This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Today's Outrage: Skeptics Missing at SEC

NEW YORK ( TheStreet) -- I don't know the reason -- the full moon, the tsunami? -- but this has been a pretty lousy couple of weeks for the cause of skeptical research into small-cap companies.

This is an area that has been almost totally neglected by the Securities and Exchange Commission, which has taken the position, by doing nothing, that it doesn't matter if companies threaten, bully and sue their critics. So investors need to sit up straight and pay attention.

This week, a Chinese small-appliance manufacturer called Deer Consumer Products (DEER) filed suit against one of its most vociferous critics, a blogger by the name of Alfred Little. Meanwhile, in a totally unrelated incident, an ex-con by the name of Barry Minkow, who masterminded the ZZZ Best securities fraud scheme years ago, was charged with market manipulation and his lawyer has said he will plead guilty.

Minkow, who allegedly got religion while serving time for the ZZZ Best fraud, admitted that he conspired to manipulate the share price of Lennar Corp. (LEN - Get Report) He ran the Fraud Discovery Institute, which produced negative research on a host of companies, large and small.

It's hard to decide which of these -- Minkow's criminality or the Deer lawsuit -- is a worse blow to the cause of exposing fraud. I'd say it's a tie.

Now, I'm not familiar with the Deer lawsuit or Little's research, but I do know that suing critics is an effective way of sticking a gag in the throats of critics, whether they be operators of independent research firms, bloggers like Little or small investors mouthing off on Internet message boards. But whatever the target, the affect of such suits is to stifle the free flow of information. And a free flow of information is crucial for Chinese stocks such as China MediaExpress Holdings (CCME), Orient Paper (ONP) and China Education Alliance (CEU).

Such suits have been around since before there even was an Internet. In 1994, a brokerage executive named Daniel M. Porush of Stratton Oakmont, a Long Island firm, sued the Prodigy online service after an anonymous person said nasty stuff about Porush and Stratton on a Prodigy message board. Porush was called a "soon to be proven criminal" and Stratton "a cult of brokers who either lie for a living or get fired." These were accurate descriptions, but that only emerged five years later, when Porush went to the slammer and Stratton was shut down as the notorious boiler room that it was. But while they still had a scintilla of credibility, they used it to force an apology out of Prodigy. I call this the Porush Syndrome: It doesn't matter if you're guilty as hell. Sue!

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
MED $29.96 1.08%
LEN $50.43 2.04%
OSTK $23.94 3.64%
VRX $197.84 -0.31%
AAPL $123.25 -0.80%

Markets

DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs