blog on May 31. This means that the target of the first story was already in the cross-hairs at the getgo, as was Cuban's position.

If that trade was placed on or before May 12, which seems pretty darn likely, it was wonderfully prescient. Share prices have been on the decline ever since then, and were hurt still further by the Sharesleuth article.

Cuban's "Afterword" at the bottom of the article indicates that he's expecting the stock to fall to zero ("My goal is to never have to cover.") Whether he's right or wrong, we do know this: for Mark Cuban this has been an excellent trade. And legal. Trading-while-shorting may be the last thing tough financial journalism needs, at a time it is under attack by Patrick Byrne and other conspiracy-mongers, but it is totally in compliance with the securities laws, if disclosed.

Makes you wonder how much of the rest of Cuban's short porfolio is under examination by Sharesleuth at this very moment.

This may be a pretty shoddy way of practicing "investigative journalism" -- a real blot on the profession, as a matter of fact -- but it certainly is going to make a billionaire richer. And as Cuban once put it, it is the "right" thing to do. Profitable too. The shares nosedised after the Sharesleuth piece.

POSTSCRIPT: Mark Cuban says: "I had zero position in the company till [Sharesleuth editor] chris [Carey] told me about it." See comments.

So let's see.... Cuban heard from Carey about this rotten stock Carey might want to write about. A responsible publisher or would-be publisher would say, "Gee what a great story idea -- go to it." Mark Cuban, being an innovative guy, says "Gee what a great story idea -- let's make my profiteering on your ideas part of the business model!"

Hey, what's the point of running a straight-up news operation when you can sacrifice basic journalism standards for a few bucks?

UPDATE 8/10: Last night I was interviewed by CNBC for an On the Money segment on the foregoing. One point I didn't make but should emphasize -- particularly since I've been cited by some message boards -- is that the Sharesleuth article itself was a good piece of work. I wouldn't touch Xethanol with a fifty-foot pole.

Also... Mark Cuban yells at me and I yell back at him!

And....R. Foster Winans -- yup, that R. Foster Winans -- weighs in.

© 2006 Gary Weiss. All rights reserved.

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Wall Street Versus America was 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.