The Wall Street Mouth That Roars

Dan Dorfman pulls no punches despite growing criticism of methods

FINANCIAL columnist and TV commentator Dan Dorfman knows how to make company executives sweat. The CNBC cable-network personality frequently puts his spear through inflated price-to-earnings ratios and provides regular scoops on proposed mergers.

Now, however, there is an increasing amount of attention on Mr. Dorfman and how he gets his information. The reason for the hubbub is Dorfman's effect on individual stocks. His comments frequently result in stock prices moving up or down by 20 to 30 percent or more. Last year, for example, the Chicago Stock Exchange received Securities and Exchange Commission approval to take stocks off its automated trading system when Dorfman goes on the air because the system can't keep pace with the volume and price fluctuations of the stocks mentioned.

In February, Business Week called Dorfman ''The Wall Street Wag Companies Love to Hate.'' Some firms are jabbing back with barbed press releases. In January, for example, the Coca-Cola Company stated ''Dan Dorfman does not have a clue'' after Dorfman predicted Coke would make a tender offer for Quaker Oats Company. (One month later, Dorfman broadcast a report about why Quaker Oats was a bad investment.)

Last year the Washington Post wrote a story headlined, ''Taking Stock of a Market Mover: Critics say Dan Dorfman's CNBC Show May Be Good TV, but It Isn't Good Journalism.'' The lengthy article then detailed claims of misquotes and questionable sourcing.

Dorfman defends himself as a hardworking, fact-checking journalist. He was particularly irritated when Business Week said his targets have accused him of being long on rumor and short on facts. ''They never asked the amount of time I spend checking facts; you can't believe the amount of stories I hear,'' Dorfman says.

One of the highest paid financial reporters in the world (Business Week says he makes $600,000 a year; Dorfman says this figure is ''significantly off''), Dorfman typically starts his day with breakfast meetings and frequently has dinner with his sources. After a 45-minute interview with this correspondent, defending his techniques, Dorfman says, ''If I leave you with one thought and the thought is that I really check exhaustively, I will achieve some measure of success in this conversation.''

Dorfman is not the only stock commentator to come under scrutiny. Last month, there were articles about a ''Smart Money'' columnist, James Cramer, who touted four stocks, but did not disclose his extensive holdings in all of them. ''Our readers know what Jim Cramer does and we are perfectly comfortable about it,'' says Steven Swartz, editor of the magazine. Even so, the magazine set new rules for Mr. Cramer, including a prohibition on writing up small stocks that run-up quickly or stocks in which he owns more than 1 percent of the shares.

Unlike Cramer, however, Dorfman is a veteran financial journalist. Dorfman wrote the ''Heard on the Street'' column at the Wall Street Journal in the 1970s. He has since worked for Cable News Network (CNN) and USA Today. In February he became a columnist for Money Magazine.

Dorfman frequently breaks news on corporate mergers. He also claims to be first to reveal the story about Orange County's financial woes. He has a role in the merger and acquisition game, says one Wall Street media adviser, adding, ''He's used by the hunters and the hunted.''

Dorfman, however, does have plenty of critics. ''Most people believe Dorfman is extremely reckless,'' says John Coffee, a professor of corporate and securities law at Columbia University School of Law in New York.

Mr. Coffee won't get any argument from Epitope Inc., a Beaverton, Ore., high-technology firm.

Dorfman has been airing negative comments for more than a year about the company, which has developed an oral AIDS test. Last March, he claimed that a ''Food and Drug Administration mole'' told him the test had less than a 1 percent chance of approval. In December, the FDA approved the test.

Dorfman also used as a source A. Karl Kipke, a former Kidder Peabody stockbroker and now a money manager in Kansas City, Mo. On July 13, 1993, Dorfman quoted Mr. Kipke as saying Epitope's shares were worth only $5 a share when they were trading at $21.38 per share. Two days later, they sold for $17.75.

Kipke and his clients, however, had sold 300,000 shares of Epitope stock short. In a short sale, an individual borrows stock and sells it. The seller then hopes the stock falls in price so it can be returned at a lower price. The short seller hopes to make money on the difference.

Dorfman defends his stories on Epitope, a company he claims is very ''self-promotional.'' He adds, ''it is touted by some interesting people on Wall Street, some of whom were in a company called College Bound that turned out to be a fraud.''

After Kipke admitted in a civil suit that he authored inaccurate information about Epitope on the Prodigy Network, Dorfman says he stopped using the money manager as a source.

''I can't attest to the integrity of every source I talk to,'' he states. Kipke's lawyer would not comment on the case.

The use of short sellers -- individuals who may profit from a decline in a stock price -- is one of the most controversial areas. ''There is always the risk that reporters will be at least partially deceived by investors,'' says Matthew Winkler, editor in chief at Bloomberg News Service. But, he adds, ''short sellers are great sources as long as they are identified properly.''

Coffee, however, says it is illegal for speculators to release misinformation about a company. ''If people think they can use Dorfman to falsely release information, they misunderstand the power of the law and the SEC,'' he says. Dorfman isn't a conduit who can protect purveyors of misinformation from prosecution, Coffee says.

Dorfman says he checks out his stories to try to avoid misinformation. He recounts how he recently had breakfast with a source who gave him some negative information about a company. However, Dorfman started to receive phone calls that morning from other investment sources who had heard he would be airing a negative story. As a result of the calls, he says he did not use the information.

Because of his reliance on tipsters, Dorfman is often accused of being used, a charge he does not deny.

Claiming he can spot the sources of negative stories in Forbes, Barrons, and the Wall Street Journal, Dorfman replies, ''We are all used.''