Speaking of people who touted worthless investments...
Out of Luck
By Matthew Goldstein
THOMAS J. MURPHY was no stranger to risk. A former craps dealer on the Las Vegas strip, Murphy enjoyed playing high-stakes poker and dabbling in speculative stocks. But sometime on March 31, the longtime Las Vegas resident decided he'd overplayed his hand.
For weeks, Murphy had been recommending a tiny stock called Enterprises Solutions (EPSO) to just about anyone he met ? relatives, friends, even people he played poker with in the casinos. And for a time, it seemed his tip was a winner. Between March 21 and March 29, shares of the fledgling Internet-security company rocketed from $7.38 to nearly $22 on the National Association of Securities Dealers' OTC Bulletin Board.
Then, on March 30, the Securities and Exchange Commission suspended trading. The SEC was concerned, it said, about the veracity of several press releases issued by the company. People whom Murphy had advised to invest in the company began calling his home, wanting to know what was going on. Murphy, apparently as distraught as they, didn't know what to tell them.
Around 10:30 a.m. PT on March 31, Murphy called his wife of 24 years, Virginia, at her job as a casino entertainment director and left a message on her voice mail saying he loved her. Then the 49-year-old marketing executive hand-wrote a three-page letter to her and their two college-age children, drove to a shooting range, rented a gun and took his life. In his letter, Murphy instructed his wife to tell anyone who asked that he had believed Enterprises Solutions was a legitimate company.
I think he was mortified and ashamed,'' said Virginia Murphy in a recent interview. "I think the phone calls upset him. When it stopped trading, it upset him. He felt unbearable guilt. It wasn't just about our finances. He felt personal responsibility."
In the days immediately after Murphy's death, things got worse for investors in Enterprises Solutions. The SEC filed civil fraud charges against the Canton, Mass., company and Chief Executive John A. Solomon, charging them with issuing misleading press releases about a product the company claimed to have developed to protect Web sites from hack attacks. Regulators contend the company has no such product. In fact, SEC lawyers say, Enterprises Solutions isn't much of a company at all ? it has no revenues, no customers and just a handful of employees. The company and Solomon deny the fraud charges and insist the company was on the verge of lining up customers when the SEC swooped in.
Federal regulators also are pursuing fraud charges against Herbert Cannon, a Boca Raton, Fla., stock promoter whom the SEC alleges was the scam's mastermind. According to the Commission, Cannon, who has a long history of fraud convictions and securities violations, secretly controls two foreign limited partnerships that at one time owned nearly 15% of Enterprises Solutions' 3.2 million outstanding shares. In all, 61% of the company's outstanding shares are owned by 15 European entities.
Regulators say that while Enterprises Solutions stock was soaring, Cannon and some of the European partnerships were selling thousands of shares through accounts held at a New York brokerage, taking in at least $2.3 million. Cannon denies having "any legal or beneficial ownership interest" in the accounts.
But the SEC isn't done. Sources say regulators are looking into a possible connection between some of those European partnerships and British investor Terry Ramsden. In the 1980s, Ramsden, a noted high-stakes gambler, was listed as Britian's 57th richest man, but he lost most of his fortune when the Japanese stock market collapsed nearly a decade ago. After filing for bankruptcy, he was charged with fraud for trying to conceal some assets and ultimately spent 10 months in jail. Sources say Ramsden may have invested in Enterprises Solutions and similarly tried to get others to invest. Ramsden couldn't be reached for comment.
While SEC lawyers won't comment on Murphy's ebullient stock touting, there's no indication that they're looking at anything he may have done or said. Still, there's no easy explanation for why he was so eager to spread the word about Enterprises Solutions ? or, for that matter, why some investors took his advice. Virginia Murphy claims her husband simply was a gregarious fellow and compares his enthusiasm for Enterprises Solutions to getting "caught in a whirlwind." Whatever his motivation, Murphy's story sheds light on how investors are drawn to such speculative stocks.
One investor says he learned of Enterprises Solutions from Murphy during a February trip to Las Vegas, where the two met in the poker room of Steve Wynn's splashy new Bellagio Hotel & Casino. The investor, who didn't want to be identified, recalls Murphy as a boisterous man who seemed to be a regular in the poker room. Over the course of an evening, Murphy told him he had a hot stock tip, then suggested he invest in Enterprises Solutions.
Murphy gave the investor his card, and over the next few weeks the two had more conversations by phone. Each time, the investor says, Murphy became more effusive about Enterprises Solutions, once concluding a voice message by exuberantly shouting, "EPSO! EPSO!" The investor says he finally bought 400 shares in late March, when the stock was trading around $15. When the SEC later halted trading, he called Murphy, who sounded "haggard." Murphy told him his phone "had been ringing off the hook."
According to other investors, Murphy's wife and some of his friends, Murphy, who spent more than 20 years dealing craps at the Tropicana Casino before taking a job marketing health-food products over the Internet, was indeed a fixture in Vegas's casino poker rooms. And he liked to chat up anyone who'd listen. "Murph," as he was known, "was advising quite a few people to invest in [Enterprises Solutions]," says Margaret Larsen, one of his partners at Marketing Opportunities Group. "I was probably one of the few people he didn't tell about it."
Murphy's wife says she doesn't know how her husband learned of the company. She's not even sure how much he invested. A friend says Murphy got hooked during a conversation with Enterprises Solutions' investor relations manager, Vancouver businessman Eugene Hodgson ? whom he met in a casino. Hodgson, identified as a contact person on several Enterprises Solutions press releases, declined to comment.
It's perhaps fitting that Las Vegas ? which in recent years has emerged as an epicenter of stock manipulation schemes and "pay-for-hire" newsletters that tout stocks for a fee ? would play a role in the Enterprises Solutions affair. Not only did news of the stock spread in poker rooms along the Strip, but the company came into existence after taking over the corporate shell of a now-defunct gaming company called American Casinos International. (The SEC says that Cannon ? whose home city, Boca Raton, is another spawning ground for stock scams ? was instrumental in negotiating the 1999 quick-change maneuver, commonly known as a "reverse merger.")
Moreover, many Wall Street professionals say investing in a Bulletin Board company is little better than gambling. With few, if any, analysts following the 4,900 stocks that trade on the Bulletin Board, it's hard to find independent assessments of a company's prospects. And even though the National Association of Securities Dealers has stiffened financial reporting requirements, regulators say the market, with its pint-sized stocks, remains a breeding ground for fraud.
Nonetheless, small investors are often drawn to Bulletin Board stocks by bargain prices. Before April's big market sell-off, more investors than ever were pouring money into Bulletin Board stocks; the NASD estimates that trading activity was running 366% higher than a year earlier. Recent statistics show a subsequent fall-off in Bulletin Board trading ? probably a good thing, given the perils.
Ironically, Murphy's wife says no one knew better than her husband the dangers of gambling ? whether at cards, dice or stocks. He knew that one's luck could change quickly, she says, and that there are no sure things. So why, she wonders, didn't he apply those lessons to Enterprises Solutions?
"I have this three-page letter and it's the last thing he'll ever say to me," Virginia Murphy laments, "and half of a page is about this stupid stock."
SmartMoney.com ¸ 2000 SmartMoney. SmartMoney is a joint publishing venture of Dow Jones & Company, Inc.and Hearst Communications, Inc. All Rights Reserved.
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Note: Emphasis added to show that true manipulators are not always the people assuming a high profile, and that, as the old saying goes, tigers don't change their stripes. |
