market selloff headline

market selloff headline

Thursday, March 20, 2014

The Bling is Always Real; the Promises are Almost Always Lies.

Canadian Scammer Petar Vucicevich seen before sentencing.
Photographer: Nick Brancaccio / Source: The Windsor Star
“Become a Millionaire.” Sounds great, right?  Who doesn’t want a secure financial future.  There was even a hugely popular game show hosted by the venerable, amiable and seemingly trustworthy Regis Philbin.  But when someone makes a pitch of this nature regarding investments, it should give you pause.  And when that seemingly dubious, too-good-to-be-true pitch is featured prominently right at the top of the pitchman’s website, in my estimation it is probably time to run in the other direction.  Consider a Netflix rental of "Boiler Room" this weekend as your primer for this shadowy world where the promises are usually fake, but the losses and related misery are very, very real.

When such a pitchman makes defensive and boastful statements like, “You haters out there will hate me even more in the coming years as I create more millionaires with my teachings, get excited,” [sic] it smacks of empty infomercial rhetoric that one cannot ever reasonably perceive as a credible source for advice regarding your nest egg.  If they are legitimate, why are they defensive?  At a minimum, it begs the question, if you’re so good at this, why are you trying to sell your “system” to me instead of simply becoming the next Warren Buffet, or perhaps the lesser-known Benjamin Graham who authored the investing classic, The Intelligent Investor?  Incidentally, one can buy that bit of 65-year-old time-tested wisdom for about six bucks on

Famed stock fraudster Jesse Livermore preyed on the short memory of investors and relied on markets moving as a herd and in cycles.  Livermore said famously, “I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”

So if some very young trading “genius” sounds familiar, one need only look back to last decade and Jonathan Lebed.  This one-time New Jersey teen, with next to no knowledge, education, training or experience, took to Yahoo! message boards before the school bus arrived, during the halcyon “dot com bubble” days, and with enough exclamation points he created unwarranted and misleading buzz about thinly-traded issues and used his hype to artificially spike demand on penny stocks that led to misery for many.  He became a high-profile SEC target for his pumping activity and a semi-famous novelty, even appearing on CBS 60 Minutes, mainly because he was still in high school when he perpetrated his schemes.  If someone claims to have invented a proprietary model to “profit off pump and dumps like this,” you should probably prepare to lose every cent you “invest” in charlatan claims like that.  Does a claim like that sound like even remotely legitimate investment advice?

It’s true that online chat rooms can be great sources of information or a potential wolf’s lair.  More often than not, chat room denizens are anonymous, and if someone aims to fleece you and take your hard-earned money, they might be posting under many different identities to create the false impression of group consensus.  The inexperienced might be easily duped into believing there are many people just like him or her who think some penny stock is about to “explode.”  At this point, it would be worthwhile to ask yourself, “are you a gambler”? “Do you want to roll the dice”?  But if you are going to spin the roulette wheel because some kid sporting “bling” promises to make you a millionaire, ask yourself how it will feel to lose everything in that “investment,” because that is often what happens.  Ask yourself how transparent this chat room really is?  If it requires a user name and password and is shielded from the reaches of a Google search, there is probably a reason for that and it isn’t likely one that benefits the average investor.

Perhaps the pitchman courting you to “become a millionaire” has used what are seemingly impressive credentials like “broker” or “analyst,” much like Peter Antipatis, former partner in TheSubway, a penny pumper if there ever was one.  Based on Long Island (a potential red flag by itself, and I am a former Long Islander), TheSubway used the apparent credibility of Antipatis as a broker and “analyst” to create phony demand for penny stocks by issuing “coverage” and bombarding the wires with press releases.

Mr. Antipatis seems to start out legitimately enough, his first broker position was with Merrill-Lynch, but then his resume takes increasingly sketchy turns toward smaller and less transparent “firms.”  BrokerCheck is a new tool made available by FINRA to check out the potential bona fides of anyone who was a broker or investment adviser in the last few decades.  Far from perfect, and certainly not without its critics, BrokerCheck does provide some important pedigree information about current (and many former) brokers and investment advisers.  For example, we can see the various regulatory and disciplinary events in his shadowy history in finance from Mr. Antipatis’ BrokerCheck profile, and that he was barred for life from the industry in connection with his “pump shop” pillaring of ordinary Americans’ life savings.  That lifetime ban was the result of an AWC, which is a voluntary agreement.  So Antipatis voluntarily agreed to be banned from the securities business for life, just to avoid further investigation and potential prosecution.

If some online “guru” who boasts of how he will make you a “millionaire” pitches a “system” and encourages you to venture into the virtually unregulated world of penny stocks (aka “microcap equities”), and uses chat rooms and many forms of social media to lure you into this sort of trap, by now you should be completely suspicious.  When that same guru promises to teach you how to day trade your way to a comfortable better life, that’s the American Dream, right?  Wrong.

One such guru claims on his website to be idolized by popular market pundit James Altucher, yet Altucher himself maintains that day-trading is the road to ruin.  He even cites eight clear reasons: “1. Suicide  2. You’ll overeat  3. Your eyes go bad  4. Social life  5. Blood pressure 6. Nothing productive  7. No career  8. It’s impossible.”  He has no “system” to sell, which is not to say Altucher does not use the media to “talk his book,” he definitely does, but his message is more about the equities market in general, not some dark corners where predators skulk waiting to sell you what will be worthless paper for your life savings.

You have probably heard the phrase, “past performance does not guarantee future results.” Boring, right?  Well, regulated financial services firms are not allowed to make claims like “I Turned $12,415 Into $3,770,000 Trading Penny Stocks”!  Consider using a tool like the Internet Archive to peruse the supposed gurus website footprints; it’s a free service that has nothing to sell to you.  One can only wonder why the website of a self-proclaimed “guru” essentially has no updates at all during the crash of 2008-09, but here is just such a graphical example of that absence of activity.  This particular website’s activity seems to have a correlative relationship with the market collapse and only seems to resurface in 2010.

You want guidance from advisers in good times and bad, right?  When things turn sour will that guru even be around?  Some guru websites use a technology in the website code called “norobots.txt” that prevents website archiving. Perhaps some gurus don’t want you to know what was said way back when, using the clarity of hindsight?  The market is in many respects a “zero sum game,” which means there are very real losers who funded the winners’ lavish lifestyles.  If you encounter a “guru” who is boastful, defensive, evasive when pressed for real information, and flashes “bling” to persuade you of their “success,” ask yourself if that person is a genuine sage or just a huckster who tricks people.

A twenty-something Canadian named John Babikian used a now-defunct e-mail list called “AwesomePennyStocks” to tout penny stocks while dumping his own shares, according to a recent Securities and Exchange Commission civil enforcement complaint.  Babikian became well known in Canada for promising to 
Crush Wall St. Using My Free Picks‎, while hitting the hot clubs of Quebec and driving a $1M Bugatti Veyron, likely purchased with the money of hundreds who were gullible enough to try to profit from his scheme.  When you see a guy standing in front of some expensive sports car, claiming you too can be the next penny stock “millionaire,” it should set off alarms in your head. The SEC contends this alleged garden variety penny pumper used his email touting system to inflate roughly forty penny stocks by some $3B.  That artificially inflated amount represents the very real money of gullible people who are just gambling, or think they can outsmart and out-time the insiders who are dumping their stock into the fake demand, generated by deceptive hype.  Those insiders will not share their sell points, they will not announce their timing, and they will not return your calls when the money is gone.

If you’re being tantalized by the promises of riches and you decline to perform any diligence, you are asking to be fleeced and become proof of the rule that a “fool and his money are soon parted.”  Google can be helpful to suss out the scams and the louts.  If you find a business address that is associated with a pitch, use the Google “street view” to see what it looks like.  If you obtain a phone number, run a search, you might find it is associated with pressure sales telemarketing or other undisclosed “businesses.”  If it involves anything beyond the borders of the United States, be extra careful.  Many Americans were duped by a Canadian pump crew claiming to have tapped a pipeline of wealth through a Middle East construction boom.  The scheme started to unravel when the fraudsters claimed to have Price Waterhouse Coopers as its accountant and investors actually called the accounting firm and learned no such relationship existed.  Of course, the grand business claims were incapable of any verification and ultimately
securities regulators proved it to be false, but by then the money was long gone.

Would you ever buy real estate without at least looking at it?

Always the bling.  Photographer: Scott Eells / Source: Bloomberg
If there is a consistent theme of this sort of “too-good-to-be-true” pitch, it’s almost always that the “bling” is the focus and the details are scant or non-existent.  Even with Bernie Madoff, he touted a system and had amassed incredible wealth because people believed in it, but when Harry Markopolos tried to reverse-engineer the trading results the Madoff mafia claimed to achieve, he found it to be impossible.  Of course it was all merely a house of cards, although one surrounded by a moat of Manhattan credibility, including a non-executive chairman of the NASD wearing the crown.  Even many highly-sophisticated and wealthy individuals were taken for an expensive ride.

If you are determined to become a successful investor, it is like most disciplines; it takes effort, knowledge and training, much of which you can start to accrue with this reading list, instead of some shortcut “system.”  Consider downloading this free investor’s guide that explains your rights as an investor in your dealings with a Broker Dealer.  If someone promises to teach you to become rich, ask yourself why they are being so generous to share their system instead of just quietly using it for their own benefit.  Consider asking your accountant about the incredible “opportunity,” or perhaps a lawyer, or a business-savvy friend or relative.  If the pitchman simply insists on proving the profit, that is just one more red flag, and by now, the landscape should start to resemble Moscow on May 1st.  If they refuse to provide proof, or offer you some excuse, or even insult you for asking questions, moving on might be the best investment you ever make.

Don’t allow yourself to be inside a bubble of promised riches without taking some time to determine if it is really about making someone else rich on your dime.  Ask that guru to prove the “system.” Ask them to show you trading records that prove all of the buy trades and the sell trades.  The buys are especially important because it is often the case that they receive the stock they tout from the issuer or someone else holding a large position who wants to sell it at inflated prices.

Guess who they want to be the buyer of that over-priced pumped-up stock.  If you’re unsure who is the sucker at the table, it’s probably you. The wolves of Wall Street are still lurking and looking to make someone a millionaire… with your money.