3.30.2006

SEC attacks freedom of the press

Herb Greenberg is a great reporter, with an incredible record of exposing stock market fraud.

So it's shocking that the SEC is intimidating his sources, threatening them with subpoenas for giving him information on potentially dirty companies:

So now, according to stories by Jesse Eisinger in Wednesday's Wall Street Journal and by Roddy Boyd in Tuesday's New York Post, the SEC has subpoenaed Gradient to get e-mail and phone records of contacts with nearly a dozen journalists, including Jesse, Roddy and me. That's instead of trying to get them directly from the journalists and news organizations.

While the SEC appears to be well within its legal rights to use this backdoor approach, though not necessarily acting in the spirit of the privilege afforded journalists, I echo Jesse's point that it will have a chilling impact on market participants sharing their information with the press.

An SEC spokesman told Jesse that regulators "don't believe the policy chills law abiders from communicating with the press."

Jesse said the comment was naïve. I'll be more blunt: The spokesman is simply wrong.

While I'm as busy as I've ever been, with more ideas to chase than I have time to research, I've already had several good sources say they can no longer communicate with me -- certainly not by e-mail -- on stories that may question a company's fundamentals.

Even on the phone, though, one of these hedge-fund analysts made it clear he's really not supposed to have any contact with me.

That's too bad, because it means the promoters will win, and investors will lose.
It's as if the Federal Elections Commission started threatening people who tipped off reporters about corrupt politicians.

It needs to stop if we are going to have either freedom of the press, or an honest and open investment market.

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