How Should CNBC Resolve Its Contest?

Finalist Greyson Masters has sent the cable channel a letter asking it to rerun its Million Dollar Portfolio Challenge

When CNBC announced that it was investigating "unusual trading" by finalists in its million-dollar stockpicking contest last month, Greyson Masters felt cheated. A middle-of-the-pack finisher in the field of 20 in the contest's final round, Masters says the outsize gains by some contestants now under suspicion of breaking the rules forced him to make much riskier picks than he would have liked, sometimes leading to big losses. As he sees it, CNBC owes him a fair chance at the grand prize.

And that's exactly what he told Mark Hoffman, CNBC's president, in a letter drafted by an attorney and sent to the channel's New Jersey headquarters earlier this month.

"CNBC promised Mr. Masters (and all other contest participants) $1 million if they could demonstrate their superior ability to make gains in a real market simulation," wrote Howard Manheimer, a lawyer and a friend of Masters. "If CNBC does not re-run the contest, this promise will prove to have been vacuous."

Replay the Final Round?

Masters, the principal of a market research and polling firm in Virginia's Shenandoah Valley, ranked 13th out of 20 finalists on the morning of May 25, the contest's last day. He says he would have done better had he not been forced to compete with players who were likely breaking the rules. "When you look at this as a guy who's playing fair, you have to change your strategy," he says. He proposes eliminating anyone found to have cheated and replaying the two-week final round.

His letter raises an important question: How should CNBC resolve the controversy surrounding its stockpicking contest? Because CNBC has said it reserved the right to disqualify any contestant suspected of breaking the contest's rules, it's possible the highest-placing finalist not thought to have engaged in suspicious trading will walk away with the $1 million grand prize. According to BusinessWeek's analysis, that would likely make Mary Sue Williams, a waitress from St. Clairsville, Ohio, who says she's never bought or sold a share of real stock, the big winner (see, 6/19/07, "The Million-Dollar Waitress"). Alternatively, CNBC could follow the suggestion of Masters and rerun the entire final round of the contest, giving all 20 finalists another two weeks of competition. Or CNBC could work out yet another alternative to resolving the contest.

CNBC, a division of General Electric (GE), declined to comment on Masters' letter and has said it tentatively aims to conclude its probe and announce a winner by July 8. Meanwhile, several other top performers in the CNBC Million Dollar Portfolio Challenge say they believe the contest's finals were fatally flawed by the alleged cheating of a handful of finalists. As BusinessWeek previously reported, some contestants are believed to have exploited a design flaw in CNBC's software to increase their returns. At least one finalist is suspected of picking thinly traded stocks that would have been relatively easy to manipulate by buying and selling their shares in the actual market (see, 6/14/07, "Is This CNBC's Million-Dollar Winner?"). Masters' letter marks a new stage in the CNBC controversy: Lawyers are beginning to get involved. It raises the prospect that CNBC and GE may have one or more lawsuits on their hands, because of what was intended to be a feel-good publicity effort.

Legal Challenges Being Mulled

Masters says that his decision to have a lawyer draft his letter to Hoffman shouldn't be interpreted as an indication that he's about to sue, but at least one other contestant says he would consider a legal challenge if he's unhappy with how CNBC decides to pick a winner. Sean Kyong Kim, an equities trader with Scottrade in St. Louis, says he suspects out-of-bounds trading in the contest's 10-week first round might have wrongly kept him out of the finals. Kim finished with the 11th-richest portfolio overall, just one spot shy of getting into the final round and qualifying for a chance at the $1 million grand prize. Several of the top 10 finishers, all of whom advanced to the finals, are among those suspected of questionable trading. "I don't think it would be fair for them to rerun the contest without me in it," Kim says. "I've never sued anyone, but this might the first time I've thought about something like that."

CNBC's Hoffman will likely find several supporters among the contests' finalists if he decides to take Masters' advice. "They should definitely disqualify whoever they found cheated, first of all," says Ryan Stackman, a stockbroker from Pittsburgh, who was ranked ninth among the finalists with a 10% return in the last public rankings. "I saw the top leaders were so far ahead," he continues. "It really changed everything." If CNBC decided to rerun the finals without the alleged rule-breakers, "I'd be happy with that," Stackman says.

Masters' letter also asks Hoffman and CNBC to make public the names of all contestants cleared in the probe. That might provide some relief to a small group of finalists who said they felt the alleged cheating hurt their chances of winning but did not want to be identified out of concern that being publicly tied to the scandal-plagued contest could damage their reputations. For some, however, the added attention that would bring could itself be a problem. "I'm actually not sure which would be better," says one finalist. "Three years down the road, someone might find your name online, but they probably have forgotten" about the contest and its problems, he says.