PICKPOCKETS' PRIDE By CHRISTOPHER BYRON
June 30, 2003 -- I read a terrific little book the other day. If you can get beyond its sappy title - "Hug Your Customer: The Proven Way to Personalize Sales and Achieve Astounding Results," by Jack Mitchell - the wisdom in this book is both obvious and undeniable: To be a success in business, just treat your customers with attentiveness and respect, and you will have them as customers for life.
That's a lesson the executives of the National Association of Securities Dealers apparently have yet to learn. Last week, the arm of the group that runs the Nasdaq electronic stock market announced that Nasdaq is abandoning its two-year-long effort to reform the fraud-drenched over-the-counter penny stock market functioning in its midst.
That was bad enough. But in trying to put a happy-face gloss on the proceedings, the organization issued a press release that must have insulted the intelligence of every investor who read it.
Instead of 'fessing up to the truth of the matter - that it is giving up the OTC Bulletin Board reform effort as a cost-saving measure - the release claimed that scrapping the cleanup is one of several steps Nasdaq is taking to enhance the quality of its services, and thereby to strengthen the exchange's position as "the best market in the world for investors." I mean, honestly, guys, was that necessary?
This flailing effort at spin control belies the real agenda of Wall Street as a whole, and of Nasdaq in particular: to say or do whatever it takes, no matter how preposterous or misguided, to separate retail customers from their money. It also underscores why public confidence in the markets is at an all-time low.
Wall Street is one of the few places on earth where the people who guard the bank are also the ones best positioned to rob it. So, every time a cleanup drive falters, or a corporate fat-cat pays a civil fine and goes back to work "without admitting or denying guilt," the perception is reinforced that the stock market is a rigged game in which the rich and the clever get to steal from the stupid and the poor.
Now comes Nasdaq's absurd assertion that the best way to serve the interests of investors is, in effect, to tell the pick-pockets of Wall Street that it's once again going to be business as usual on the OTC Bulletin Board.
The Bulletin Board is just the latest incarnation of what Nasdaq itself once was: the original "over the counter" market for stocks so speculative, shaky and volatile that the New York Stock Exchange would not even permit them to be listed for trading by its member firms.
THOUGH Nasdaq has struggled mightily to escape its past, the Securities and Exchange Commission has never let it off the hook, and in 1990 the SEC issued a regulation requiring Nasdaq to provide real-time market quotes for stocks so cheesy and fraud-soaked that Nasdaq wouldn't list them on its own exchange.
This became the OTC Bulletin Board - home to stocks of bankrupted and ruined companies, with bogus products and fraudulent financial statements.
In 1999, the SEC approved what amounted to a half-hearted effort to clean up the mess, by ordering that the OTC Bulletin Board cease providing quotes for any companies that had not begun filing timely financial reports to the SEC.
But this in fact accomplished nothing, since the heart of the problem - market manipulation by unscrupulous Nasdaq traders - remained completely unaddressed.
By 2000, the man who headed the National Association of Securities Dealers at the time, Frank Zarb, had gotten the bright idea that Nasdaq could cash in on the IPO boom by itself going public.
But the SEC stipulated, as a condition of doing so, that the OTC Bulletin Board be reformed into an actual exchange, with minimum listing standards and regulatory oversight to reduce volatility and to weed out the swindlers.
Thereafter, the IPO and tech bubbles popped, and Nasdaq has been knocked on its keester. So Nasdaq's new man, Robert Greifeld, has pulled the plug on the IPO idea, as well as Nasdaq's plans to turn the OTC Bulletin Board into an exchange.
What a travesty.
HERE are a few of the stocks that have made news on the OTC Bulletin Board in recent days. They are typical of what has been going on there for years now, and Nasdaq's decision to abandon reform of the market means the future promises more of the same.
* TheGlobe.com Inc.: The granddaddy of all IPO bubble stocks. This dot-com trash stock soared 1,000 percent, to $97, in its very first trade as a public company five years ago, only to collapse back to 10 cents and insolvency and be ejected onto the OTC Bulletin Board in the tech-wreck that followed.
Though TGLO's revenues continue to shrink and its losses, which cumulatively top $218 million, continue to soar, the stock rocketed from 10 cents to $2.50 per share in this spring's stock market rally. In the last two weeks the price has predictably collapsed, plunging nearly 50 percent in value as pump-and-dump speculators have cashed in and fled the shares.
* EChapman Inc.: This Baltimore-based money management firm was dumped last summer from Nasdaq onto the OTC Bulletin Board, where it continued to trade. Last week, federal prosecutors charged the company's founder and controlling shareholder, Nathan Chapman, with 39 counts of securities fraud for using $5 million of Maryland state pension fund money to prop up his company's stock price on the market, and for gifts and financial support to various women.
Since going public in the spring of 2000, EChapman shares have plunged from $9 to two cents.
* Wizbang Technologies Inc.: This hilariously named company, based in Victoria, B.C., claims to hold a license "to distribute various high-tech products that are used to record information transferred from distant sources like aircraft and satellites." The company has no employees, less than $10,000 in balance sheet cash, and less than $83,000 in annual income.
But the stock is traded on the OTC Bulletin Board, where it tripled in price, to 15 cents per share, two weeks ago, giving the company a market value of $1.5 million on a business that, for all practical purposes, appears not to exist.
* Shep Technologies Inc.: This Vancouver, B.C. penny stock claims to have a technology that powers cars by capturing the energy released by slowing them down.
The "go-by-stopping" company, incorporated in the Isle of Man, has $4,000 in cash and one employee. Yet between June 10 and 24, the company's stock soared from 75 cents to $3, giving Shep Technologies a momentary market value of more than $60 million. At that point, an avalanche of stock was dumped onto the market, causing the price to fall by nearly 50 percent from Wednesday to Friday of last week.
* Even Nasdaq itself trades on the OTC Bulletin Board. The group issued shares in itself in private placements to NASD members and others beginning in 2000, and those shares have been quoted on the OTC Bulletin Board ever since.
After falling almost without letup last year, from $16.50 in July 2002 to barely $5 this last April, the shares have inched back up to $8. And last week they were up again, to $8.25 per share, as news began to spread that the exchange isn't about to do anything so silly as to waste its money on draining the swamp where its very own shares have begun to recover.
Bottom line for the folks who run Nasdaq? Maybe it's a bit much to ask anyone on Wall Street to "hug his customer." But if they can't follow the advice of Jack Mitchell, whose Connecticut clothing store is the go-to haberdashery for half the CEOs on the Fortune 500, then maybe they can at least refrain from issuing baloney-packed press releases that insult the intelligence of anyone who reads them.
If you can't hug your customer, at least don't spit in his face.
* Please send e-mail to: cbyron@nypost.com |
