Cramer’s Right, CNBC’s Wrong

The ongoing contretemps that money manager Jim Cramer finds himself in because of comments he made on CNBC three weeks ago is, not to put too fine a point on it, idiotic. Cramer got himself in trouble because, while appearing in his usual guest-host spot on CNBC’s Squawk Box, he labeled Wavephore, a small-cap Internet company, as a possible “Fraud-U-Net” company. He argued that its stock price was being artificially inflated as the result of a squeeze on people who were trying to short-sell its stock. Cramer said that he had asked a trader at his firm to find out whether he could borrow Wavephore stock in order to sell it short, and that the trader had reported back that there was no Wavephore stock out there for the borrowing (not incidentally demonstrating Cramer’s point).

Why did this get him in trouble? There is no good reason, except for the fact that Wavephore’s stock dropped precipitously after Cramer’s comments and the company decided it was the victim of a nefarious assault, complaining to both CNBC and the SEC. But even if you’d read everything Wavephore and the New York Times have had to say on the matter, you couldn’t figure out what Cramer did wrong, because he didn’t do anything wrong.

To begin with, Cramer never actually shorted the stock. He just wanted to find out if he could short it. But let’s say he had shorted it. In that case, he would have disclosed the information, as he disclosed the fact that he had inquired into shorting it. So it can’t be a conflict of interest problem, since there was no conflict and even if there had been, well, that’s why CNBC has people like Cramer as guest hosts, so they can talk about what stocks they like and don’t like. The weird thing, in fact, is that Wavephore is arguing that Cramer’s openness about his pseudo-attempt to borrow the stock somehow invalidates what he said. But if he had kept quiet about it, and then it leaked out, he would have been crucified for it.

Were Cramer’s attacks on the company unfair? Well, no one has been a more fervent–I would say over-fervent–advocate of Net stocks than Cramer, so it’s hard to believe he just had it in for Wavephore. And if he was wrong, the stock would surely have rebounded after that initial drop. Instead, it’s stayed down, which suggests that the market thinks Cramer was right.

The Times today suggested that Cramer had inadvertently spurred a “debate on the ethics of commentators.” But there is no debate here, because those criticizing Cramer have no case. People are interested in Cramer because he manages money, not in spite of it. The guy always discloses every position he holds (or doesn’t hold, in the case of Wavephore). Insofar as he moves markets, it’s again because people think he’s putting his money where his mouth is.

Every business section of every paper in America runs articles every day quoting money managers explaining why they like a given stock. No one screams conflict of interest then. And it’s no more a conflict when Cramer writes about companies himself, instead of giving someone else the quote. Wavephore’s not the victim here. Cramer is. CNBC should put him back on the air immediately.