NEW YORK, March 20 (Reuters) - Stock market commentator and CNBC television host Jim Cramer has raised eyebrows after describing illegal activities used by hedge fund managers to manipulate stock prices.
In a December video interview on TheStreet.com TSCM.O Web site, a financial news company he co-founded, Cramer described how he could push stocks higher or lower, depending on if he was long or short, at his previous job running a hedge fund.
The interview, which has only now got widespread attention after being posted to online video site YouTube, may be studied by U.S. government and stock market regulators, hedge fund experts and legal sources said.
The interview, which can be seen at (here), described methods including tactical buying, shorting or using options to create an impression in the market that could prompt other traders and investors to buy or sell a stock.
“A lot of times when I was short at my hedge fund ... meaning I needed (a stock) down, I would create a level of activity beforehand that could drive the futures,” said Cramer. “It’s a fun game and it’s a lucrative game.”
Cramer, host of the popular CNBC television show Mad Money, described tactics that could be used to drive down technology stocks such as Research in Motion RIM.TO or Apple Computer AAPL.O to make them cheaper to purchase later. CNBC is owned by General Electric Co. GE.N
In the interview, Cramer said a hedge fund manager’s favorite tactic is to get a rumor about a stock to an unwitting reporter -- at the Wall Street Journal or at his current employer, CNBC -- and hope that it moves the stock in the direction the manager wants.
Cramer said some tactics are “blatantly illegal,” but sometimes essential for poorly performing hedge funds. He did not say he ever used such tactics himself.
Cramer said if a market participant wanted to get shares of a company like RIM lower then he should first get investors “talking about it as if there is something wrong with RIM”.
"Then you call the (Wall Street) Journal and get the bozo reporter in Research in Motion and you would feed that (rival) Palm's PALM.O got a killer it's going to give away," he said. "These are all the things that you must do on a day like today and if you're not doing it, maybe you shouldn't be in the game."
“It might cost me $15 million or $20 million to knock RIM down but it would be fabulous because it would beleaguer all the moron longs who are also keying on Research in Motion,” said Cramer.
He also said the SEC does not understand some illegal activity.
Hedge fund lawyer Ron Geffner of Sadis & Goldberg called the interview a “somewhat surprising confession to make publicly, which definitely invites suspicion by regulators.”
“Whether he violated the law is unclear,” added Geffner. “That is dependent on his trading records. But it’s clear that he seems to be challenging regulators to come and examine him.”
A spokesman for the SEC declined to comment on whether the agency is looking at Cramer’s comments. A decade ago Cramer faced an SEC investigation over a column he wrote for SmartMoney magazine that touted four stocks without disclosing his holdings in them. He was eventually cleared of wrongdoing, according to news reports.
Other legal experts criticized Cramer’s comments for suggesting that stock manipulation is widespread among the growing legions of hedge funds, which are investment vehicles that typically trade much more actively and use more complex strategies than mutual funds.
“This makes it sound like everyone is doing it and the reality is that most hedge funds are not engaged in this kind of manipulative behavior,” said Laurel Fitzpatrick, a hedge fund lawyer with Ropes & Gray.
News of the interview was reported in the New York Post on Tuesday. Cramer could not be reached for comment following calls to both TheStreet.com and CNBC. Spokespeople for CNBC and TheStreet.com were unavailable for comment.
Cramer said in the interview that he would not make such comments on his CNBC show.
Cramer, who regularly gives opinions on stocks on his daily TV show, also said stock market movements are often unconnected to the fundamental qualities of the underlying company.
“Who cares about the fundamentals?” said Cramer. “The great thing about the market is that it has nothing to do with the actual stocks.”
The writer of this article previously worked for TheStreet.com.
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