When short sellers fund journalists
I’m as much of a fan of insidery media navel-gazing as anybody, but Cary Spivak and the AJR have gone way too far with their 3,200-word thumbsucker on the ethics of funding investigative journalism with the proceeds from short-selling.
For one thing, the whole subject is something of a non-issue, given the two examples that Spivak has managed to find. The first is Mark Cuban’s Sharesleuth, which was launched in 2006; in the four years since then, Cuban has shorted the grand total of three companies that Sharesleuth has written about. The second site is iBusiness Reporting, which launched in February and seems to have lasted about three months; it hasn’t updated its site since May 14.
What’s more, Spivak manages to avoid any serious examination either of short selling or of the ethics of using it to fund journalists. Instead, he characterizes short sellers as “a group viewed with disdain by some as the market’s bottom feeders”, and simply rolls out a couple of self-proclaimed ethics experts to grace us with their conclusions. Including this chap:
“It isn’t journalism,” says Edward Wasserman, Knight Professor of Journalism Ethics at Washington and Lee University in Lexington, Virginia. “Their claim to be taken seriously as journalists, if they’re making that claim, is ridiculous.”…
Wasserman isn’t sure how to characterize the sites, though he is adamant that they are not journalism entities. “It’s for private gain, not public illumination,” he says. “It gauges success by the results it’s able to gain on behalf of its client…. This is not about understanding. This is about exposing and profiting.”
So, Wasserman is a journalistic purist. Except, he isn’t: you might remember him as the person who defended the idea that Ben Stein could and should write for the New York Times while being funded by evil and sleazy bait-and-switch merchants who steal your money.
Personally, I’m all in favor of experimenting with new journalistic business models, including non-profits like ProPublica. But the fact is that the overwhelming majority of journalism is done for profit and for private gain. If seeking to make money off journalism disqualifies it as journalism, then journalism barely exists. And it’s the aspiration to profitability that Wasserman has to object to here, given that it’s extremely unlikely that either of the sites he’s criticizing has ever made a penny.
Investigative journalism has always been about exposing and profiting — it’s just that the profit has historically come from newsstand sales or increased ad revenue rather than from short sellers. And I don’t understand at all Wasserman’s implication that the act of exposing someone is somehow in conflict with the goals of public illumination and understanding. One would think the opposite is true: the greater the illumination, the more effective the exposé.
If there’s any argument at all about the ethics of the Sharesleuth model, it’s that the economic model incentivizes the journalists to be one-sided and unfair. But Spivak’s only hint that such things might be going on comes when he quotes a lawsuit brought against iBusiness Reporting by Medifast, one of the companies the site has criticized. He never even attempts to judge whether the suit has any basis or justification whatsoever, and he doesn’t even note that hitting short-sellers with lawsuits is pretty much standard operating procedure for any of their targets.
The fact is that shorts, much more than longs, have every incentive to be absolutely certain of their thesis before putting on their trade — especially if it’s based on fraud at a company. Even companies convicted of fraud can see their share price rise, especially when that company’s shorts get squeezed. With a long position, you can hang about and wait as long as you like for the stock to rise, or just watch it follow the action of the stock market as a whole. Shorts have no such luxury, and as a result tend to be especially diligent when doing their investigations.
Meanwhile, the journalism world is full of publications which profit from extolling companies’ virtues and watching their share prices rise — the dot-com boom spawned dozens of them, with names like Red Herring and Business 2.0. Most of them have disappeared by now, but Fast Company, for one, still exists. When it comes to business reporting, the puff jobs regularly planted in glossy magazines by well-paid and highly professional corporate PR executives are much more dangerous than a couple of marginal websites concentrating on the short side.
The main problem with short-funded investigative journalism is that there’s no evidence that the business model actually works in practice. And other journalists who have tried to set up on their own with the aim of selling their work to short sellers have also given up on that idea and moved on to more time-tested ways of making money: Michelle Leder, for instance, sold Footnoted to Morningstar, while Herb Greenberg left his research shop GreenbergMeritz to join CNBC.
Still, the fact is that someone like Sam Antar, for all his past history and possible conflicts, produces much more interesting, more insightful, more useful, and more transparent journalism than Ben Stein could ever dream of.
So let’s have less lazy journalism based on some kind of inchoate idea that short-selling is by its nature less savory or more manipulative than the long side. And let’s have more interesting experiments in how to monetize the work of journalists. The idea of funding journalism from the proceeds of short-selling doesn’t seem to have worked very well. But it was worth a try.