Way back in 2006, Jim Cramer, now a CNBC commentator, did an interview the Street where he talks about stock manipulation being a “fun game” from his hedge fund days.  This post is going to break down some of the highlights from that video and describe to you some hedge fund tactics.

First of all, here is a YouTube link to the video at the current time.  Note, that there is a lot of pressure to remove these videos from circulation but if you do a search for “cramer hedge fund” in YouTube, you are bound to find the nearly 11 minute video.

In the video, Cramer goes as far as saying the SEC isn’t smart enough to go after hedge funds for fomenting, or feeding false news to the media to stir up uncertainty for retail. It’s basically 11 minutes of him bragging about his past and saying that you won’t make it if you don’t employ illegal tactics. What does that tell you about how wide-spread this is in the industry? Now extrapolate that 15 years and here we are today.  One of the more notable quotes is:

“What’s important when you’re in that hedge fund mode is to not do anything remotely truthful. Because the truth is so against your view, that it’s important to create a new truth to develop a fiction. And, um, the fiction is developed by almost anybody who’s down.”

Below is a transcript of the first 2 minutes 40 seconds of the interview if you can’t watch the video for some reason.  There’s another 8 minutes after that but this should give you the gist.

A: Welcome to Wall Street Confidential, I’m Aaron Task, joined again by Jim Cramer. Jim, Welcome

Cramer: Good to see ya.

A: Thanks for being here. Uh, so, economic data out today but wanna talk about something else first. Again today we have the misdirection from the futures. The futures pointing up in market. as of right now it’s actually down again. Is this just because it’s the holiday period that we’re seeing this?

Cramer: You know, a lot of times when I was short at my hedge fund, and I was position short, meaning I needed it down, I would create a level of activity before hand that could drive the futures. It doesn’t take much money. Similarly, or if I were long and wanted to make things a little bit rosy, I would go and take a bunch of stocks and make sure they were higher. Maybe commit 5 million in capital to do it and I could effect it. What you’re seeing now is probably a bigger market, maybe you need 10 million to knock the stuff down. But it’s a fun game, and it’s a lucrative game. You can move it up and then fade it, that often creates a very negative feel. So let’s say you take a longer term view intra-day and you say listen, I’m gonna boost the futures and when the real sellers comes in I’m gonna knock it down and it’s gonna create a negative view. That’s a strategy very worth doing. When you’re valuing on a day to day basis. I would encourage anyone who’s in a hedge fund to do it, because it’s legal. And it uh, is a very quick way to make money. And very satisfying. And by the way, no one else in the world would ever admit that but I don’t care. And I can’t – I’m not gonna say it on TV.

A: There’s so many more hedge funds today than when you were managing yours. Do you think that exacerbates the moves or makes it tougher?

Cramer: Well, you know, the hedge funds are positioned long-short. They’re not just long like mutual funds. So it’s really vital these next 6 days cuz of your pay day, you really gotta control the market. You can’t let it lift. When you’ve got Research In Motion (RIM) it’s really important to use a lot of your firepower to knock that down because it’s the fulcrum of the market today. So let’s say I were short, what I would do is I would hit a lot of guys with RIM, now you can’t foment. That’s a violation of, of..

A: Ferment? (lol)

Cramer: Yeah, you can’t FOment. You can’t create, yourself, an impression that a stock’s down. But you do it anyway because the SEC doesn’t understand it. So, I mean that’s the only sense I would say this is illegal. But a hedge fund not up a lot really has to do a lot to save itself. So, this is different from what I was talking about in the beginning where I’d be buying the Q’s and stuff. This is actually just blatantly illegal. But when you have 6 days and your company may be in doubt because you’re down, I think it’s really important to foment if I were one of these guys. “

Frankly, it’s pretty daunting and scary what some of the “big” players can do to manipulate the stock market, otherwise known as hedge fund tactics.

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