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28 December 2000

Brain cancer causes cellphones
Brain damage causes drugs
I'm staying off the street 'cause
Gang war causes thugs
-- "Just Because...", Joe Jackson, Night and Day II, 2000

Did I say I'd be back on the 27th? Oops...

This is one rockin' piece of journalism from Terence Smith on the PBS NewsHour. He (& his staff, I presume) dug up a truckload of examples where analysts who recommended stocks on TV were employed by firms which had a prior relationship with those same recommended companies which was not disclosed.

Lots of quotable stuff...

  • Stock Tips -- December 27, 2000 [PBS]
    SMITH: Analysts are required to disclose such relationships in the written reports that they provide to investors, but when it comes to television appearances, the rules are far less clear. This has prompted Arthur Levitt, the Securities and Exchange Commission chairman, to launch a campaign to clarify the rules.

    ARTHUR LEVITT: There are lots of these subtle and some not so subtle conflicts, and I think it's terribly important that the viewer understand what the hidden agenda may be. ... This is a very competitive environment, and all investment banking firms are trying to get a limited amount of business that's out there. And one of the things they tell a company that they're soliciting is that they'll help give that company coverage [publicity].

    HOWARD KURTZ [of the Washington Post]: It's the kind of thing you'd want to know in any other realm of life -- politics, sports, you name it. But in business news, the analysts get to tout stocks that their own companies have a financial relationship with in a way that makes me uncomfortable, in a way I think short changes viewers.

    LEVITT: There are some firms which measure the bonus payments to analysts based upon the volume of business done in shares that he's writing about that goes to the firm. ... I have no doubt that a very large percentage of analysts making recommendations have a basic conviction about those recommendations have done a great deal of work to justify that and are people of integrity. But the perception of an investor who buys a stock from an analyst that did not reveal that conflict, who then experiences that stock going down, and then learns that there was a conflict, has got to be negative and has got to corrupt the stage as far as that's concerned for all future analysts having undisclosed relationships.
Do journalists have a responsibility to point out conflicts of interest? It seems self-evident to me, but most of the financial shows don't think they do...
KURTZ: If the analysts don't want to do it, refuse to do it, are wary of doing it, I think it's a fundamental responsibility of journalists to say, well, now, wait a minute. Didn't your company do a bond issue for AOL? Aren't you trying to get business from Microsoft or Yahoo? And why journalists shy away from this, and why they seem to think this is kind of a back-burner issue is very difficult to understand, because to me, it goes to the essence of what journalism is, which is holding people accountable.

This goes to the heart of one of my big peeves, which is the merging of various news sources into various conglomerates which don't feel the need to report anything about their own conflicts of interest. In that context, it's not hard at all to understand why journalists shy away from holding people accountable.

SMITH: "Wall Street Week's" executive producer Rich Dubroff declined to be interviewed on camera, but said this over the phone: "It should be the responsibility of the firms and the SEC if they think they should make these relationships known... The viewers should research all their investment decisions very carefully and if they make those decisions carefully, they will make them on the merits of the investment." The host, Louis Rukeyser, declined repeated requests to discuss the issue.

Sure, you can take the position that the viewers should do all due diligence before making an investment; they should. But for a television show to participate in the hiding of relevant information from their viewing audience (really: who believes the hosts have no clue the relationships are there?) is different from simply saying it's not their job.

CNBC, at least, seems to take a more traditional, responsible approach [though it could work a little harder at enforcing its policy]:

BRUNO COHEN [senior vice president of CNBC]: If somebody's picking a stock or recommending a security, we think that the point of view of the person making that recommendation ought to be crystal clear to the people getting the information.

BILL GRIFFITH [a host on CNBC]: I have to say at some point, does your company, your brokerage firm, your investment bank have a working relationship with this company that would obviously benefit from your analysis right now? That's my job, and it also is vital information for any viewer who's watching who might become a shareholder in that company. The research is there, and we'll find out if that relationship exists, and we'll put it out there.

SMITH['s wrapup]: New industry-wide guidelines for analysts on financial news broadcasts could emerge soon. The National Association of Securities Dealers, the body that regulates the NASDAQ Exchange, and the New York Stock Exchange have recently agreed to devise new rules regarding analyst appearances on television. In the meantime, says Arthur Levitt, "Investors beware."

Kudos to Terence Smith for a fine piece of reporting.

Good TV Alert: Sports Night is being rebroadcast on Comedy Central every Thursday starting tonight. Yowza.

Hey, Joe Jackson's autobiography A Cure For Gravity (recommended!) is out in paperback.

Finally today, a decent recap of the worst crap the Republicans pulled in Florida (and the name of the Democrat who was attacked is Joe Geller, for those looking for names).

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