Berko: Wrong Goldman
Friday, December 20, 2013 7:00 AM
Dear Mr. Berko:
In early November, I got a call from a penny-stock broker. He had emailed me an article by Goldman Small Cap Research about Endeavor IP, which generates licensing revenues from wireless communications patents it owns and other communications technology patents that it intends to own. So I bought 3,000 shares at $1.02. (I even got my sister and my brother to buy 1,000 shares.) During the next two days, it zoomed to $1.66, but then, during the following days, it crashed to $1.06. Yesterday it collapsed to 66 cents. I called the broker, and he insisted that because the price is lower, I should buy 3,000 more shares. Please tell me what happened here.
C.B., Springfield, Ill.
Good gosh Macintosh and holy cow Charlie Chan, a few other readers also got their tutus in a twist when the wire services published a recommendation by Goldman Small Cap Research about Endeavor IP Inc. (ENIP) at 70 cents a share. That twist was especially painful because readers wrongly believed that Goldman Small Cap Research is part of a multibillion-dollar investment bank (Goldman Sachs) and confidently bought hundreds of thousands of shares of ENIP at prices higher than a buck. But this was a classic and beautifully orchestrated penny-stock scam. Goldman Small Cap Research touts stocks such as WhereverTV Broadcasting Corp. (TVTV-$0.07), which has zero revenues but will broadcast anywhere in the world, and Daybreak Oil and Gas Inc. (DBRM-$0.45), which explores for energy but only during the day, and Petrotech Oil & Gas Inc. (PTOG-$0.01), which sells for a dollar attractive 1,000-share certificates used primarily for wallpaper. Goldman Sachs Group Inc. (GS-$170.49) is a pump-and-dump brokerage, too, but they pump and dump billions, not pennies.
Goldman Small Cap Research is run by a clever bugger, called Rob Goldman, who writes sponsored small-cap and micro-cap stock reports and the like. Neither Rob (what a propitious name) nor Goldman Small Cap Research is a registered investment adviser or associated with the Financial Industry Regulatory Authority in any capacity. However, everybody’s name, including yours, is on a sucker’s list somewhere. So imagine getting a phone call from a penny-stock broker who tells you: “Goldman’s research believes that this $1-a-share intellectual property stock is a pure-play technology issue. It has enormous potential licensing revenues and could enjoy similar success as (then names several successful stocks), which have market caps in the billions of dollars. Your $3,000 investment in this unique wireless intellectual property company could rival an original investment in Microsoft or IBM or Facebook.” Not a single word is false. And because you want to believe this could be true, you take the hook and bait with 3,000 shares. Isn’t greed a wonderful motivator?
Boca Raton, Fla., has some classy midrise office buildings on North Federal Highway in an area called Maggot Mile. This is where numerous penny-stock brokerage firms hire legions of penny-stock brokers to dial for dollars. The brokers call you from boiler rooms (think Gordon Gekko and the movie “Wall Street”), using lists of names purchased from Internet social networks, credit card vendors and websites.
In a typical scam, the promoter owns 50 million “seed” shares of a stock, e.g., ENIP. The shares are acquired as payment for completing forms and documents with the Securities and Exchange Commission, enabling ENIP shares to trade publicly even with questionable assets, minimal revenues and zero earnings. The promoter, several brokerages and a Rob-like guy always work together. The brokerages establish a market price by trading a few hundred shares of ENIP among themselves at 70 cents a share for about a month. Then Rob releases his carefully crafted research piece, with all the proper disclosures, to the wire services, which are always hungry for material. In the meantime, the promoter gives each brokerage 10 million shares so the salesmen can begin pumping and dumping. The 3,000 shares you bought at $1.02 were probably split – with 40 percent going to the promoter, 35 percent to the brokerage and 25 percent to the selling stockbroker. You may have been porked.
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