"Banker Is on a Mission To Become 'Truth Police'
By AARON ELSTEIN
THE WALL STREET JOURNAL INTERACTIVE EDITION
Internet message boards teem with people spouting opinions about the
prospects of stocks they love, or love to hate. And then there is Floyd
Schneider, who says he is on a mission to "expose the underbelly of Wall
Street."
Mr. Schneider, 42, an executive at a New
Jersey mortgage bank and a father of two,
spends most of his day -- up to 15 hours, he
estimates -- at his computer prowling the
Internet in search of stocks he deems overvalued or hyped. He then
publishes his findings in a weekly online newsletter called "The Truthseeker
Report" ( http:/www.thetruthseeker.com ).
"My role is to find rigged stocks and expose them as the scum they are,"
says Mr. Schneider, a vice president at Real Estate Mortgage Network in
Rochelle Park, N.J., who is developing a reputation online as Wall Street's
"truth police."
Though he lacks formal training as a stock analyst, Mr. Schneider's
amateur sleuthing has won him a loyal following on the Internet among
short sellers -- investors who hope to make money on stocks that deflate.
He claims 300 people pay to get his Truthseeker Report, which costs
$9.95 a month. Others closely track his postings on Internet message
boards.
Mr. Schneider's growing popularity sheds new light on the way the Internet
is helping individual investors influence the market. Just a few years ago,
individuals with information -- good or bad -- about a specific stock had
no broad platform to reach other investors, save for a company's annual
shareholders' meeting.
Today, the Internet provides a platform for an individual to potentially
reach millions of people. And some amateur stock watchers are
developing followings that rival Wall Street professionals.
In about a year, Mr. Schneider has become one of the most popular
participants on Internet stock-chat boards, including Silicon Investor
(www.techstocks.com). Because of the surge of interest in his postings and
stock recommendations, he decided to publish the online newsletter
featuring his stock research.
The Truthseeker Report was launched in August. A month later, Mr.
Schneider also began issuing "investment opinions" over Business Wire,
paying $350 per release, in which he recommends investors sell or short
stocks researched by him. He says he never takes positions in the stocks
he writes about -- although he plans to do so after he's solidified his
reputation as a stock investigator. "When that happens, everyone will
know it," he says. "The Truthseeker tells the truth."
Mr. Schneider isn't registered as an investment advisor with any regulator.
However, the U.S. Securities and Exchange Commission requires people
who are compensated for recommending securities to more than 15 people
to register with the agency. Mr. Schneider says he's never been paid to do
research by anyone and the amount he collects from selling his newsletter
doesn't cover his costs to prepare and distribute it. A spokesman for the
SEC declined to comment on Mr. Schneider's activities.
Except for a bachelor's degree in business administration from the
University of Miami, Mr. Schneider has no formal training in securities
analysis. His reports, while usually supported by references to public
documents, are punctuated by a generous amount of needling. He once
called executives of one company, ZiaSun Technologies, "conning, lying,
thieving rubes," for example. Not surprisingly, Mr. Schneider's work has
drawn some fire.
ZiaSun, an Internet holding company in San
Diego, sued him for defamation because of his
postings. The lawsuit, filed in U.S. District
Court in Seattle in July, is pending. Another
company, Sara Hallitex, an Internet
venture-capital firm, also publicly challenged
Mr. Schneider. The company rebutted Mr.
Schneider's charges on its corporate Web site by accusing him of a "smear
campaign."
Mr. Schneider's critics say he's an obsessed man who needs a new hobby.
He has posted over 5,000 messages on Internet bulletin boards at Silicon
Investor, or an average of 14 per day since he signed up in November
1998, plus hundreds more on Raging Bull (www.ragingbull.com).
"I feel bad for Floyd," says D. Scott Elder, chief executive officer of
ZiaSun, which sued Mr. Schneider and seven other message-board
posters for conducting an online "defamatory campaign" to hurt the
company's stock. "I think he's got to get on with his life -- do something
productive. He's not doing any good with what he's doing."
But Mr. Schneider counters that he's providing a crucial service to
investors -- and he has a lot of supporters. Although short-sellers are his
biggest fans, Mr. Schneider also has drawn attention among a few
securities lawyers, who sometimes find his information useful in bringing
fraud cases against companies on behalf of shareholders.
Mr. Schneider "is very prolific," says Michael Braun, a lawyer at Stull, Stull
& Brody in Los Angeles, which recently sued 2TheMart.com, a company
recently profiled by Mr. Schneider. Mr. Braun declined to comment on the
accuracy of Mr. Schneider's research.
Mr. Schneider says he paid little attention to the stock market before
becoming a "cyber-sleuth." He says his only investment is about $2,000 in
a mutual fund. After graduating college in 1981, he returned to his native
New Jersey and sold auto insurance until he got into the mortgage business
in 1991.
Five years later he opened an account with America Online and
discovered its "Shark Attack" chatroom, where people discussed stock
picks. He read participants' tips on how to use Internet search engines to
unearth public records, such as SEC filings and state incorporation
documents, and decided to strike out on his own. "The more I did, the
more I learned, and the better I got," he says.
In November 1998, he signed up as a member of Silicon Investor, a
popular online message board service and, using the alias "Flodyie," started
writing about small companies whose share prices he felt were rising for
suspect reasons.
Mr. Schneider says his expose on 2TheMart.com, of Irvine, Calif., is his
proudest achievement to date. One of his first targets, 2TheMart.com's
stock soared as high as 44 in March after it claimed it was building an
online auction site similar to eBay. But the business never got off the
ground, despite press releases from management assuring the site was in
"final development" and would be available in the second quarter of 1999.
Mr. Schneider had hammered 2TheMart.com, accusing it of keeping
crucial information from investors. He also disclosed that the company's
president, Dominic J. Magliarditi, was disciplined by the Nevada Bar
Association for "obvious conflicts of interest" in negotiating a real estate
deal for some partners. The company's shares, which are quoted on the
OTC Bulletin Board, closed trading Tuesday at 7 3/4.
2TheMart.com was sued by five law firms on behalf of shareholders for
allegedly disclosing false and misleading statements about the prospects of
their business. 2TheMart.com officials declined to comment on Mr.
Schneider, but have said in a press release that they intend to defend
themselves "vigorously" in court.
After 2TheMart.com, Mr. Schneider set his sights on Sara Hallitex, a
Marina del Rey, Calif., Internet venture-capital firm. The company's stock
had surged as high as 19 7/8 in mid-April after it issued a flood of press
releases promoting investments in Internet-related companies.
In his report, Mr. Schneider charged that these companies in fact had little
connection to the Web. He put a "strong sell" rating on the company's
stock and said he was adding it to his "Unfortunate 100 Index," an index of
companies that Mr. Schneider believes will fall in value. Chairman Garrett
K. Krause responded by posting a "Response to the Truthseeker's
Report" on Sara Hallitex's Web site. The response accused the
Truthseeker of a "smear campaign." Sara Hallitex shares closed at 3 7/8 on
the Nasdaq National Market Tuesday.
Mr. Schneider frequently taunts executives and so-called touts -- people
he believes are stock promoters paid to defend his targets.
Indeed, the main reason ZiaSun sued Mr. Schneider was because officials
were so angry by his repeated and obnoxious messages, according to the
company's CEO, Mr. Elder.
Mr. Schneider has stepped up his efforts on his "Truthseeker" Web site.
He recently started including research on larger companies.
On Oct. 25, he issued a "sell" recommendation on Ask Jeeves, the Internet
search engine, and forecast the stock would fall to 15 to 25 in 12 to 18
months. It closed Tuesday at 88 5/8. Mr. Schneider's views aren't shared
by Wall Street pros, however. Several firms, including BancBoston
Robertson Stephens, rate the stock a "buy." Another, Adams, Harkness &
Hill, estimates it will be at 120 in 12 months.
Mr. Schneider says that one day he hopes to make cyber-sleuthing his
full-time job. Ultimately, he'd like to sell ads on his site, so he can publish
his reports for free. "What I really love doing is investigating companies. I
mean, this is fun," he says. "And there is always more out there."
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