Is Jim Cramer playing the market or playing his audience?

As the Jon Stewart/Jim Cramer "battle royal" has developed, it has drawn attention to a longer-standing (if less well-known) Cramer scandal: his history of stock manipulation. While Cramer himself admits to his success in this practice, there is some evidence to suggest that he has occasionally done so illegally, and has even used his CNBC bully pulpit as a tool for controlling the market.

The internet is rife with articles accusing Cramer of market manipulation, but most reports lead back to a single source: Deep Capture. A blog dedicated to "examining the growing threat to our financial system posed by illegal naked short selling, stock manipulation, and the destruction of public companies," it is the brainchild of Patrick Byrne, CEO of Overstock.com. Byrne was apparently inspired by what he perceived as an illegitimate attack upon his stock, and her has financed what amounts to a permanent war against stock manipulators.

The sordid tale of the Overstock battle is outlined in The Story of Deep Capture, a 40,000-word mini-novella that is prominently featured on the Deep Capture site. Purportedly written by Mark Mitchell, a Columbia Journalism Review editor, the piece reads like a Grisham thriller, with mafiosi, money men, and analysts conspiring to bring down Byrne's company.

While The Story of Deep Capture makes for fun reading and has been widely quoted by numerous websites, it is a bit too florid to be completely credible. For example, here's how it introduces Jim Cramer:

Sitting next to Herb, nodding in agreement, is Jim Cramer, host of "Mad Money." This program is all that keeps CNBC out of the ratings quicksand, and it is easy to understand its appeal. Cramer is manifestly chimpanzee-like in both comportment and worldview -- a fully arresting specimen of unsated mammalian appetition -- a self-styled "journalist" who grunts and growls and snorts and says funny things like "Booyah!" while jumping up and down, smashing chairs, and telling people how to make [tons] of money gambling on the markets. Good TV!

Mitchell proceeds to discuss how Cramer and his colleagues at CNBC, The Street, The Wall Street Journal, The New York Times, and other prominent news outlets, colluded to manipulate the value of various stocks. Among its less controversial claims, Deep Capture argues that Cramer and his ilk drove the market toward short-term gain instead of long-term stability, thus massively inflating it and hastening (or even causing) its meltdown. On a more aggressive level, the article states that Cramer has deliberately and vindictively sought to destroy companies, through "phantom stock" techniques and inaccurate "buzz."

Deep Capture's assertions would be of little interest, were Cramer not among the most prominent and trusted financial advisers on television. However, as he noted in a 2006 interview with Aaron Task, manipulating stock value is a game at which he is very adept. Moreover, by his own admission, he has used techniques that are illegal: "You can't foment; that's a violation [...] you can't create an impression that a stock's down. But you do it anyway, because the SEC doesn't understand it [...] When you have six days and your company may be in doubt because you are down, I think it's really important to foment."

If this admission of illegal stock manipulation isn't sufficient, it might be worth considering the following quote from Cramer's book Confessions of a Street Addict: "When we found a stock that looked ready technically to break out [...] we would load up with options and common stock and then give the good news to our favorite analysts who liked the stock so they could do their promotion. That would get the buzz going and we would then be able to liquidate the position into the buzz for a handsome profit."

While none of this is absolute evidence of any wrongdoing on Cramer's part, it is worth noting that his show puts him in a prime position to "get the buzz going." With that in mind, it would be very interesting to see how Cramer's portfolio has been doing over the past few months.

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