This past Thursday, during a financial briefing to a primarily military audience, Commissioner Atkins of the SEC responded to Jim Cramer’s comments about manipulating the stock market and calling the SEC stupid. Cramer’s comments were made during a Dec. 06 interview, but were recently picked up by large media outlets such as NY Times, USA Today, CNN, and others. To read a review and watch the interview, go to Jonathan’s post at My Money Blog.
During the Q&A session following the financial briefing, an audience member (ok, it was me) detailed the situation and asked Commissioner Atkins his opinion on the feasibility and legality of manipulating the market through the spread of rumors/innuendo and massive power plays in purchasing and selling, his opinion of Cramer’s comment that the SEC is stupid, and whether or not Cramer faced any serious investigations because of these comments. The audience responded with a nice laugh, as apparently I put Commissioner Atkins on the spot.
Granted, this was a multi-part question, and took me a full 20 seconds to ask… but Commissioner Atkins was kind enough to answer almost every point. On the first point, Commissioner Atkins did not readily admit that it was feasible to manipulate the market. Admittedly, in his position I also would not answer in the affirmative on that point either. That wouldn’t look good to admit your agency does not have the power to prevent market manipulation. But he did answer that market manipulation is illegal, and anyone caught doing so faces harsh penalties. (The SEC has prosecutorial powers and the civil authority to sue persons and institutions, but does not have the power to levy punishments).
Commissioner Atkins’ remark to the second point of my question- Cramer’s remark that the SEC is ‘stupid.’ Well, Commissioner Atkins did not go into much detail on this. Basically, he cautioned people on giving too much credit to the media’s ‘talking heads’ and to use caution and due diligence when researching investments. He also alluded to an occasion when apparently Jim Cramer received a subpoena from the SEC, and on air, ripped the subpoena into pieces and stomped on it. Theatrics at its best! I did not see that episode or clip, so I can not attest to its accuracy. But that would have been something to see!
And finally, the third point to my question, will Jim Cramer face an investigation? Actually, Commissioner Atkins answered this part of the question first. Basically it was the standard, I can not comment on any investigations that may or may not be ongoing or that may or may not occur in the future. I don’t remember the exact phrasing (I can’t write fast enough to get everything down…) but that was the gist of it. He answered in a laughing manner, but also in a manner that led everyone in the audience to believe that, yes, there was an ongoing investigation. And rightly so. He then detailed the lengths the SEC goes to investigate and find market fraud, and talked about the ongoing relationships between the NYSE, NASDAQ, and other organizations to track unusual trades, malicious rumors, find sources of leaked information and insider trading, and otherwise work to prevent and discover fraudulent acts. He also mentioned it is a daunting task and these allegations are very difficult to prove and require substantial evidence. (He did mention several recently successful prosecutions for these infractions.)
All in all, Commissioner Atkins is a very intelligent and insightful man, and answered my question very thoroughly (and danced around the legalities very well).
For the record, I have a copy of Jim Cramer’s Real Money and I thought it was an entertaining and insightful investing book. I also have at times watched his show, and found it entertaining, and have recreationally followed a few of his stock picks after he announced them on his show. What have his recommendations done?
Google the phrase ‘Cramer Effect.’ Here is a good link to see the results of a university study of the Cramer Effect called Can You Make Money from Jim Cramer’s Picks?. Basically, if he recommends it, it goes up the next day (It usually reverts within a week) and if he advises to sell, it usually gets pummeled the next day (sometimes irreparably, but sometimes it also reverts within a week or two).
Jim Cramer is entertaining, has a lot of knowledge, a very loyal audience, and thus a lot of power to make things happen. Sometimes he needs to act like a politician and dance around subjects without actually answering the question at hand. But he doesn’t, and therein lies his appeal.
But just like any investment – this is your money. Do your research. Understand your objectives and the risks you can handle and act accordingly. Don’t do anything because the Commissioner of the SEC or Jim Cramer say to do it or not to do it.