2010 cases: Sharesleuth.com

Hugh Brady

1.  Introduction of the Case

Mark Cuban, the out-sized personality of a sports owner and tech titan, announced on May 31, 2006, that he would be funding a new journalistic venture that would “do nothing but try to uncover corporate fraud” (Cuban). Cuban’s new site, staffed by a “young, award winning journalist,” would not only provide readers with the details of companies engaging in those frauds, but would provide Cuban that information in advance so that he could “buy and sell [the] stocks that are discussed[] before they are made available on the site” (Cuban).

Cuban’s stock trades would be “short sells,” where an investor “effectively place[s] market bets that the value of the stocks would plummet” (Spivak). Stocks usually plummet when the market learns negative information about the company—the type of information Cuban’s site planned to provide. Cuban sees no “journalistic conflict” because the site would disclose any financial interest of Cuban’s in a story’s target and, more to the point, because the “site is for the profit of its owners” (Cuban).

The site, launched as Sharesleuth.com, and its unconventional financing raise several questions about the appropriate way to fund investigative reporting in an era of declining budgets for print newspapers and broadcast stations. Proponents of “patron-sponsored journalism” tout it as a way to save and continue journalism’s crusading tradition, born in the Progressive Era, of exposing corruption in business and government. Skeptics wonder about the real price of this rescue—both in terms of a predictable cash flow to fund operations and as an ethical way of practicing journalism.

Sharesleuth.com was established quickly after Cuban’s announcement, on July 1, 2006; its first post ties the site to the journalism’s Golden Era with its headline “Welcome to the Jungle”—a clear reference to Upton Sinclair’s “The Jungle,” his masterful, literary exposé of the Chicago meatpacking industry. Editor and president Chris Carey, a former business reporter for the St. Louis Post-Dispatch, wrote that Sharesleuth was “looking for companies that were built for fraud, for executives who are enriching themselves at shareholder expense, and for businesses whose behavior runs counter to their stated objectives or to the public interest” (emphasis added) (Carey, Welcome). Carey acknowledged the site’s funding method, but stated he himself would not be investing in companies he covered (Carey, Welcome).

Roughly a month later, Sharesleuth’s first report story highlighted the issue presented by the unorthodox financing scheme. It examined the claims of Xethanol Corp., a self-described “biotechnology-driven ethanol company,” to have the ability to commercialize ethanol production from bio-waste products such as wood chips, corn stalks and paper sludge (Carey, Xethanol). Carey “found no evidence that Xethanol” could do what it said it could do (Xethanol). The story also disclosed that Cuban shorted 10,000 shares of Xethanol and 25,000 shares of a Xethanol investor (Xethanol). Cuban’s paper profit was estimated at $120,000 (Spivak).

By focusing on corporate fraud, Sharesleuth.com is certainly following in the tradition of Ida Tarbell, Upton Sinclair and other historically-significant muckrakers. During the Progressive Era, reporters focused their attention on “a society dominated by a few gluttonously rich robber barons . . . while the teeming masses struggled to stave off starvation” (Streitmatter 94). Tarbell uncovered the questionable business practices of John D. Rockefeller’s Standard Oil Trust; her reporting provided both the basis for Congressional action outlawing some of those practices and legal action that ended the trust altogether (Streitmatter 97-99). Muckraking journalists like Tarbell “show[ed] the public not only that many big businesses were corrupt but also that the Fourth Estate could force them to abide by the law” (Streitmatter 99). Their reporting helped develop a public culture of “investigation and agitation” that “provoked political, industrial, and social change” throughout most of the 20th century (Streitmatter 94, 106).

Sharesleuth has encouraged those comparisons from its first reference to Sinclair’s Jungle to Cuban’s statements that Carey is engaged in nothing more than “basic old-time reporting” that is currently being ignored by most of the media (Spivak). Carey approached Cuban about funding the site because he had “the unmistakable sense” that investigative journalism was becoming a casualty of the media rush to the Internet (Baradell). Carey claims the muckraking tradition by providing original investigative reporting to fill in the known record and educate citizen-consumers about that record. Sharesleuth’s reporting, even according to its critics, is solid; one wrote that the Xethanol “article itself was a good piece of work” (Weiss).

Sharesleuth now includes two new sites seemingly more in both traditional modes of reporting and financing. Bailoutsleuth.com and Junketsleuth.com focus more on the connection between business and government and are funded by a 501(c)(3) nonprofit foundation (Bailoutsleuth.com, About). However, the nonprofits are “backed” by Cuban, and it’s not clear where that backing comes from, since nonprofits aren’t required to report their donors’ source of funds. Thus, it’s hard to tell just how far these sites have returned to a traditional structure.

The original muckrakers’ funding is clear: they were paid by publishers of popular, subscriber magazines (Streitmatter 94). Those publishers also refused lucrative advertisements from the patent medicine companies they began to expose (Streitmatter 101-102).

The questions surrounding Sharesleuth, its sister sites, and Cuban’s unusual financing method recall issues raised in the McCarthyism and Starr Investigation cases related to sourcing, verification, and manipulation of the media. Senator Joseph McCarthy used the media for personal political gain with an array of tactics that, among other things, relied on the “use of . . . sensationalism” to tarnish the reputations of his political enemies (Herbers 18). The initial Drudge Report item that spurred the media feeding frenzy during the Starr investigation was poorly sourced and, at least at the time, it was unknown how Drudge supported the site financially. By presenting the gossip about the Isikoff story as fact, Drudge permitted the working press to report their own unsourced stories similarly, setting the stage for “the worst performance by the American press . . . since . . . 1974” (Lasica, 34). Here, Cuban is using a media vehicle for personal financial gain by sensationalizing the investigation of businesses he has shorted to tarnish their reputations and cause the market to lose confidence in those companies—and Cuban’s personal stake in the site’s subjects could lead to fabricating sources or passing off gossip as news in order to achieve the necessary market impact.

2.  Background Context Research

Cuban is not alone is funding fraud reporting from short-selling profits. A site called iBusiness Reporting is also funded by short-selling and, unlike Sharesleuth.com, iBusiness reporters short-sell as well (Spivak) Also, other, similar sites have started up but neither the owners nor the reporters have begun trading in the companies they cover (Spivak). One initial concern raised by observers was whether Cuban would be violating Federal laws barring insider trading; legal experts think Cuban is operating within the law because of an “Achilles’ Heel [which] excuses trading on material, non-public information if there is no legal ‘duty’ not to trade” which short-sellers generally do not have (Glaser).

For professional journalists, the issue is more of an ethical one than a legal one: the sites are not so much about providing readers with critical journalism exposing fraud and corruption as providing a vehicle to “increase profits for [their] investments” (Glaser). And while Sharesleuth is at least transparent about its motives in publishing, that “doesn’t mean that it’s OK,” said Washington & Lee journalism professor Edward Wasserman (Spivak).

The problem is also larger than Cuban and stock market reporting sites—it’s spreading to other news topics and established media institutions. As newspaper companies look for “sustainable ways of doing business” (Arango), they are also confronting financial conflict-of-interest questions. A September 29, 2010, post to reporter Jacques Steinberg’s New York Times education blog contained a link to “an online Times course” taught by the reporter. As the paper’s public editor noted, the incident appeared to feed “a public percept that . . .  money is getting in the way of objective judgments and” news; one reader “wondered whether Mr. Steinberg’s articles and blog entries might now add to the ‘college admissions hysteria” . . .  thus leading to increased demand for his course” (Brisbane). And women’s clothier Ann Taylor has announced it will finance a women’s news site (Carr).

Political reporting is also dealing with the issue as reports surface of political bloggers being paid by the campaigns they purportedly cover. In the 2010 Republican primary for California governor, “an off-the-reservation consultant” for the Steve Poizner campaign paid blogger Aaron Park to write favorable things about the candidate on Red County, a conservative blog covering California state politics (Strong). Apparently neither Poizner (who was running against former eBay executive Meg Whitman) or the blog knew about the payments to Park, who did not disclose them in his reporting (Strong). This kind of arrangement was “business as usual” for Park, who approached other campaigns in 2009 to “blog for money” (Strong). Park dismisses any concerns because “nobody has any doubt about the candidates I’m supporting” (Strong).

Poizner, who eventually lost to Whitman, disavowed the tactic; Red County’s founder “expressed outrage” and barred Park from reporting from the site (Strong). However, Hanlon’s blog earned $15,000 a month from Whitman’s campaign for advertising; online advertising experts found those payments “ridiculously expensive” given the site’s number of unique viewers per month (Strong). And Democratic bloggers are not blameless; several are consultants to candidates’ campaigns or receive “money from . . . organizations like Media Matters, the Center for American Progress and Campaign for America’s Future” (Strong).

Sharesleuth has been hailed for “defin[ing] a new boundary for fiscally viable online publishing and [providing] a roadmap by which we may measure the future of business journalism” (Spivak). One critic suggested Sharesleuth follow the lead of other news organizations dealing modern financial pressures by becoming nonprofits that rely on subscriptions, small donations and major grants to fund a publication (Glaser; Arango). While not completely immune to market forces, nonprofit status allows a publication to avoid worries about short-term profits and focus on producing high-quality journalism such as in-depth reporting “on the increase in extinct species across the globe” (Arango). As noted, nonprofits are generally not required to report the names of their donors; an oil company, for example, could fund a nonprofit to start and operate an energy news blog and readers would not know the source of funding unless the nonprofit voluntarily disclosed it.

Sharesleuth does make a general disclosure about Cuban’s funding scheme that states “Mark Cuban, the majority partner of Sharesleuth.com, will periodically make personal investments based on information we uncover. Those investments will be fully disclosed, so that readers can evaluate any potential conflicts of interest” (Sharesleuth.com, Disclosures). Mother Jones magazine is published by the nonprofit Foundation for National Progress; it discloses on its website that it is “a 501(c)(3) nonprofit, and the lion’s share of our revenue comes from subscriptions and donors, big and small. . . . This way, we’re not beholden to any conglomerate. And since our donor pool is broad, we’re not beholden to any person or foundation, either” (What Is Mother Jones?). Political news sites and blogs generally do not contain any funding disclosure statements (Politico.com, About Us).

Unlike the muckrakers they claim as journalistic inspiration, Sharesleuth and its imitators do not appear to be exposing the next Bernie Madoff or A.I.G. scandal—they focus instead on very small companies that have far fewer investors. As one critic noted, “It’s hard to really argue the importance of their service to the greater investing public. It would be a bigger service if they focused on companies that people actually owned instead of these two-bit (and in some cases) penny stocks” (Spivak). Yet, one competitor of Sharesleuth’s was praised by a Federal district judge for uncovering “several hundred million dollars’ worth of fraud” (Spivak). A law review article noted that Sharesleuth and its competitors have had a “positive impact” by “disseminati[ng] compelling consumer information” (Spivak).

“There are plenty of sites . . . where you have no idea whether the person writing the article, negative or positive, has skin in the game . . . at least [with Sharesleuth] you know what you’re getting” says one online journalist (Spivak). Yet, those sites “do not promote themselves as investigative journalism venues” that provide citizens with the tools for understanding an issue or problem, says Wasserman (Spivak). That seems to be the real question: “who is Cuban serving?” (Glaser). “By turning this into a personal and shady profit center, by trying to play the bad boy in this arena as he does in the basketball arena, he harmed his endeavor, his reputation, and even the nascent movement in independent journalism,” says media blogger Jeff Jarvis (Glaser). Without “a set of standards and ethics, including full disclosure,” patron-sponsored journalism is basically unrespectable (Iverson).


3.  Key Questions

1.     Regardless of the funding sources of the Cuban websites, do they provide a public service to citizens—and if so, how do they do that? Are they legitimate heirs to the muckraking tradition? Would your answer change if the funding source was not Cuban himself? Why?

2.     Could Mark Cuban and Chris Carey have done a better job of explaining their business model before launching Sharesleuth? Does the nonprofit model for Sharesleuth’s sister sites resolve the ethical questions of patron-sponsored journalism?

3.     How could the Sharesleuth disclosure statement be rewritten or improved to address concerns that personal profit motives do not drive editorial judgments?

4.     Does the New York Times incident raise the same kinds of concerns as Sharesleuth? Are there any mitigating factors in the New York Times incident? Does the fact that they disclosed the incident voluntarily make a difference?

5.     Should Sharesleuth be required to report the actual profit or loss Cuban makes on each short sell? If so, how prominently should that information be displayed on the site? Should Mother Jones, the New York Times, or Politico be required to report their major sources of funding? Does the type of coverage of each publication make a difference in the level of disclosure? Should sites relying in whole or in part on advertising revenue provide rate cards and other business information online so that readers can determine if advertisers are trying to buy favorable coverage?

6.     How can readers in the digital age be sure about what they are reading? That is, how can readers determine actual or implied conflicts-of-interests that a reporter or news organization may have? Since online publications aren’t hampered by print’s space limitations, should those conflicts be acknowledged more straightforwardly? How could that realistically be done? What would be the reasons for not doing this?


4.  Teacher’s Guide to the Case

The ethical issues presented by this case implicate several of the elements of journalism. While Sharesleuth is the centerpiece of the case, the background section demonstrates that those ethical issues can be found throughout the media today. And because news organizations’ financial pressures do not appear to be easing, the issues will likely remain for some time.

Funding Sharesleuth with the profits from investments made in the companies it covers implicates the independence element of journalism—the financing “raises some questions about the independence of” the reporting, as one Sharesleuth competitor notes (Spivak). It’s simply not clear, even with disclosure statements, what editorially drives the site. Because of the unconventional financing arrangement, the suspicion will always be that it’s Cuban’s personal profit. Cuban’s own dismissive statements do not help correct that suspicion.

Considering the monitoring element of journalism, it seems that Cuban’s sites meet this element reasonably well. This is not so clear in some of the other cases, including the Ann Taylor site and the New York Times incident. And while the nonprofit model seems to help fulfill this element as shown by the Mother Jones work on extinct species, that model doesn’t address the larger issue of knowing what financial interests are behind the reporting. That also implicates the truth element and the connection with the McCarthy case—how can a reader know that the reporting is true?

The case highlights that Sharesleuth, as constituted, cannot practice the loyalty element of journalism—it cannot say that it is consistently delivering straight reporting to the citizen reader. This is the major issue of the case. “[W]ho is Cuban serving? Not the little guy who got scammed by the stock and will lose money. . . But [Cuban’s own] personal and shady profit center” (Glaser). Next to the truth element of journalism, this element is the most important. If readers cannot be sure that the journalist will put their interests ahead of his own or of his employer, then how can they be sure the journalist will faithfully practice the other elements of journalism? They can’t.


Works Cited

Arango, Tim. “Mother Jones Tests Nonprofit Model in Race to Survive the Recession.” N.Y. Times. 7 Mar. 2009. Web. 23 Oct. 2010 < http://www.nytimes.com/2009/03/07/


Baradell, Scott. “Media Orchard Interviews Chris Carey of Sharesleuth.com.” 13 July 2006. Web. 23 Oct. 2010. <http://www.ideagrove.com/blog/2006/07/media-orchard-interviews-chris-carey-of-sharesleuthcom.html&gt;

Brisbane, Arthur S. “Times Link to Its Own Course Is a Lesson.” N.Y. Times. 16 Oct. 2010. Web. 23 Oct. 2010. <http://www.nytimes.com/2010/10/17/opinion/


Carey, Chris. “Welcome to the Jungle.” Sharesleuth.com. 1 July 2006. Web. 23 Oct. 2010. <http://web.archive.org/web/20060903162545/sharesleuth.com/2006/07/welcome_to_the_


Carey, Chris. “Xethanol Corp.” Sharesleuth.com. 23 Aug. 2006. Web. 23 Oct. 2010. <http://web.archive.org/web/20060903161357/sharesleuth.com/2006/08/moonshine_ blindness.html>.

Carr, David. “Against the Odds, Site Finds Niche and Partners.” N.Y. Times B1. 25 Oct. 2010. Print. 25 Oct. 2010.

Cuban, Mark. “Why Journalism Matters.” BlogMaverick.com. 31 May 2006. Web. 23 Oct. 2010. <http://web.archive.org/web/20060612225707/http://blogmaverick.com/entry/


Glaser, Mark. “Sharesleuth Takes Business Reporting to Ethical Edge.” Knight Citizen News Network. n.d. Web. 23 Oct. 2010. <http://www.kcnn.org/principles/sharesleuth&gt;.

Herbers, John. “McCarthyism, 1950-1954” in Thomas Rosenstiel and Amy S. Mitchell, Thinking Clearly. 2003. Print. 11 Nov. 2010.

Iverson, Barbara. “Sharesleuth.com Investigation Raises Questions Beyond Financial World.” PoynterOnline.com. 28 Apr. 2009. Web. 11 Nov. 2010. <http://www.poynter.org/column.asp?id=31&aid=162398&gt;.

Lasica, J.D. “The Starr Investigation” in Thomas Rosenstiel and Amy S. Mitchell, Thinking Clearly. 2003. Print. 11 Nov. 2010.

Spivak, Cary. “Short on Ethics?” American Journalism Review. Sept. 2010. Web. 23 Oct. 2010. <http://www.ajr.org/articleprintable.asp?id=4911&gt;.

Streitmatter, Rodger. Mightier Than the Sword: How the News Media Have Shaped American History. Boulder, CO: Westview Press, 2008. Print.

Strong, Jonathan. “True Stories of Bloggers Who Secretly Feed on Partisan Cash.” The Daily Caller. 23 Aug. 2010. Web. 11 Nov. 2010. <http://dailycaller.com/2010/08/23/true-stories-of-bloggers-who-secretly-feed-on-partisan-cash/&gt;

Weiss, Gary. “Mark Cuban’s Excellent Trade.” gary-weiss.com. 8 Aug. 2006. Web. 23 Oct. 2010. <http://garyweiss.blogspot.com/2006/08/mark-cubans-excellent-trade.html&gt;

“About.” Bailoutsleuth.com. n.d. Web. 23 Oct. 2010. <http://bailoutsleuth.com/about/&gt;.

“About Us.” Politico.com. n.d. Web. 11 Nov. 2010. < http://www.politico.com/aboutus/&gt;.

“Disclosures.” Sharesleuth.com. n.d. Web. 11 Nov. 2010. < http://sharesleuth.com/disclosures/&gt;.

“What Is Mother Jones? Mother Jones. n.d. Web. 11 Nov. 2010. <http://motherjones.com/about&gt;.

Online Source

Sharesleuth, <http://www.sharesleuth.com&gt;.

One Response to “2010 cases: Sharesleuth.com”

  1. TheRestofTheStory Says:

    Looks like a lot of research. Has this been passed-on to the authorities (attorney general, SEC, etc.)??? This appears to be a hole in the laws that govern journalism / SEC. From my prespective this is not journalism. This is individuals that slam stocks with little or no evidence and in the meantime their contributors short these stocks ahead of time. Backdoor to inside trading on a major scale.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: