Don't Touch Companies With Accounting Troubles

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"Accounting Irregularities = Sell." That message, written on a little Post-It note, has been with me for years. It is right next to pictures of my wife and kids. It is never to be forgotten.

But people keep forgetting. Someone didn't sell Critical Path (CPTH Quote - Cramer on CPTH - Stock Picks) before this most recent travesty. Someone said, "What the heck, it will come back." Someone else said, "Long-term, how can you go wrong?" And someone else said, "What do I have to lose?" The answer, of course, is "everything."

We now know that Critical Path was making up numbers. Libel laws prevented us from saying that when we first heard about the turmoil there. Libel law keeps us from saying, "Looks like fraud." Which is why you have to sell. When you say the word "fraud," people sue you. They sue you even if they are frauds. And you are in deep trouble. That's why you have to be proactive when you hear about accounting irregularities. Because maybe the truth can't be told yet, but it will come out and when it does, you will be hurting.

Write it down: "Accounting Irregularities = Sell." That will pay for several lifetime subscriptions to TheStreet.com.