Journalism 4001, Tuesday 2/2
Jonathon Lebed's Extracurricular Activities
By Michael Lewis
Michael Lewis's article starts off by telling his readers that Jonathon Lebed was the first case of a juvenile to face proceedings for stock market fraud by the Securities and Exchange Commission. Michael Lewis then says he found some inconsistent statements when a publicly announced settlement told the public that Jonathon Lebed had artificially pushed up the value of stocks in small companies eleven times and had made a profit plus interest that totaled to the sum of $285,000 dollars. Yet, Jonathon Lebed's lawyer told reporters that his client had made many more trades and still retained half a million dollars of profit.
Then, the story really got interesting as Michael Lewis interviewed the Lebed family. It was fun to read about how this young man became interested in the stock market and how he learned how to make money in the stock market. Most interesting was how Jonathon Lebed and two friends created Triple Threat, an investing team to enter a CNBC stock-picking contest for students and Lebed's team had finished in fourth place. I wonder if SEC administrators were keeping track of Lebed because he had done so well in CNBC's contest?
Michael Lewis uses a nice linking idea, Jonathon's father Greg Lebed worked as a middle manager at Amtrak and after hearing the news that his son was in trouble with the SEC, "Hit the roof and hopped on the high-speed train to triple bypass." I enjoyed reading the contrast between Lebed's excitable father Greg and Lebed's calm mother Connie.
On page 24, during the first SEC interview, the SEC administrators asked Jonathon, "Are you aware that there are laws that regulate company projections?" Then, the SEC attempted to link Jonathon to a grown-up criminal named Ira Monas. When no real connection could be made between Jonathon Lebed and Ira Monas, the SEC officers let him off with a silly warning instead of telling him sound legal advice. These administrators didn't appear to take Jonathon's trading seriously and didn't tell Jonathon about what these laws were, how these laws applied to him, and how to avoid trouble in the future.
Lewis's article then explains the philosophical differences between Jonathon and the SEC. On one hand, Jonathon believes that "everybody is manipulating the market." On the other hand, the SEC was founded in 1934 to stop stock-market manipulation by Wall Street elite, reassure the public that no one was manipulating the stock market, and prevent another stock market crash.
However, in 1934 no one knew about the future Internet and how powerful that would become as an information exchanging tool. By using the Internet as a tool to collect information on corporations, even someone like Jonathon Lebed could become skilled in trading stocks. By networking together and sharing information as a group, individual amateurs outside of Wall Street had become twice as accurate in their stock predictions as the professionals. SEC laws had not taken into account rapidly changing technology that could distribute market information to ordinary people. SEC laws didn't take into account that a young man could trade stocks from his bedroom and his high school library.
What I came away from Lewis's article was that the SEC is regulating the stock market without truly defining what normal market operations are considered legal and what is illegal manipulating the market. I wonder why did the SEC bureaucrats know so little about what Jonathon Lebed really did?
SEC bureaucrats claim that Lebed used multiple accounts to post his messages. Thus, the SEC claimed that Lebed was attempting to appear to be many people. But, by simply talking to Jonathon, Lewis found out that Lebed did what he did because of the message posting policy of "Yahoo! Finance" that Lebed could not send out more than a few messages from any individual account, than any real desire to trick anyone. Perhaps, there was a lack of respect by the SEC for Jonathon Lebed's trading and a lack of respect by Jonathon Lebed for SEC bureaucrats who didn't tell him not to do certain things on the Internet that resulted in a lack of meaningful communication between them.