Thursday, August 10, 2006

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 -- 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: " 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.


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

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