But the Web is also a potent force for exposing scams. A cottage industry of passionate critics and sleuths is hunting down quick-buck artists and disclosing their sins for the world to read.
An amateur Gotcha Gang surfaced a couple of weeks ago, when a then anonymous hand faked a story under the logo of Bloomberg News. It “reported” that PairGain Technologies would be sold to Israel’s ECI Telecom. Investors leaped on PairGain stock, driving its price from $8.50 to $11.12.
About an hour after the story popped up on a Yahoo message board, the first skeptics weighed in–pointing out that it didn’t carry Bloomberg’s Web address. More evidence of forgery followed, and PairGain fell back to $9.38. It looked like a classic pump-and-dump: pump up the price, then dump the shares.
Last week, investigators fingered a PairGain employee as the possible perp. One hopeful Yahoo groupie promptly messaged, “Maybe buyout is true?????” Friday, the stock closed at $11.37.
Sanity source: Groupie stock tips aren’t for me. For the 100 sane people left in the world, here are some Web sites to check:
My favorite stockdetective page is called The List. It names 89 Web sites, online newsletters, radio shows and print publications that look like unbiased sources of investment opinion but–according to Lichtman–aren’t. They’re advertising rags, he says, that charge companies $5,000 to $500,000 for featuring their stocks. Often, they take their pay in shares, which they can sell–or “scalp”–if their recommendations drive up the stock price.
It’s legal to praise stocks for pay, but the deal is supposed to be disclosed. Last October the Securities and Exchange Commission brought charges against 44 online stock promoters for nondisclosure, scalping and making false claims.
Now for the dirty underbelly. Some buyers try to make a buck by deliberately trolling for touts and helping them drive up a stock’s price. Getting rich is bringing out the worst in us.
Reed slams the seminars, boot camps and self-delusion sessions , for which innocents pay $2,000 to as much as $10,000. Participants dream of learning the secrets of fabulous wealth. But there’s only one secret: most of these guys get rich selling seminars, not investing in real estate. Some of their schemes are unethical or don’t work at all, Reed says. He steers you to courses (none taught by him) that charge a fraction of what the gurus want.
Last month Cook sued 10 “John Does” for defaming him on the Web. The postings are anonymous, but he’ll seek the names. The complaint cites messages on a Yahoo bulletin board, asserting that he was “arrested” and “charged by SEC” for hyping stocks and taking kickbacks. In fact, he wasn’t. Rather, he was fined for civil fraud in Arizona and hit with cease-and-desist orders in other states. He’s now fighting actions for deceptive practices in California and Texas (read all about it, on garywall).
The fear of being sued can bully victims into silence–but please don’t let that happen to you. Just get the story straight.
Public critics need to be strong-minded, as well as right. Patent attorney Michael Neustel, who runs the inventor site, was sued last month by the marketing firm that he named “Bad Guy of the Year.” He says he’s not worried: “As long as you tell the truth, you’re OK.” When John Reed gets a lawyer’s letter, he offers to correct any errors of fact–and never hears back. “It’s not so much that I am Mother Teresa,” he says of his outspoken site. “It is just that these guys piss me off.”
Most of the anti-humbug crusaders have something of their own to sell. Make sure it passes the smell test, too. I came across one site that rips into quick-buck gurus, in tough, consumery tones. But then comes the author’s pitch for manuals he writes. You can “auto-pilot your way to riches!!!!!!” Earn “$1,000 per day, $10,000 per week, $1 million per year!” Isn’t that where we came in?
