Here's an interesting article. I don't believe it has been posted yet:
December 21, 1999
Dow Jones Newswires
WEB OF DECEIT: Sites Blur Line Between
Research, Payola
By SEAN DAVIS
NEW YORK -- Cash Cow magazine promotes penny stocks, and judging
by the deals it cuts, this Web site (www.cashcowmag.com) definitely is a cash
cow - for its owner, NewTrends Holdings Inc.
One of Cash Cow's "Hot Picks" is VisionGlobal Corp. (VIZG), which says it
is developing a high-speed wireless communications network. Click on the
word "Legal" in tiny typeface at the bottom of the screen and you'll discover
why.
NewTrends "has been retained as a consultant for Website
promotions/Website design to VisionGlobal," the legal disclaimer says. "As
payment for services to be rendered, a shareholder ... agreed to let
(NewTrends) purchase 25,000 shares of stock for $25,000 US - a price
deeply discounted from the current market value."
VisionGlobal closed at $2.19 a share on Oct. 25, the day NewTrends says it
was hired to promote the Bulletin Board stock. Since then, VisionGlobal has
risen to a recent $13 a share, giving NewTrends a paper profit of $300,000,
or 1,200%.
With profits like that, it's no wonder stock promotion is a booming business.
All it takes to get one of these sites up and running is $70 to register a Web
address and $99 for off-the-shelf software that lets a novice build a Web site.
No one knows how many Web sites promote penny stocks for pay. Stock
Detective (www.stockdetective.com), a Web site that tries to expose Internet
stock fraud, lists 76, including Cash Cow.
Not all stock sites disclose their interest in the companies they promote, even
though the law requires it. The Securities and Exchange Commission has
sanctioned a number of stock promoters for failing to do so. And some
disclose this information in small, hard-to-read typefaces.
Stock touts are nothing new. They've been around as long as the markets. But
a number of forces have combined to create the current boom.
First, the eight-year bull market has fueled an explosion of publicly traded
companies. Today there are about 15,000 companies filing reports with the
SEC. Not all these companies can get blue-chip investment bankers to tell
their story to the Street. "There is a legitimate reason for stock promotion,"
says John Woods, who writes about stock fraud for Canada Stockwatch in
Vancouver.
Second, technology has made it easier and cheaper to tout stocks. Promoters
used to work the phones or the fax machines to get the word out about a
client. Now, they can reach millions of potential investors with a Web site or a
mass e-mail, known to detractors as spam.
Third, the democratization of the markets has introduced millions of relatively
unsophisticated investors to the stock market. While many legitimate
brokerages have responded by making their research more accessible to the
public, there is still a vacuum of free information that stock promoters have
rushed to fill.
Finally, the boom in Internet stock touts can be attributed in part to the
success of authorities in shutting down the penny-stock scams of the early
1990s. Back then, unscrupulous broker-dealers filled rooms with cold-callers
who used high-pressure sales tactics to generate interest in stocks they
controlled. But state and federal regulators shut down many of these so-called
boiler-rooms, driving pump-and-dump schemes onto the Web.
Protection And A Bounty
Not all stock promoters are scam artists. Many sites are in the straightforward
business of publicizing small companies for a fee.
John Westergaard has been in the securities business since 1957. He was an
early proponent of emerging growth stocks, and made his name on Wall
Street at Equity Research Associates, a firm he founded in 1960 to fill the
void of research on small companies, especially in the technology field.
Now Westergaard heads Westergaard.com Inc. (WSYS), which provides
research on companies for a fee of $48,000 a year. It doesn't accept stock,
and it discloses its relationship to its clients through a link high on the main
page of the Web site (www.wbn.com).
Westergaard's staff is made up mostly of retired Wall Street analysts who
work part-time. Each analyst follows a particular company. They are paid by
Westergaard, not the companies they follow.
Westergaard says he provides an important service to these small companies.
"If you're worried about getting scammed, you're going to need a service like
ours to protect you." That protection extends to offering a bounty on
anonymous message-board critics. In August 1997, Westergaard offered
$5,000 for "the most complete dossier" on a short-seller who had been
attacking a Westergaard client.
Westergaard.com's record as a stockpicker is mixed. Premier Laser Systems
Inc. (PLSIA) has experienced considerable difficulties, including heavy losses,
a dispute with a distributor, an auditor resignation and a five-month
suspension in trading of its stock. Another Westergaard.com client, Edgar
Online Inc. (EDGR) has fared better. It recently acquired its major
competitor. But its losses have widened, and its recent share price of $8 is
less than the $9.50 at which it came public in May.
'In Stocks We Trust'
Cash Cow's Web site features a mock-up of a dollar bill. In place of George
Washington is a bull in sunglasses and a tuxedo, smoking a fat cigar. The face
value of this ersatz greenback is $1 million, and the motto imprinted on its face
reads, "In Stocks We Trust!"
Cash Cow's owner, NewTrends, is based in Kelowna, B.C., according to the
site's domain-name registration material, obtained from Network Solutions
Inc. (NSOL), the major registrar of domain names. The site's administrative
contact is Stuart Gray. Attempts to reach him by e-mail were unsuccessful,
and the telephone number provided by Network Solutions was connected to
a fax machine.
Dow Jones Newswires sent an e-mail to an address listed on Cash Cow's
Web site. The person who replied wrote that a "third party shareholder(s)
sold us the stock" for VisionGlobal, but didn't provide the name of the
shareholder, saying only that it wasn't an officer, director or corporate affiliate.
This person wrote that Cash Cow views its profiled companies as long-term
investments. The rest of the reply reiterated Cash Cow's disclosure material,
including the disclaimer that its articles aren't investment advice, and shouldn't
be construed as an endorsement of any stock.
Joe Morgan, a VisionGlobal employee, said one of the company's original
investors, based overseas, sold the stock to NewTrends. He declined to give
the shareholder's name. "It was one of the money people invested in the
company before we got involved," Morgan said, adding that VisionGlobal
intended to contact this shareholder in writing to ask about the sale.
As its filings with the SEC reveal, VisionGlobal has a complicated history. It
was incorporated in 1986, but until 1998, its operations were limited to the
sale of shares to Capital General Corp., a company controlled by convicted
fraudster David Yeaman, and the giving of shares as gifts.
In 1998, VisionGlobal agreed to a reverse merger with a Delaware
corporation, giving Martin G. Wotton, a 37-year-old former stockbroker
from Australia, 10 million shares, or 58%, of VisionGlobal. He became the
company's chief executive. Earlier this year, VisionGlobal acquired the
intellectual property rights to a two-way radio, paying the owner 100,000
shares and making him a senior vice president.
Since NewTrends started promoting VisionGlobal, the stock's trading volume
has risen dramatically. On Oct. 25, 4,200 shares changed hands; two days
later, 301,200 shares were traded. Volume has exceeded 500,000 shares
three times since then. The latest surge in the stock came on Dec. 10, after
VisionGlobal announced it had hired a big ad agency. On that day, the stock
rose $5, or 70%, on volume of 697,300 shares.
-Sean Davis, Dow Jones Newswires; 201-938-5294;
sean.davis@dowjones.com |
