Ethics Cop “Troubled” by Cuban’s Sharesleuth Site

No matter how much of a service Mark Cuban and Christopher Carey insist their investmentphoto (2) website called Sharesleuth provides to readers and investors, the guardians of American journalism ethics still aren’t buying it. That was apparent over the weekend when Carey, editor and president of the site majority-owned by Cuban, showed up in Indianapolis for a national business-journalism ethics discussion moderated by Larry Ingrassia, business editor at The New York Times.

At the forum Carey (pictured) found himself defending the 5-year-old website, which uses public documents like court filings to investigate and identify shady companies. While that part’s fine, critics contended, the problem is that Cuban bankrolls Sharesleuth with profits he makes off “short-selling” some of the companies the site writes about.

Carey said that’s happened just four times since 2006 — and the Dallas billionaire’s involvement was fully disclosed each time. Sharesleuth stories are fact-checked independently and are absolutely accurate, he added, so “I … believe it’s journalism. But I don’t care what you call it.”

“What Chris does is definitely journalism,” said Bob Steele, a professor of journalism ethics and scholar-in-residence at the DePauw University Janet Prindle Institute for Ethics. “I am troubled by the underlying financial model of the short-seller, because it pushes very hard on the principle of independence. You cannot be beholden to others who would deter us from getting to the truth.”

But, “people know if Mark Cuban has a position,” Carey stressed. “They know that when we start.”

“Disclosure is healthy, but it doesn’t eliminate problems,” Steele said. “No matter how much he holds up his hands and says they’re clean, that doesn’t eliminate problems.”

Since Cuban reviews all Sharesleuth stories in advance, he has time to buy stock in a targeted company as a “short-seller” before the article appears. If the share price then proceeds to tank, he may profit on the price differential. That happened in 2006, when Carey exposed a company called Xethanol on the website. Cuban had already snapped up 10,000 shares at $12.65, then sat back and watched as the stock nosedived. He later pumped his profits from the short-selling back into the website, Carey said.

While some legal experts say there’s nothing illegal about it all, mainstream journalists like Ingrassia of the Times wish Sharesleuth’s motives were more pure, because doubts about Cuban’s MO get cast on journalism in general. What’s legal and what’s ethical, Ingrassia says, are two different things.

2 comments on “Ethics Cop “Troubled” by Cuban’s Sharesleuth Site

  1. HYPOCRISY AND “SHORT AND DISTORT”: Please research the short volume of China Fire & Security (CFSG) in the two months prior to the Sharesleuth short report. You will find that it increased from less than 100,000 shares to over 1,000,000 shares (at prices over $9). After the report (March, 2008), stock price crashed to under $4.00. Sharesleuth/Cuban/Carey disclosed they were short when the report published (which means they were part of the increased short volume). However, they never disclosed that they intended to quickly cover their position in the event the stock sank (which it did). In fact, their held out to the reader that they would hold their short “until the Company changed its ways”. The Company never changed anything, yet they covered. This appears to be a pure text book example of a “short and distort” …much like a “pump and dump”, which is a similar market manipulation scheme that defrauds investors. Also note, that despite their mantra of seeking out evil doers in the search for the truth, Cuban/Carey never disclose how much money they made in the short, despite public outcry.. read: http://www.fool.com/investing/international/2008/07/29/mark-cuban-should-be-better-than-this.aspx. On top of this, they never followed-up on the CFSG story, which was a lone bright spot of the China-US listed stock story, having been bought out by Bain Capital in the Fall of 2011 at $9.00 a share, which ironically, was the same price that their short report came out which distorted the short term price for there benefit. Carey, who seemed to have had a brief career as a journalist, has sold his soul to the devil. No self respecting journalist would ever accept this blood money. As for him claiming that they only shorted 4 stocks, please note that all these stocks were shorted prior to Mark Cuban indictment on SEC insider trading charges. And if they in fact were the loins share of the one million shares short in CFSG, and covered at even 1/2 the price decline they inflicted on the Company’s stock, they walked away with a few million dollars. That’s a lot of incentive for a journalist to go rogue.

  2. Great post and true. Its amazing that these guys got away with this! What a hypocrite that Carey seems to be. The “protector of the public”, yea right! He knocked off $100 million dollars of market cap in China Fire “CFSG” and ran all the way to the bank. How does the government not prosecute this kind of behavior?