Melissa Davis, the “investigative journalist” who worked for TheStreet.com has since left and started a special brand of muckraking “journalism” that is best characterized as profitable character assassination. The M.O. is simple enough: Find a company that has built a substantial market cap in a short period of time and publish unsubstantiated allegations about the company, its product, and its management team on a (possibly duplicitous) financial web portal with millions of visitors after building a short position in the stock. And VOILA! Instant profit.
Then, when the herd of readers who are already jittery over the fact that their investment has increased by 1,700% decide to stampede for the exists, buy back the shares on the cheap and pocket the difference.
Its nothing but a reverse pump and dump, and it should be illegal. Everybody understands the power of the written word. If one person writes something negative, its an opinion. But if two or three agree with the opinion and project it, it becomes a self-fulfilling prophecy.
Davis’ track record is rather suggestive of the fact that her site, StreetSweeper.org, capitalizes on her past exposure of flawed companies while investigating on behalf of theStreet.com – projecting herself as a not-for-profit journalist while actually running a reverse pump and dump operation for profit. The very use of the “.org” Top Level Domain (TLD), which is supposed to be reserved for non-profit organizations, instead the “.com” TLD is a glaring signal that she is being intentionally deceptive to the public.
What she doesn’t tell you is that her business partner in the web site and the scheme is a convicted short pump-and-dumper, Hunter Adams.
In a scathing exposure of such reverse pump and dump web sites , The American Journalism Review suggested in a lengthy article that StreetSweeper.org was co-founded by a member of the Gambino Crime Family.
“Hunter Adams, the brains behind The Street Sweeper (thestreetsweeper.org), helped launch the site last year (2009), just eight years after federal prosecutors labeled him an associate of the Gambino crime family in New York. Adams, who was convicted for his role in a massive “pump and dump” scheme involving penny stocks, is still on federal probation for his crime.”
“It isn’t journalism,” says Edward Wasserman, Knight Professor of Journalism Ethics at Washington and Lee University in Lexington, Virginia. “Their claim to be taken seriously as journalists, if they’re making that claim, is ridiculous.”
“Disclosing that a site is funded by short sales doesn’t remove the ethical questions that surround it,” says Bob Steele, director of the Janet Prindle Institute for Ethics at DePauw University in Greencastle, Indiana. “It merely provides a form of transparency that reveals there’s something behind the curtain,” Steele says. “It doesn’t mean that it’s OK.”
SEC Complacent
The complacency of the U.S. Regulator responsible for the integrity of markets – the Securities Exchange Commission (SEC) has remained remarkably silent on the issue of reverse pump and dump publishing schemes, and so right now, the reality is that any stock that has succeeded are going to be subject to such shareholder value-destorying tactics.
The problem for investors is, if you’re already in the black on a stock you bought for much cheaper, its far safer to sell and wait out the attack, even though it means handing a profit to a pseudo-criminal enterprise. If you hang on to the stock in the face of such an attack you risk a) the unpleasant anxiety of hoping the attack is only temporarily successful in diminishing the share price, or b) losing your profit and then some if market sentiment turns so skeptical of the attacked stock that it fails to recover, and the downward momentum renders the company unable to raise further capital.
Before readers jump to the conclusion that I am somehow a paid apologist or pumper for Zenyatta, I hereby disclose that I own no shares in Zenyatta and am not compensated by the company for coverage. I caveat that disclosure with the further disclosure that I earn fees for investment banking, financial marketing and the buying and selling of equities for a living, but have no relationship with Zenyatta in that regard.
Many are the companies whose share prices’ briefly plunged after theStreetSweeper.org’s spurious allegations, before recovering and then going higher after the allegations proved groundless. Judging by the recovery in Zenyatta’s share price since Davis’ smear campaign started, she’s going to be on the wrong side of that trade and must be feeling the squeeze now.
