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CNBC’s Irresponsible Innuendo

Jan. 13, 2011 11:03 AM ET7 Comments
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 On January 11, 2010 Dave Gentry, President of RedChip Companies, Inc.appeared on CNBC’s The Strategy Session, a daytime TV program whose stated goal is to “provide you with an insider’s look at how capital is allocated” and “figure out what the truth is.”

Hosts David Faber and Gary Kaminsky, aided by contributor Herb Greenberg, mobbed Dave Gentry in a 3-on-1 attack in a segment titled “Peddling Chinese Reverse Mergers.”  During this interview, RedChip’s nearly 20-year history of publishing equity research was challenged as biased and hype. When Dave responded that our reports are written by CFA’s (Chartered Financial Analysts), Mr. Greenberg attempted to dismiss this fact by erroneously reporting that we had the business description of one of our clients wrong on our website.  We in fact had the client’s business description correct, and Herb later corrected himself on a follow-up “bonus” segment titled “Faceoff: Heat Over Chinese Reverse Mergers,” which was taped later that day at CNBC studios and released on CNBC.com.

In response to the attack by Mr. Faber, Mr. Kaminsky, and Mr. Greenberg on RedChip Research, RedChip analyst and portfolio manager Bill Matson, CPA, CFA composed the following e-mail:

Dear Mr. Greenberg and Mr. Faber,

CPA firms get paid for their opinions by the companies on whom they report, so why shouldn’t investor relations firms who employ CFA charterholders to render opinions? Especially when all compensation arrangements are fully disclosed.

I can honestly say that nobody at RedChip has ever tried to get me to be anything but 100% objective in my research – nor would such attempts ever have a snowball’s chance in hell of meeting with success. To imply that the RedChip business model compromises my work or that of the other CFA charterholders who create RedChip Research is to denigrate the CFA qualification itself, as well as the rigid ethical code at its foundation. We all worked very hard for the right to put those three letters after our names.

Am I being hypersensitive about this? I don’t think so. If RedChip is guilty of publishing tainted reports, its analysts must also be tainted. My name is on those reports, as well as on the RedChip web site. In no way can this possibly be good for my reputation or my money management firm’s business.

I wonder if you people at CNBC have any appreciation of the harm you cause when you attempt to create the illusion of scandal where none exists – and fail to give your guests anything resembling a fair opportunity to respond to your innuendo. Aside from slinging unwarranted mud at RedChip and ignoring the existence of the CFA Code of Ethics, to which over 100,000 professionals are bound, you are discouraging small companies from making themselves known to investors, both retail and institutional.

This ultimately winds up being a grave disservice to CNBC’s viewers. I’ve been one of your most loyal viewers since 2000, when I became a full-time investor/portfolio manager. In fact, my book,Data Driven Investing, devotes several pages (starting on pg. 349) to techniques for acting upon the information to be gleaned from CNBC. Yet I can’t recall anything more than passing mention ever being made on CNBC of microcaps’ tremendous long-term performance advantage over large caps. Your party line is that this has been “a lost decade” for stocks, but one wouldn’t know it from looking at the Russell Microcap Index (up 81% since 6/30/00). While I respect CNBC’s reluctance to avoid mention of specific thinly traded stocks, I find it disturbing that you would not only ignore the outperformance of microcaps, but also take actions, such as your irresponsible treatment of RedChip, that are likely to steer would-be investors away from small companies.

Small companies are important sources of job creation and innovation, and many have been starved for capital due to troubles in the banking system. It is particularly irresponsible at this time to question legitimacy without basis an effective means of channeling objective analysis of these companies to investors who are likely to benefit from this information.

Bill Matson, CFA, CPA

Analyst, RedChip Companies, Inc.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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