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After Market Mishaps, Cramer Urges SEC Probe

Wednesday, 1 Aug 2012 | 8:22 PM ET
CNBC

In light of a couple of stock market mishaps, it’s time for the Securities and Exchange Commission to look into what’s spooking investors, “Mad Money” host Jim Cramer said Wednesday.

“Today’s one of those days that has me so steamed I can barely contain myself,” he said. “The outrage actually started last night when we got rumors that big deals were about to go down for Dun & Bradstreet as well as LabCorp.

“Oh my, how convenient, two stocks that had been down on their luck lately, and suddenly we hear about gigantic bids then backed up by research analysts giving credence to both stories.”

Cramer said the situation resembled “the old BGL game, which is to bag them, gun them and liquidate them.”

“In other words, some unscrupulous hedge funds are getting long some doggy-dog stocks, touting them as takeovers, getting the whispers going,” he said. “And then at the point, when the stocks are up huge, they’re selling before we get denials like we got from LabCorp almost immediately after trading started.”

Cramer suggested that if there were going to be a leveraged buyout of Labcorp, it almost surely wouldn’t be hostile.

“The whole thing, though, stinks to high heaven, as far as I’m concerned,” he said. “And I hope we get an investigation of what happened here. However, I think we got this type of rumormongering precisely because the perpetrators are confident they’ll be able to get away with it, as the SEC won’t do a thing.”

Even more troubling, Cramer said, was the software glitch at Knight Capital Group, a major brokerage firm, that created “a huge number of phony prices for stocks at the opening.”

“I know it seems like an honest mistake, and I realize that mistakes can and do happen,” he said. “But this one’s particularly ironic given that Knight’s CEO, Tommy Joyce, was the biggest critic of NASDAQ’s botched handling of the Facebook IPO.”

The mechanical process of entering orders, Cramer said, seems fragile.

“Put simply, the market doesn’t work well enough to make it trustworthy, and the SEC never seems to stand up and say, ‘We have to do something about pricing integrity, or we’re going to lose the remaining everyday investors who are the backbone of capitalism,’” he said. “The SEC appears to have total faith in the technology behind the stock market, but the technology breaks down far too often to give it that much credit, if any credit at all.”

Cramer called for the SEC to convene a panel of people who care about regular investors to look into what’s keeping them out of the market.

“I think you’ll find that a lot of it is the inherent untrustworthiness of what used to be sacrosanct: pricing,” he said. “Whether it be the speed of the flash crash or the manipulation of the ETFs or the corruption of opening trades, something has to be done in Washington to stem the madness, madness that the industry itself refuses to regulate.”

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