Faced with a growing controversy over its $1 million stock-picking contest, General Electric Co.'s (NYSE: GE) CNBC did what companies faced with a crisis always do: release a cryptic statement late on a Friday announcing how it plans to clean up the mess.

In CNBC's case it's the hiring of Stanley Sporkin, a former federal judge, former CIA general counsel and former SEC enforcement director along with computer security firms Symantec Corp. (NASDAQ: SYMC) and KSR Inc.'s Neohapsis.

CNBC obviously would like the public to forget how badly it botched "The Million Dollar Portfolio Challenge." BusinessWeek uncovered evidence of cheating that was patently obvious as contestants took advantage of a software flaw. This promotion helped push CNBC.com to become one of the top sites for business news.

But the cable channel is pressing on with the promotion. The company was supposed to declare a winner on July 8, but has vowed not to do so until the investigations are complete. CNBC's problems may not end there.

BusinessWeek reported that finalist Joe Dondero, who didn't take advantage of the software flaw, has been accused of manipulating trading in thinly traded equities in the real stock market to enhance his performance in the contest. He also has a track record of getting in hot water with regulators, including the NASD, the magazine said.

CNBC's attempt to sweep this fiasco under the rug is unfortunate. The channel did the right thing, though, by hiring outside consultants to investigate what happened and hopefully will learn how to avoid future mishaps like this in the future.

At this point, the network should follow the lead of my former employer TheStreet.com, which scrapped a similar promotion after cheating was discovered. These contests are bad ideas anyway.

The last thing investors need is encouragement to chase short-term profits

BusinessWeek reports that Joe Dondero may win General Electric Co.'s (NYSE: GE) CNBC's Million Dollar Portfolio Challenge. That's interesting because this day trader has had complaint letters about his conduct with the National Association of Securities Dealers (NASD) and other contestants complained that he was trading small cap stocks in the contest -- which they suspect he was manipulating in his real trading.

The original scandal with the Million Dollar Portfolio Challenge was that some traders were using a flaw in the contest to do what mutual funds did a few years ago -- use their knowledge of what happened to stocks after the market closed to pack their portfolios with "winning" stocks. CNBC's Million Dollar Portfolio Challenge software enabled participants to engage in this late trading.

Dondero did not do this. But since he was the top finalist who refrained from such late trading, he is in line to win. That is unless CNBC decides to award the $1 million to the next best performing contestant with a clean record.

The cheating on CNBC's "Million Dollar Portfolio Challenge" was so blatant that anyone with even the tiniest knowledge of the stock market could have sensed that something was seriously wrong.

BusinessWeek points out that the top finalists in the contest averaged returns of 45% during the first nine days of the final round which stretched out annually would equal 1,200%. The odds of someone being able to generate these sorts of results legitimately are pretty slim. Having more than one contestant show these returns should have immediately set off alarm bells at the General Electric Co.- (NYSE: GE) owned network.

This wasn't a difficult flaw to exploit. The magazine reports that all these wannabe Warren Buffetts did was go the CNBC Web site and hold off executing the trades until after the 4 p.m. close by keeping their Web browsers opened. They wound up getting the pre-close price for stocks that went up in after-hours trading.

CNBC, which is offering $1 million to the first-prize winner, denies that the controversy surrounding the contest has damaged its credibility. "Why would it?" said Kevin Goldman, a spokesman for CNBC in an interview, adding the company launched an investigation as soon as the problems were brought to its attention though BusinessWeek said whistleblower Jim Kraber was initially rebuffed. He declined to release the names of the parties CNBC has hired to ferret out these miscreants.

The "Million Dollar Portfolio Challenge" was a successful promotion that helped make CNBC.com of the top business news sites fairly quickly. Whether the cable channel is too clever for its own good remains to be seen.

In case you haven't heard, there is a full-blown controversy surrounding CNBC's recent "Million Dollar Portfolio Challenge," with the network posting a message on its website saying that the "CNBC Million Dollar Portfolio Challenge ended May 25th. CNBC has been contacted by several contestants alleging unusual trading in violation of contest rules among some of the 20 finalists. Once these questions were raised, CNBC immediately launched a thorough investigation to determine who may have violated the rules."

Apparently, some contestants may have found ways to go in and change their orders after the market had closed, kind of like placing late bets at the track. While cheating is certainly bad, I had a hard time taking the contest seriously from day one. As the Motley Fool's Bill Barker wrote back in February, "this contest has stunningly little to do with 'investment strategy' and everything to do with maximum risk taking."

With the many thousands of people competing for the best portfolio performance over such a short period of time, I would argue that the portfolio was about little other than luck. I certainly wouldn't call the winner a "trading genius" or anything.

This brings me back to the cheating issue. In a contest that was essentially little more than a glorified lottery, who really cares if the winner didn't play by the rules? In fact, finding some strategy for beating CNBC's security system is probably more of an accomplishment than winning this crap shoot of a stock-picking contest.

Of course, I don't really think the prize should be given to a cheater, just as someone who cheated at bingo shouldn't get the prize. But it's hard to muster up a lot of righteous indignation for someone who found a way to outsmart an investing and trading contest that had little to do with investing or trading.

CNBC needs to figure out pretty quickly whether people pretending to be Wall Street wheeler dealers emulated their real-life counterparts and cheated to try and win a fantasy portfolio contest which has a $1 million first prize. Otherwise, the network may lose credibility with viewers and advertisers.

The General Electric Co. (NYSE: GE) cable channel is conducting an investigation into complaints from several wannabe Jim Cramers, Carl Icahns and Warren Buffetts that some of the 20 finalists in its CNBC Million Dollar Portfolio Challenge engaged in "unusual trading in violation of contest rules" according to a statement on its web site. It wasn't any more specific.

For CNBC, this isn't just a game.

When the contest launched in March, CNBC.com saw a tremendous boost in traffic. Page views hit 67 million in April, making it the fifth-highest rated business news site beating more established media outlets including the Wall Street Journal and CNN/Money, according to comScore. On a page views per user basis, it ranks number one.

This is a remarkable achievement and could help off-set CNBC's declining ratings provided that the channel can get to the bottom of this hubbub quickly Advertisers hate controversy and won't pay premium rates if there is a question about a site's credibility.

CNBC has until July 8 to declare a winner.

"Although CNBC hopes to announce a winner before that date, it is more important to ensure the individual awarded the Grand Prize is in compliance with the rules," the statement says.

But if fake Wall Street is anything like the real thing, someone will rat out whomever tried to rig the contest.