The “I’m About to Short” Report

Mark Cuban’s Sharesleuth Takes Business Reporting to Ethical Edge: Yes, and “journalist and media facilitator” Mark Glaser of PBS, with his extensive background in the hard-hitting field of infotainment, ought to know all about locating the gray area and making a living therein.

But it’s a great topic for debate, so be prepared to weigh in.

Lately, Cuban (pictured here) has shown an interest in shaking up the media world, hiring former CBS anchor Dan Rather for HDNet, helping to fund Jason Calacanis’ Weblogs Inc. (later sold to AOL) and founding Sharesleuth.com, to provide “independent Web-based reporting aimed at exposing securities fraud and corporate chicanery.”

Cuban hired St. Louis Post-Dispatch investigative business reporter Christopher Carey to be editor of Sharesleuth.

Carey’s first report was an exhaustive look at Xethanol, an ethanol company that purported to make alternative fuel from materials such as wood chips— but Carey could find no evidence it had found that Holy Grail of fuel.

But while Carey will not own any individual stocks, Cuban has decided to make investments based on the companies Carey is investigating. These investments are the sole source of income for the new site, which has no advertising and is free of charge to read.

But there’s a Catch 22 in the business plan of Sharesleuth: If the site predictably produces journalism that hurts companies’ stock prices — and Cuban trades on that by shorting the stock (betting it will go down) — then he might be investigated for securities fraud by the SEC. But if company stocks fluctuate without predictability after being the subject of Sharesleuth reports, then there will be no fraud — but Cuban won’t make as much money.

Glaser is an idiot. The scheme would only be fraudulent if the market-moving reports were willfully false.

And presumably, if the site does the journalistic thing and gives the company equal time to provide evidence in its favor, any errors in judgment it makes will be a matter of public record, and the market will price that information into Cuban’s short position.

In my lengthy email debates with Cuban, he told me that he wasn’t out to manipulate the market and wasn’t looking for short-term gains after publication of the investigative reports on Sharesleuth. So if he keeps his short position in a company such as Xethanol for the long term, how can Sharesleuth make money now?

“It doesn’t, but that’s OK,” Cuban said. “Hopefully I never have to cover [my short trades], if the quality of work is good and we uncover more companies and situations like Xethanol, the return can be lucrative. It just doesn’t have to be fast. We don’t have a staff of 900. I can afford to be patient.”

So, wait a minute: If Mark’s journalistic hound dog produces journalism that claims that a company is lying to the public, and then Mark shorts that company, and the company’s alleged hype or fraudulent claims turn out to be true, then Mark would lose his shirt.

But if he’s right, then he has profited at the expense of vermin that menaced the herds of everyone who rides the range, and helped put them out of business.

Cuban is investing in the idea that reality-testing the press release and sailing upstream against the newsflow is a good, solid value proposition.

Maybe we need to form a new D.C. lobby, the American Muckrackers Association, with the motto:

Journalists don’t hurt stock prices: incompetent and dishonest managers and directors whose sins against the “reality-based community” are made known to the market hurt stock prices.

I want to see whether Gary will declare this another maneuver by the shadowy Baloney Brigades. Gary? Gary? Paging Business Week’s original zealously repentant former staffer?

Anyway, bear that in mind as you read Glaser’s lengthy, windy investigation of the investigators.

Latest news from Xethanol (AMEX:XNL), by the way:

Xethanol Enters Into Consulting Agreement With Former CEO

NEW YORK–(BUSINESS WIRE)–Aug. 25, 2006–Xethanol Corporation (AMEX: XNL) , a biotechnology-driven ethanol producer, today announced that it has entered into a one year consulting agreement with Christopher d’Arnaud-Taylor, the Company’s former Chairman and CEO. This announcement comes after the recent appointment of Louis B. Bernstein as interim CEO and the retention of Spencer Stuart, a global executive search firm, to conduct a search to fill that position on a permanent basis. Mr. Bernstein commented: “This agreement is designed to ensure a seamless transition, allowing senior management to draw on Chris’ wealth of knowledge in both the company’s expansion plans and technology commercialization strategy.”