Yesterday when I said Jim Cramer might be in danger of losing his gig over at CNBC, that was before I watched a 2006 interview with thestreet.com in which he explains to aspiring hedge fund managers how to successfully manipulate the stock market. Securities Exchange Act of 1934, Section 10b-5 From Wikipedia: It's hard to overstate the breadth and utility of section 10(b) and Rule 10b-5, in the pursuit of securities litigation. Rule 10b-5 has been employed to cover insider trading cases, but has also been used against companies for price fixing (artificially inflating or depressing stock prices through stock manipulation), bogus company sales to increase stock price, and even a company's failure to communicate relevant information to investors. Now I think he may be in danger of being lynched.
Cramer describes some tactics he used while he was a hedge fund manager in the '90s, and goes on to describe more advanced manipulation techniques that are "blatantly illegal." He says "No one else in the world would admit" that manipulation is "fun" and "lucrative," but "I could care. I'm not going to say it on TV."
For those curious, yes market manipulation is illegal (as described in section 10b-5 of the Securities Exchange Act of 1934), though sometimes tricky to prove in court. Cramer himself points out that the "SEC doesn't understand it," and this candid interview (video below) is proof that the SEC needs to more carefully investigate and prosecute cases of market manipulation.
Here are some highlights from Cramer's way-too-fucking-honest interview.
1. Jim Cramer on artificially inflating or deflating his holdings A lot of times when I was short at my hedge fund, and I was positioned short, meaning I needed it down, I would create a level of activity beforehand that could drive the futures. It doesn't take much money. Similarly if I were long and I would want to make things a little bit rosy, I would go in and take a bunch of stocks and make sure that they're higher. Maybe commit $5 million in capital to do it and I could affect it. What you're seeing now is probably a bigger market. Maybe you need $10 million in capital to affect it now. But it's a fun game, and it's a lucrative game.2. Jim Cramer on how it's illegal to "foment," but you should do it anyway You can't foment. You can't create yourself an impression that a stock is down, but you do it anyway because the SEC doesn't understand it. That's the only sense that I would say that it's illegal. But a hedge fund that's not up a lot, really has to do a lot now to save itself... This is actually just blatantly illegal, but when you have six days and your company may be in doubt because you're down, I think it's really important to foment if I were one of these guys.3. Jim Cramer says it's important to get your misinformation repeated on CNBC It's important for people to recognize that the way that the market really works is to have that nexus. Hit the brokerage houses with a series of orders that can push it down. Then leak it to the press, and then get it on CNBC -- that's also very important. Then you have kind of a vicious cycle down, and it's a pretty good game, and it can pay for a percent or two.4. Jim Cramer says truth is the hedge fund manager's enemy What's important when you are in that hedge fund mode is to not be doing anything that is remotely truthful, because the truth is so against your view that it's important to create a new truth -- to develop a fiction. The fiction is developed by almost anybody who's down like 2 percent to up 6 percent. You can't take any chances. You can't have the market up anymore than it is if you're up 6 because starting Jan. 2, you'll have all your money coming out. 5. Jim Cramer on how to get Apple stock on the cheap Apple's very important to spread the rumor that both Verizon and AT&T have decided they don't like the phone. It's a very easy one to do and you also want to spread the rumor that it's not going to be ready for MacWorld. This is very easy because the people who write about Apple want that story and you can claim that it's credible because you spoke to someone at Apple. Because Apple...
Interviewer interjets: They're not gonna comment...
So it's really an ideal short. And again if I were short Apple, I'd pick up the phone and I'd do that today. After sharing some of this advice, Cramer paints himself as the good guy, helping out the worthy readers of thestreet.com by saing "No one else in the world would admit that, but I could care. I'm not going to say it on TV."