Cramer Admits To Manipulating Markets, Calls SEC Stupid

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In an interview on the website, Jim Cramer of Mad Money fame talks about how he and other hedge fund managers can manipulate stock prices for easy profit. Check out the video, it’s very enlightening:

Although this actually aired online a few months ago, he’s now getting heat from various media sources that recently discovered it – including articles from USA Today and the New York Times, which provide a nice recap:

Cramer described how he would make bets that gave the impression knowledgeable investors were predicting a stock’s future. Cramer said everything he did was legal but added that illegal activity is common in the hedge fund industry, where regulation is lax.

Cramer said some hedge fund managers spread false rumors about a company to large trading desks and the media to drive a stock price lower. He said this practice is illegal, but easy to do “because the SEC doesn’t understand it.”

He also said Research In Motion and Apple are easy targets.

Mr. Cramer said he had used some of the tactics himself, including lying to ?bozo? reporters to get them to report misinformation on particular stocks. He singled out CNBC?s Bob Pisani. He separated legal activities from illegal ones (such as ?fomenting?), and never quite says he ever took part in the latter.

Let’s take a step back here. Cramer openly admits that he and others can manipulate the markets by spreading misinformation. And people actually watch his show for investing tips?!? Somebody’s getting rich, but it ain’t his viewers… Yet another reason not to trade stocks in the short term.

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  1. If finance shows on TV are “financial porn”, then Cramer is the equivalent of Larry Flynt. The guy is worse than a bad clown.

  2. If you followed Cramer’s dvice after the stock market plunge two weeks ago (ie, buy back companies in industries that did not deserve to plummet, ie retail, food services, non-financial, late on Friday) you would have made an easy 10% this week.

    I would say that if you are looking for a specific stock to buy and sell for a quick profit, you shouldn’t be listening to Jim Cramer. However, if you want to find out how a smart investor makes a trading or investing decision (and also want to know what the difference between a trade and an investment are), Cramer offers a wealth of information. This includes how to read a 10-K, how to evaluate earnings reports, and how to use general economic factors and apply them towards individual company stocks and how their prices will react. Use this information he provides, and you can definately become smarter when it comes to trading individual stocks.

    However, I agree with the author of the blog (nice name, mine is Jonathan as well) when he says if you want to invest, don’t do it in individual stocks unless you have some play money set aside that your not afraid to risk. It’s certainly not the place to take your retirement savings to to in order to make a quick buck.

  3. Nony-mouse says

    What do they mean money u can afford to lose!!!

    I have $300,000 but does not mean i can afford to lose it all. What is play money? How much? Even losing $100 hurts.

    Screw Cramer!! He is responsible for me in losing $3000 last 2 weeks.

  4. Disgusting… but apparently true. Great reason to not rely on this “game” for your retirement.

  5. To Nony-mouse. I have never been a Cramer fan and I understand your attitude towards him. When you say “He is responsible for me in losing $3000 last 2 weeks”, did he actually hit the return key on your stock order? The nerve of that guy.

  6. Nony-mouse says

    Steve H: I hear u. But same thing can be said about the mcdonalds lady that spilled the hot coffee on herself…..did ronald mcdonald tilt the coffee and spill it all over herself.

    What i meant was, his advice resulted in me losing $3000.

  7. Nony-mouse: The difference between you and the McDonald’s coffee is that Cramer is very up front about the risk, and you presumably were well aware of that too.

    The coffee on the other hand was dangerously hot, McDonald’s knew it (based on multiple previous complaints that they had paid off cheap), and a regular person wouldn’t be expecting their food to injure them.

  8. Cramer gives awful advice to the small retail investor. Not once in any of his books does he discuss the tax consequences of short term trading. Not. One. Time.

    At his core, Cramer is a “me” guy. He could give a damn whether any of his viewers make money. The way to beat the short term manipulators is to buy good companies at a discount and hold them long term. When your horizon is 30 years, the day to day noise just fades into the background.

  9. joe six pack says

    I think Spitzer and Cramer should be investigated on market manipulation charges. Didnt Spitzer come on Cramers show during the scandalous times? Did ES have money in Cramer Berkowitz? He pushed stocks down for fun?

    Joe 6 pack..

  10. Cramer is just an entertainer like Dr. Phil and Jerry Springer. Using the advice of an entertainer to make important decisions in your life is not a pathway to success.

  11. Cramer’s great. I started watching him with $11000 now I have $22000 thanks to his insight and honesty. All he was doing is telling it how it is. If people want to be nieve and think multi million and billion dollar funds can’t move markets legally then they’re stupid and should get outta the game. Grow some balls

  12. This week I attended a financial seminar by the Commissioner of the SEC, Mr. Paul Atkins. During the Q&A session that followed the seminar I asked Commissioner Atkins about Cramer’s comments both from an SEC and legal standpoint. Commissioner Atkins response was very thorough, and is detailed here: link

    It was an interesting response and is worth a read.

    Jonathan, I love your site! 🙂

  13. M. Woodward says

    As far as Cramer is concerned, if you want to continue to fool yourself into thinking that earnings reports and performance are what move markets then continue with the 2-3% gains you will get with mutual funds.

    If, however, you want to beat the mutual funds and S&P the information that Cramer provides (not necessarily the stock picks, but the mentality) is invaluable. He gives you a window into how “the other side” thinks and what really moves the markets.

    You can be offended, naive, and say “That’s not the way it should be.” Or, you can accept the fact that what he is saying really goes on and try to capitalize on it.

    Your choice, but if you just hear Cramer throw out some stock name and you go buy it without doing your own research and deciding whether it fits your own risk profile, shame on you.

    “A fool and his money are soon parted.”
    -Thomas Tusser (poet and farmer)

  14. To Kyle: I am in the same boat as you my friend, Cramer has made me some good money. However, it was not all Cramer. I took his advice and did my own research and educated myself on the stocks he recommened. Sometimes his picks don’t match up with my style or I don’t believe in them quite as much as Cramer, so I pass. There is no one on earth who you can believe 100% of the time, use your brain a bit and decide what to believe.

  15. The video is no longer available on YouTube. But still has it:

  16. Cramer has, historically, been very good at predicting stocks. He made millions for a reason while he was a hedge fund manager. I can’t say for sure how good he is at *predicting* stocks nowadays, but for some reason after he recommends a stock it shoots up the next day about 2 percent on average (higher for the low priced stocks). Over the course of the next twelve days they fall to their normal levels, and–like I said–I don’t know how well he “predicts” after that. But he makes the markets move because he is so widely viewed. It’s called the “Cramer effect”. Short sellers know about this, and wait for the spike (usually 1-2 days after prediction–only his main picks move this way. “Lightning round” picks don’t move as much on average.

    Anyway, if you have a lot of money, selling short using Cramer’s picks or “pumping and dumping” within the first couple of days could earn money. Track his picks for yourself if you don’t believe me!

    (btw, he doesn’t seem to personally benefit from his ability to move markets, since he is only allowed to own stock in a charitable fund given his high profile)

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