In a candid interview with Wall Street Confidential, Jim Cramer host of CNBC’s Mad Money spoke actively about decisions he made while managing his hedge fund — from things explicitly illegal, that he simply claims are easy to achieve because the “SEC doesn’t understand,” to things which are not entirely illegal.

This was not a recent interview — but interest in the story has picked up dramatically lately with the rise of Jon Stewart’s recent attacks on CNBC’s legitimacy both as a source of news and a source of investment advice — making comedic comparisons to Cramer’s embarrassed appearance on MSNBC’s The Daily Show to “[Cramer] having to watch me as his Bear Stearns advice wiped out my parents’ 401(k).”

Cramer made use of MSNBC and NBC’s other properties to call Jon Stewart’s show a “variety show,” which resulted in the creation of a Stewart-Cramer media personality war.

Jim Cramer’s techniques — many which fit under the umbrella of ‘fomenting’ or ‘enticing’ to some extent — are generally systems designed to modify how the public investors, feel the technicals and fundamentals of a company are doing.

“You can’t foment. That’s a violation… But you do it anyway because the SEC doesn’t understand it,” said Cramer speaking of his strategy of falsely presenting a stock as ‘down.’

Cramer spoke of making use of the media and news establishment to ‘report’ information about companies and encourage the development of stories which may not have hit significant coverage to build favorable reputations for his companies or stocks. Much of Cramer’s technique seems to involve using his exposure and influence in media circles — particularly his operation of the ‘adviser’ show, Mad Money — to create opinions which are complex enough the SEC cannot enforce them as strict fomenting.

One of the basic strategies of Cramer’s fomenting, he said, was, that in the situation a hedge fund (such as his own) was holding a short position in a company which reported excellent quarterly news, the fund would call up brokerage houses and either feed them bad news / blatant lies, or order a huge set of short sales — suggesting that investor confidence in the company was falling. The slew of bad news would create a temporary fall long enough for the manager to resolve his short position and conclude a tidy profit.

Cramer refused to talk about some of his techniques, saying he was “not going to say it on TV.”

Overstock CEO Patrick Byrne, said the CNBC reporters used this technique to spread lies and rumors about his company, combined with a slew of bad / false financial reports and analysis around the Internet and otherwise.

Many analysts are suggesting that much of the CNBC enterprise and Jim Cramer’s specifically success came from a strong understanding of how to control the system — control the news, you control the stock.

“We had it down to a science in 1992: my wife would pick stocks that technically looked ready to go up, or she would keep track of merchandise to see what was down to tag ends. She would then generate a list of stocks that could move quickly on good news. Jeff would then go to work calling the companies to try to find anything good we could say about them [...] we would load up with call options and common stock and then give the good news to our favorite analysts who liked the stock so they could go do their promotion. That would get the buzz going and we would then be able to liquidate the position into the buzz for a handsome profit,” said Cramer in his 2002 book Confessions of a Street Addict.

“What’s important when you are 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. These are all the things that you should be doing on a day-to-day basis and if you’re not doing it, maybe you shouldn’t be in the game,” said Jim Cramer in 2007.

Hedge funds, by many claims, exist simply to manipulate the market — promising much larger than “legitimately” achievable returns to their investors by producing market trends and actions that are less false or created. Hedge funds are currently unregulated in the United States, though a number of proposed bills (H.R. 3417 - Commission on the Tax Treatment of Hedge Funds and Private Equity; S. 1402 - Amendment of Investment Advisors Act of 1940; and S. 1624 - Amendment of Internal Revenue Code) as well as speculation in the Obama administration’s “confidence to financial markets” movements suggests that this may change in short order.

Stewart’s main critique of Cramer’s positions was that of Bear Stearns, a company Cramer suggested had strong fundamentals and was a great purchase in early 2008 — self-credited analysts such as Daily Kos question whether this was an attempt to pump up one of his positions.

The SEC’s Chairman, Christopher Cox, called for an investigation and a number of subpoena’s in to the collapse of Bear Stearns at which point Cramer joined the call for reform and investigation in to this short selling fomenting.

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