Updated from 6:01 p.m. ESTA regulatory investigation into allegations of collusion between short-sellers and a stock-research firm has led to the serving of subpoenas on TheStreet.com ( TSCM) and its co-founder and major shareholder, James J. Cramer. Both TheStreet.com, which publishes this Web site, and Cramer, who writes a column on its RealMoney subscription site, have objected to the government's demands for communications between journalists and their sources. The subpoenas are related to a Securities and Exchange Commission investigation into allegations that Gradient Analytics, an Arizona stock-research firm, published bearish research reports at the behest of a group of short-sellers, including Rocker Partners, a minority owner of TheStreet.com. TheStreet.com is the second news organization to acknowledge receiving subpoenas in the investigation. Last Friday, Dow Jones ( DJ) confirmed that two of its reporters had received SEC subpoenas. The actions sparked controversy, and on Monday, SEC Chairman Christopher Cox sought to distance himself from the unusual investigative move. Cramer, meanwhile, disclosed the subpoena on his "Mad Money'' television show on CNBC Monday night. Through its general counsel, Jordan Goldstein, TheStreet.com disclosed that it, too, received an SEC subpoena. A spokesman for CNBC said the network did not receive a subpoena. Goldstein said TheStreet.com won't comply with parts of the subpoena that demand communications between journalists and sources. SEC spokesman John Nester declined to comment on the subpoenas, noting the commission doesn't "discuss individual enforcement matters.'' Still, it's possible the issue could be moot. The SEC has indicated it has no intention of enforcing the subpoenas at this time. On Friday, the SEC began to back away from the subpoenas, after lawyers for Dow Jones said they would not comply with them. The SEC subpoenas to the Dow Jones employees had a Friday compliance date. SEC Chairman Cox, on Monday, took the unusual step of rebuking the SEC's staff attorneys for filing subpoenas on two Dow Jones reporters without first consulting him or the other top commissioners. Cox issued a statement saying neither he nor any of the SEC's four other commissioners were aware of the subpoenas, which he called "highly unusual.''
Cox said that given the "sensitive issues'' raised by serving a subpoena on a journalist, no further action will occur in the matter without the prior consideration of the SEC's five commissioners. Goldstein said the SEC's behavior with TheStreet.com is consistent with its treatment of Dow Jones. "The SEC staff has indicated that they will not seek to compel production of communications between our journalists and their sources at the present time," Goldstein said. "They could come back in the future, however." People close to the SEC say several of the commission's top enforcement attorneys were aware the San Francisco office had served subpoenas on journalists. The SEC subpoenas to the Dow Jones reporters became public on Friday when one of the journalists, MarketWatch's Herb Greenberg, wrote a column about the incident. The other reporter who received a subpoena is Carol Remond, a writer for the Dow Jones Newswires. Greenberg was a columnist with TheStreet.com from 1998 to 2004. Both Greenberg and Remond have written critical stories about Overstock ( OSTK) and the online discounter's controversial founder and CEO, Patrick Byrne. Last summer, Overstock filed a lawsuit alleging a wide-ranging conspiracy to manipulate the Internet company's stock. The lawsuit alleges that Gradient published critical reports about Overstock's financial situation so short-sellers, or traders who bet a stock will decline in price, could profit. Byrne's campaign against Gradient and short-sellers has taken some bizarre turns. In a conference call last August, the executive said the conspiracy against his company was being orchestrated by an unnamed mastermind he called the "Sith Lord," in a reference to a character from the Star Wars movies. One hedge fund that is singled out in the Overstock lawsuit is Rocker Partners, led by David Rocker. The hedge fund and Gradient have denied the allegations. Speaking on "Mad Money," Cramer questioned the motive behind his subpoena. "I didn't get the subpoena because I'm corrupt," he said. "I got it because I tried to get people out of a stock that we said was going lower, and went lower." He said Overstock's lawsuit was a campaign of obfuscation. "You're losing money hand-over-fist, nobody respects you anymore, and what you do is go to an office of the federal government and say, 'I want the names of all the people who are writing negative stories -- I want them subpoenaed," Cramer said. "And they do it."
An affidavit filed by a former Gradient employee, Demetrios Anifantis, claims that Greenberg, while working at TheStreet.com, coordinated the "content and timing'' of his stories on Overstock with Gradient, which at the time was called Camelback Research Alliance. Anifantis also claims one of Greenberg's former research assistants, Brian Harris, was "retained by Camelback to draft research reports on particular companies.'' Greenberg has written several columns refuting the allegations, claiming Byrne's allegations of collusion between himself, Gradient and short-sellers is "silly.'' In a MarketWatch column Friday, Greenberg wrote that the subpoena sought unpublished communications, including emails and phone records, between him and people he has quoted. He said the SEC sought the information in reference to five companies. "Never mind that I have never written about one of those companies," Greenberg wrote. "And never mind that the other four (yes, including Overstock) deserved every word I wrote -- and then some ... I don't plan to be bullied into changing the way I do anything." In an earlier column, Greenberg said he didn't first write about Overstock until October 2004, which was after he had already left TheStreet.com. He said Harris had a brief tryout with Gradient during the fall of 2004, but was never offered a job. Harris no longer works for TheStreet.com. He declined to comment for this article. David Morrow, the editor-in-chief of TheStreet.com, said, "These allegations about Herb and Brian are so ludicrous, they're almost funny."