TheStreet.com's Cramer vs. Maier, Round II
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By Erin Joyce
Call it round two in a growing tussle playing out in the media between TheStreet.com's founder and storied hedge fund trader James Cramer and his former employee, Nicholas W. Maier.
In one corner is Maier, whose experiences working for Cramer's hedge fund Cramer & Company, detailed in his book "Trading With The Enemy," have apparently caught the eye of federal investigators looking at IPO allocation practices by Wall Street.
In the other corner is Cramer, the mercurial former hedge fund trader, media columnist, CNBC commentator and founder of TheStreet.com, who is hinting that a lawsuit may be in the offing against Maier.
In an interview Friday, Maier confirmed that he has spoken to investigators with the Securities and Exchange Commission and the U.S. Attorneys office about alleged questionable practices regarding allocations of "hot" IPOs by investment banks in secondary trading markets, notably Goldman Sachs & Co.
According to press reports and people familiar with the situation, for months now the SEC has been probing Wall Street firms' IPO allocation practices during the market bubble of the late 1990s.
But Cramer and his attorney Eric Seiler, said they have not been contacted by the SEC or federal investigators from the U.S. attorneys office.
Maier, meanwhile, said he turned over to federal prosecutors transcripts of a taped interview with another trader from Cramer's hedge fund in which they discussed the IPO practice known as "laddering" (details of which were first reported by Forbes magazine last week).
In an article Maier has since submitted to numerous media outlets, he describes laddering as "the insertion of forced demand by investment bankers for an IPO stock at progressively higher levels," guaranteeing heavy demand for the stock in the first offering and also inflating prices in aftermarket, or secondary markets.
Maier details in his book and in the article, how, as a money manager with Cramer's hedge fund in the late 1990s, he was given preferential treatment on buying into initial offerings because of Cramer's relationship with Goldman (he's a former employee).
Maier writes that the broker for Goldman laid out the rules of the game. "To increase my allocation, I should always agree to buy more stock after the IPO opened for trading. The proposal was that Goldman would give me a few thousand extra shares at the initial, low price, if I bought more wherever the stock started trading in what was known as the 'aftermarket,' or the open market when everyone else was able to buy, usually at a significantly higher price."
Maier continued: "Honestly, we at Cramer & Company all knew these deals were trading at, to say the least, ridiculously high prices. Still, the deals kept coming, and many of them even continued to go up."
A spokesman for Goldman Sachs said "we find Maier's comments self-serving and have to do with promoting a book. We don't believe we've engaged in any wrongdoing and all our activities are appropriate."
In an e-mail exchange, Cramer said no one has contacted him from the U.S. Attorney's office. Cramer also wrote: "I am wondering if Nick will call the Union County New Jersey prosecutor next because our water sprinklers went off accidentally last Saturday, violating the tough drought rules."
Maier said he has voluntarily spoken to the SEC regarding an investigation into what he calls "Certain Initial Public Offerings."
The 33-year-old also said that although he got some details wrong in the book regarding an alleged SEC probe of Cramer (which publisher HarperCollins had to correct before re-issuing), he stands by his account of what he saw when he worked for Cramer's hedge fund company from 1994 to 1998.
In the book, Maier writes that "Cramer engaged daily in brilliant but questionable practices, ranging from blatantly unethical strong-arming to spreading false rumors and leaking important information."
He also describes how CNBC anchor Maria Bartiromo and anchor David Faber were fed scoops or rumors by Cramer, that he in turn would exploit for his own stock holdings once the anchors broke the news on air. He also writes that the firm acted against what Cramer said about some stocks during television appearances.
In another e-mail exchange, Cramer wrote that "Nick can still contact the labor department(hours worked), the immigration department, (babysitters) and a bunch of other agencies, and it is a free country, free to destroy any boss who fired you for a problem that many people get fired for." (Cramer asserts that Maier was fired from his employ. Maier said he resigned.)
Cramer's attorney Eric Seiler said Maier's book contains "false and defamatory material" about his client and that Cramer's book sets the record straight.
Although he wouldn't confirm whether a libel suit was imminent, Seiler said he and his client are considering what legal measures to take against Maier, and hinted that a suit could be in the offing.
Meanwhile, CNBC, where Cramer continues to work as an on-air commentator, has updated its statement about the Maier charges.
"CNBC has the highest journalistic standards in the business. David Faber, Mark Haines and Maria Bartiromo have the utmost integrity and any allegations otherwise are completely without merit."
The CNBC statement also took aim at the fact that Maier's book had to be pulped in sections in order to remove inaccuracies in it about an alleged probe of Cramer's activities by the SEC.
"Since the book's own publisher found it necessary to issue serious factual corrections to the book after publication, we now have more questions than ever about the credibility of the author."
Of the factual error, Maier countered that "it was the same story, only a different stock," and that Cramer and his attorney are putting out a "multi-million dollar spin" in order to "scare the hell out of my publishers."
"Do I want to sell some books? Absolutely," he continued. "And certain authorities have contacted me, and they're quite interested in what's in the book. But I had to get corroboration. And I was willing to turn that over to them."
Maier said he and the trader he taped "both recognized we need to be a hundred percent honest when dealing with certain authorities."
In his book, Cramer offers a glimpse into his career as a hedge fund trader and describes how he searched for an "edge" in pushing the envelope but never crossed the line into insider trading or other illegal activity in the marketplace.
But Maier is throwing counter punches on the issue at every turn.
"My book describes how dense the manipulation, not just by analysts, but the money management, by television -- the very source of the information had been manipulated."
(Full disclosure: While working towards a graduate degree in the mid-1990s, the reporter worked in an administrative capacity for Goldman Sachs as a temporary employee.)