The cable channel asks Stanley Sporkin, the SEC's former enforcement chief, to help sort out its stock-picking game
With allegations of improper gaming engulfing its Million Dollar Portfolio Challenge, CNBC is asking a former federal judge and two tech consultancies to figure out what went wrong.
But not just any judge. Stanley Sporkin is the former director of the Division of Enforcement for the Securities & Exchange Commission, a job he held from 1974 to 1982. After that, Sporkin served as general counsel at the CIA. In 1985, Sporkin was appointed by President Ronald Reagan to the U.S. District Court for the District of Columbia.
In a June 15 statement, the financial news network said it has hired Sporkin to probe accusations from some contestants that the game was marred by manipulation in the real market to affect prices of stocks held in the contest. Sporkin will be joined by consultants from Symantec (SYMC) and Neohapsis, a Chicago-based security and information risk analysis firm, who will explore technical glitches in the game's design and how some players took advantage of those.
Neohapsis President Brooke Paul says his company, which charges $250 per hour, has worked on the case for several weeks helping CNBC analyze "forensics" about the software and game's design. "A lot of our business is around helping people figure out what happened when they've been compromised," Paul says. Symantech confirmed its participation in the case, but declined further comment.
CNBC, part of General Electric (GE), launched the contest in March and attracted 375,000 participants with heavy promotions from popular anchors such as Joe Kernen and Becky Quick. It nearly tripled traffic to the channel's Web site, as CNBC.com profiled the top performers and viewers weighed in with comments on their favorites.
The high-profile investigation comes after BusinessWeek reported June 7 that several players notified CNBC about how the game had been compromised (see BusinessWeek.com, 6/7/07, "CNBC's Easy Money").
Sorting Out the Good—and Bad—Apples
CNBC's investigation started on May 30, when the cable channel posted an online notice claiming that there had been allegations of trading strategies "in violation of the contest rules." The network could end up disqualifying some of the top 20 players ranked at the top of the returns tally.
Some of the finalists are suspected of exploiting software flaws in the CNBC game's design that allowed them—after the market close—to select stocks for purchase at the 4 p.m. settlement price. Other winners in earlier rounds didn't exploit that glitch, but may have been manipulating the market through real-world trading in thinly traded stocks as a means to advance their portfolios in the game.
On June 14, BusinessWeek reported that Joe Dondero, a player who is not suspected of taking advantage of the software problems, is the leading contestant for the $1 million prize—if CNBC ends up disqualifying those suspected of exploiting the software flaws. Yet Dondero, who focused many of his picks on thinly traded stocks, has been accused by at least three other finalists of manipulating thinly traded equities in the real market to help his picks in the game.
Dondero is a former boiler room employee who has been investigated by securities regulators over his trading activities (see BusinessWeek.com, 6/14/07, "Is This CNBC's Million-Dollar Winner?").
On May 18, BusinessWeek learned, CNBC asked the 20 finalists to vouch that with any of their real-world stock trades, they had not sought to manipulate stock prices. In a June 15 statement, CNBC said it expects to be able to meet its July 8 deadline for announcing the contest's winner. "However, we will not declare a winner until the investigations are complete," the company said.
Sporkin, a Yale Law grad, retired from the bench in 2000 and now works at Freeh Group International, a Washington consulting outfit started by former FBI Director Louis Freeh. The company, made up of former federal judges and senior FBI officials, provides legal, investigatory, and risk management services.