To anyone interested (including Lew Lieberbaum lurkers),
Leonard from Lew Lieberbaum called me last Monday, and told me to cease commenting about them on the internet, or possibly face legal action.
LL, you of course have the right to sue anyone you wish, and I do encourage you to make your own decisions. However, the above course of action might prove far riskier than the stocks you peddle. I stand by everything I have said.
In addition to the above statement, Leonard asked if there was anything in particular I was disturbed about. I said "Yes, two things. I resented their high-pressure sales tactics, and that Mike Mondiello cheated me in a transaction on February 25." Leonard has not seen fit to get back to me on the second matter (it's been over a week), and that in particular still disturbs me greatly. I have brought that matter to their attention five times now, and have only gotten garbage answers or silence. More on both of these topics below.
If you have dealt with LL, you have most likely heard two phrases repeatedly. "Our research department only recommends 7 or 8 stocks a year," and "Send more money." The first statement is misleading. The primary consideration as to whether their "research department" recommends a stock appears to be whether or not they are a market maker for the stock. The majority of the stocks that they have recommended to me just coincidentally happen to be stocks that they are MM for. No one else in the investment community would use as a primary criteria for selecting stocks the fact that LL is a MM in the stock. That phrase also implies that LL and Co are investment advisors. That is not true. LL is a sales organization that happens to sell stocks. The distinction between the two is critical, and explains why, in my opinion, you have an unacceptably higher probability of losing money if you deal with them, or many other MMs.
First off, an investment advisor listens to your criteria, and searches accordingly for stocks to recommend. LL ignores your criteria, and searches for reasons to recommend a preselected stock. I specifically stated in my first conversation with them that my criteria was stocks that were above the 20 and 50 day moving averages. Mike Mondiello (my broker at LL) has repeatedly scoffed at that, and recommended inappropriate stocks.
No matter what the company's prospects or how the stock is behaving, they will always find something that can be stated in a positive light to use in a sales pitch. Day in and day out, the LL sales force is on the phone "making a market" for DWCH stock. It doesn't matter how risky the stock is, or if any other professional investment advisor would remotely consider recommending it, or whether it meets your criteria, the LL sales force is on the phone to you and me extolling the virtues of this opportunity you can't afford to miss. This conflict of interest is inherent in the MM structure. NASD recognizes this. Trade confirmation slips contain the statement "Your broker makes a market in this security." This bias alone greatly increases the risk/reward ratio away from the individual investor's favor.
Another strong distinction between a professional investment advisor, and a sales organization that sells stocks, is the difference in tactics and recommendations. Any successful investor, and any professional investment advisor, will advise you to do your own research and take the time to make your own decisions. LL's sales presentations and high-pressure tactics, by contrast, strongly discourage you from waiting to make a decision, they are designed to push you into a decision right then. I have been a professional salesman, and have designed highly-effective sales presentations for several national and international companies - I know what I'm talking about, and I know how to analyze a sales presentation. Any company that strongly encourages you to make an immediate decision is attempting to engage you in unsound financial practices. That is a recipe for financial disaster.
I will reiterate that the above practices are not illegal, and most likely they do not violate the published NASD ethical standards. They are just very unsound practices for the individual investor.
Here's an interesting insight into what happens when a company such as DWCH loses millions in market capitalization over a period of time. Who loses money, and how does that affect LL? The following are not meant as exact scenarios, but merely as guestimates. First off, many of the original investors who owned the stock before last July are gone - they have absorbed some of the loss. Much of the rest of the loss has been borne by the numerous people that LL has persuaded through thousands of solicitation phone calls since last July. The interesting side effect is that this loss of market capitalization also reduces the amount of assets under LL's control. They must bring in fresh money, or their company will have negative growth. Hence, the weaker their recommendations get, and the more money their clients lose, the stronger their incentive to bring in new clients and new money. To remain viable for consideration by prospective clients for bringing new issues to market, they must have a large enough pool of money and clients available to successfully place the issue. Judging from the email I have received and other information I have come across, LL has left a trail of financially ruined people in their wake, and has had to replenish a lot of assets under their control.
LL, whether you call it a stage 4 stock, a stock in general decline, or garbage stock, DWCH has been very risky since last July. If that's the best that your highly-touted research department can produce, and if your sales people have genuinely believed all along that the stock was a smart, low-risk investment, then your analytical skills are sub sub par.
Now for the second concern, the transaction executed by Mike Mondiello on Feb. 25. Mike, I personally find you and your actions to be offensive, abusive, and deceptive. You called me on Feb. 25, extolling the virtues of DWCH, and encouraging me to buy half a million worth of shares. I agreed to buy 500 shares, and three times clearly stated to you that I would buy 500 shares at 4 5/16 limit. You also confirmed several times that 4 5/16 was the current ask. When you finally realized that you were not going to sell me anything more, and as you were preparing to say good-bye, you said, "So you want 500 shares at market?" I said "yes," you hung up, and I immediately realized that you had just conned me into changing my limit order to a market order. I watched every tick of DWCH after that. It was an hour an a half later that the ask went to 4 1/2. When I got the confirmation slip three days later, sure enough, it was executed at 4 1/2, with commission on top of that. Mike, not only is that conning me and stealing my money, that was a direct violation of NASD regulations. I immediately printed out a chart showing the five-day tick-by-tick trading activity in DWCH. Sure enough, it shows that the first transaction at 4 1/2 was long after I talked to you.
One week later you called again, trying to peddle CCUR. I point blank asked you why my previous transaction got processed at 4 1/2. You said "It must have gotten executed with another transaction." (Even Leonard had to admit that was impossible, that every transaction is executed independently, but I guess that was the best excuse you could come up with on short notice.) You proceeded with your CCUR sales pitch (another of your great "winners"). I interrupted you two minutes later, and said "Wait a minute, you're trying to sell me something else, but you haven't yet answered my concerns about the last transaction." I also admonished you on that occasion, and other occasions, that you were all talk and no listen. Mike, do you really hold such contempt for your clients as all that indicates? Do you really think that I am stupid just because I fell for your sales pitch before? You brushed me off with "Well, I'd have to check the records." I'm still waiting for an answer. I've mentioned this to you three times now, and I specifically mentioned it to Leonard last Monday. This "little oversight" doesn't seem to be a big concern to anyone in your company. I am forced to the conclusion that unethical and specifically-forbidden behavior are accepted practices for your company.
At a later date, I specifically asked you about the sexual harassment allegations and the 22 pages of complaint summaries. Mike, "Everybody does it" just doesn't cut the mustard. Sound business practices dictate that the official company statement for allegations such as those be along the lines of "LL does not and will not tolerate sexual harassment in any form." Ditto with the complaints. If LL's comprehension of sound business practices is so limited as to not recognize the need of a statement such as that (or if the moral rot extends so far up that the company cannot implement a policy such as that), then how can you expect anyone to have confidence in your analysis of other companies' business practices and potential? Sexual harassment charges can be a ticking time bomb against a company, with severe financial repercussions.
Two other items about you particularly offended me. Always, always, it's "Send more money." A few weeks back, when I made the observation to you that the money I had sent you in January was down by 70%, you launched right back into a sales presentation, and specifically asked me to send you more money. Reputable business people accept responsibility for their actions and recommendations, and would not be so brazen as to ask for additional business when the topic at hand is the poor performance to date. At least pretend that losing 70% in such a short period is out of the ordinary, at least pretend you're concerned. Your actions indicated to me that this type of performance is the norm, not the exception. I walked away from that conversation feeling that you hold your clients in complete contempt.
The second one was a maintenance call on my margin account two weeks ago. You called me on Friday afternoon, and said I had a maintenance call coming due on Monday. You said that if I would send more money, you could postpone it for a few more days. I said no, I would let you know Monday morning what to do about my account, but I was not sending more money. Fifteen minutes later, your secretary called, and said the call was due right then, and I had to give her a decision right then on what to sell. I was forced to make a quick decision, because you chose to use what little time I could have had for deciding as an opportunity to attempt to get more of my money. I asked you a few days later about that, and you said there was a mix-up in the records, and you didn't realize until you got off the phone that the maintenance call was due Friday. I don't believe you. A reputable businessman that makes an honest mistake will immediately rectify the error, not hide behind a secretary. You displayed total disregard for my assets that day, and gave me false information. I believe you will use every opportunity, and every tactic, to get people to send more money to you. Your actions all indicate that your highest priority is getting people to send more money, and that what happens to that money is far down the priority list.
This has been a rather lengthy post, so I will summarize it for all the investors on the web. If you want unsound investment advice, and stock recommendations based on non-financial criteria, listen to LL. If you want to be harangued on a weekly basis with high-pressure requests for more money, to be treated with contempt, and to have your transactions executed in a manner strictly forbidden by NASD, select LL as your broker. If you want to do business with a company which has left financial ruin in its wake, you guessed it, LL is your choice. If you want your account turned over to a secretary at a critical moment such as a margin call, give Mike Mondiello at LL a call, he'll set you up. If you want your assets reduced by 70% in short order, follow the unsound practices recommended by LL. And finally, if sexual harassment is your bag, what better company than one that can't even come up with an acceptable, official policy on the matter.
I have learned a great deal from my dealings with LL, so on a personal and professional level I chalk this all up to tuition. In one of my earlier posts, I accepted full responsibility for having listened to LL. I am sharing this information with anyone who is interested, so that they may have a better understanding of how markets work and make better-informed decisions.
Robert Partridge |
