WavePhore Strikes Back Against TV Commentator

Dec 04 1998

NEW YORK - When most companies receive bad press, they grumble and move on. But not WavePhore, the Phoenix-based Internet and wireless digital-delivery company.

When one of the Internet's best-known financial commentators, hedge fund manager James Cramer, used the phrase "Fraud-U-Net" on CNBC while discussing WavePhore on Wednesday, the company took the unusual step of filing a complaint against him with the Securities and Exchange Commission and Nasdaq.

Cramer, a regular commentator on CNBC and one of the founders of TheStreet.com , said that Federal Reserve chairman Alan Greenspan "doesn't like WavePhore going up," and discussed his inquiries into how WavePhore stock could be shorted.

"I called my stock loan department and I said, 'Listen, I wanna short twenty-five thousand WavePhore because I think this thing is going to expect a little bubble," Cramer said, according to a transcript. He also used the phrase "Fraud-U-Net," although an associate at the fund Cramer, Berkowitz & Co. insists that phrase was a "general comment" about some Internet companies, and did not refer specifically to WavePhore. Nonetheless, WavePhore's stock then lost nearly all the value it had gained since late November, dropping from around $15 per share to less than $8.

On Thursday afternoon, WavePhore announced it had asked the SEC and Nasdaq, where it trades, "to investigate these events to determine whether applicable laws and regulations have been violated." The company also said it had "been advised that such matters are currently being reviewed by Nasdaq." On Friday morning, a Nasdaq spokesperson was not immediately able to confirm that assertion.

Douglas Reich, WavePhore's general counsel, told The Industry Standard that the complaint is "a very sensitive matter," and that Nasdaq had asked the company not to say more than was in its statement.

Regardless of its eventual outcome, the incident shows one of the pitfalls of news organizations using market participants as commentators. Theoretically, Cramer could have violated guidelines against stock manipulation, if he held a short position in WavePhore and made negative comments about it on television without disclosing his interest.

Although Cramer's office said he was not available for comment - a rare occurrence for the ubiquitous Cramer - he said during the broadcast: "I don't care ... I'm not long or short the darn thing." That fact, if true, would most likely lead to WavePhore's complaint being dismissed.