Stop Talking Small-Caps

The trader implores money managers to avoid the dangerous practice of discussing these stocks on national TV.
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Warning to all managers who appear on "Squawk Box" and every other television program with traction: Knock it off about the small-caps already. You are shaming yourself, your firm and, most important, the network you are doing it on.

Two weeks ago, Gregg Hymowitz, a money manager who was, like me, once a broker at

Goldman Sachs

(GS) - Get Report

-- I have never met him -- came on "Squawk Box" and touted a little company,

Epicor Software

(EPIC)

, making it sound like the next

Microsoft

(MSFT) - Get Report

.

Smarter Money: Join the discussion on

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Message Boards. It is small, thinly traded and, given the glaring, visible heat I have taken when I was on that show criticizing

WavePhore, was bound to move up dramatically.

It did; Epicor spiked from 7 to 12 that morning. It is now back to where Hymowitz pumped it.

If you consider the bizarre history of what happened to me -- I was suspended from

CNBC

immediately for criticizing a stock I was

not

short -- it's pretty outrageous that Hymowitz got away with pumping a stock

he owns

. No suspension. No nothing. Not a word, 'cept a couple of laughs.

He made millions temporarily, and I made nothing. I was poorer and embarrassed nationwide; he came up smiling and richer. I had the big legal fees and the unwarranted

SEC

investigation to prove I had not sold WavePhore short ahead of time. He didn't even have an inquiry about whether he sold into the strength he created!

But I could give a darn about that. Maybe Hymowitz doesn't own a stake in a competing Web site to

CNBC.com

. Maybe he has better Nielsen numbers than I have.

Life's unfair and we know it

Here's what I care about. I care about

Bonnie H.

, one of our readers who two weeks ago emailed me the following from her computer in Washington after I

wrote about how dangerous this whole process is and people on TV have a responsibility to measure their words when they are pumping their small-cap stocks:

I know exactly who you are referring to this a.m. on "Squawk Box." I don't usually get caught up in that kind of hype, since I know by the time it gets there, the run has already been made. (After Hymowitz pumped it) I tried to buy EPIC at 8 1/2, using my local discount broker Web site. The broker took 10 minutes to fill the order -- its Web site was overwhelmed. I knew I did a stupid thing almost immediately and tried to cancel the order. Too late. It was filled at 11 5/16.

The stock has now come back to 7. Bonnie lost a boatload. As many of you know, I read all of my email. So I shot back to Bonnie to tell me more. Frankly, I wanted to know if Bonnie was new to the game or a daytrader or something that would allow me to think that she didn't understand how the "game" is played.

Here's her further articulate description of what occurred: "What more can I say? Hymowitz made the company sound so good, with other similar companies trading at 5x revenues and EPIC at only .75 revenues."

Go on, I asked, tell me exactly what happened.

"I am in Vancouver, Wash. I always watch "Squawk Box" in the morning as I am getting ready for work. I know better than to act on impulse, jumping into a stock just because some analyst is talking about it. I was alone this morning, husband out of town, so I jumped on to my computer, wet hair wrapped in a towel, thinking I would get ahead of the daytraders. Really dumb move."

Sure, Bonnie should have known better, but get this: "I am not a daytrader and have not invested in all the services to watch the market. I manage several IRA accounts, currently around $300K. I trade about 15-20 times per month. I usually check stocks out thoroughly before buying, spending two to three hours each day monitoring my stocks. Last year I did 140%."

In other words, a pretty sophisticated individual was fooled into buying this stock badly by the process of seduction on TV. I don't want legislation about this. We have it: The 1934 act prohibits manipulation. I don't think this was manipulation. I don't want investigations. He probably regrets what he did, which is cause a stock to run up and then run back and he is now stuck with bad holders from now till kingdom come. I am sure he sold no stock into his pump. So there probably was no dump. That would have been a real problem.

But I want some common sense used by money managers on TV shows so the Bonnies of the world don't lose money. I believe in caveat emptor as much as the next guy, but money managers who read me -- and I know you do -- wise up. Stop it with the small-caps. Just say you won't go there.

You'll keep the government off of everybody's back, you'll spare yourself embarrassing articles like this one, and you will not hurt the Bonnies of the world who deserve to be protected.

Take the pledge! Don't talk small-cap on national TV. The system just can't handle it.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Goldman Sachs and Microsoft. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.