Newsletter publishers and tip service operators have also run afoul of the SEC. Cabot was censured and fined in 1996 for delaying proper disclosure that it held a substantial stake in a stock, Presstek, that it had recommended. Cabot agreed to pay the fines without admitting or denying wrongdoing. And Payne's previous employer, a tip service called Traders and Investors Alert, was shut down in 1989 by New Jersey regulators for operating as an unregistered investment adviser. Its owner, Barry K. Davis, was later prosecuted for promoting stocks in which he had undisclosed positions; he pleaded guilty to federal fraud charges and served a prison term.
Payne says that he had nothing to do with the activities that got Davis into trouble, and that he steers clear of conflicts of interest in his own shop. But he, too, has had a collision with the SEC.
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Entrepreneur uses rumor mill, harvests market grapevine
James A. Anderson N.Y. Times News Service
NEW YORK -- It's 9 a.m., and rumor central is abuzz.
A few blocks north of the New York Stock Exchange, the gossip in chief, Charles Payne, is busy orchestrating a barrage of faxes and calls, putting out the word to subscribers of his tip sheet and stock-picking service, Wall Street Strategies.
The telephone lines are alive with the stuff that the brokers, day traders and institutional investors who pay Payne's bills crave: Tips on future mergers and stocks that seem ready to fly.
The rumor business is booming for Payne. More than 5,000 eager subscribers -- hankering for any tidbit that might make a stock squiggle -- will pay his company a total of $3 million this year for the goods.
The growing reputation of his service as a clearinghouse for Street skinny has brought Payne, 35, a fair amount of celebrity. Financial news cable networks call him regularly for on-camera appearances, making him perhaps the most visible stock picker since Dan Dorfman, the onetime USA Today and Money magazine columnist.
"If I could get him on every week, I would," said Susan Feltman, a senior producer of personal-finance call-in shows for CNNfn, who uses Payne regularly and who handled Dorfman's appearances on CNN in the mid-1980s. "The minute he's on, the phone banks light up, and all 20 lines don't go dead until he's gone."
Not bad for a former stockbroker who started his market newsletter eight years ago out of a one-bedroom Harlem apartment, and who until a month ago toiled in a cramped office that most Wall Street media stars wouldn't use as a cloakroom.
In the stock market, of course, gossip can be lifeblood. The seven-year bull market engendered a gold-rush mentality in some investors, a headlong, caution-to-the-wind chase after quick gains that recent slides in the market may, if anything, have intensified.
Such an environment, the thinking goes, turns the latest gossip, no matter how speculative, into a precious commodity; the first people to hear word of a possible deal can quickly take a stake and secure a profit from the later stampede, regardless of whether the prophecy comes true.
While there are many broker newsletters, few trade off the pipeline of whispers quite the way Wall Street Strategies does. Payne considers his competitors to be companies like Dorsey, Wright & Associates and Cabot Money Management, publisher of The Cabot Market Letter; those companies say they base their stock choices on technical and fundamental analysis, not rumors.
Stock picks and scuttlebutt have sometimes proved to be dangerous territory for journalists. The First Amendment's guarantee of press freedom does not exempt reporters from Securities and Exchange Commission regulations that prohibit the use of information to manipulate stocks for personal profit.
High-profile journalists like Dorfman and R. Foster Winans, formerly of The Wall Street Journal, have suffered career-wrecking consequences when accusations of manipulation have surfaced. Winans was convicted in 1985 of trading in stocks he knew were about to appear in The Journal's Heard on the Street column.
Dorfman was dismissed by Money in January 1996 after declining to tell editors about his sources for tips he reported about some stocks. Donald Kessler, a stock promoter and friend of Dorfman, and six others reported to be connected to the case have pleaded guilty to federal fraud and tax evasion charges related to stock manipulation. Regulators have not charged Dorfman with any wrongdoing and he has said he did nothing improper.
Newsletter publishers and tip service operators have also run afoul of the SEC. Cabot was censured and fined in 1996 for delaying proper disclosure that it held a substantial stake in a stock, Presstek, that it had recommended. Cabot agreed to pay the fines without admitting or denying wrongdoing. And Payne's previous employer, a tip service called Traders and Investors Alert, was shut down in 1989 by New Jersey regulators for operating as an unregistered investment adviser. Its owner, Barry K. Davis, was later prosecuted for promoting stocks in which he had undisclosed positions; he pleaded guilty to federal fraud charges and served a prison term.
Payne says that he had nothing to do with the activities that got Davis into trouble, and that he steers clear of conflicts of interest in his own shop. But he, too, has had a collision with the SEC.
According to commission documents spelling out the allegations, a Wall Street Strategies newsletter commented positively about the stock of the Members Service Corp., a Winter Park, Fla., holding company, at a time when one of Payne's earliest backers, Todd H. Moore, a public relations consultant and stock promoter, had a substantial stake in the company. Members Service ceased operations in 1994; in 1996, its former chairman and chief executive, Arthur S. Feher Jr., was convicted of securities fraud involving, among other things, issuing false press releases to bolster its stock price.
Payne's newsletter got in hot water after it recommended the stock of Members Service based on several upbeat announcements about the company's business prospects that later proved false, according to an SEC complaint, which also contends that Payne was paid $70,000 to promote the stock. Payne says that he did nothing wrong, but that he is in settlement discussions with the SEC because he wants to avoid protracted litigation. He contends that all he did was repeat what had already been reported in the company's news releases. His lawyer said Payne denies the allegations concerning the $70,000 payment.
Payne says his service processes a lot of gossip but does not deal in mere hearsay. The majority of tips that come in to his 27-person office are not passed along to clients, Payne said, and he personally vets the ones that do make the cut, looking for unusual trading action in the stock or tips from multiple sources.
Payne said he originated most of his stock picks based on market observations, not tips; only 10 percent, he said, come from researched rumors.
But it is the rumors that attract attention. Speculative items about some 40 to 50 deals a week show up in his reports, each graded with Payne's assessment of the likelihood of its coming true. (On his scale of 1 to 10, a 5 or 6 means "food for thought;" a 10 means he thinks the ink is all but dry.)
Wall Street Strategies offers the tips, picks and observations in several packages ranging from a monthly newsletter to twice-daily faxes to calls alerting subscribers when there is a hot item to pass along. Fees range from $2,500 to $15,000 a year.
Payne is proud of some of his more spectacular hits this year. On Aug. 3, two tips he had given the previous week about takeover targets panned out: Shares of American Stores, a grocery chain that announced a deal to be bought by Albertson's, and Stratus Computer, which said it would be bought by Ascend Communications, both shot up to the low $30s from the low $20s that Monday.
Payne has also had some stumbles. For example, he added Sovereign Bancorp to his recommended list several months ago on the strength of what he thought was a hot takeover rumor, when Sovereign's stock was trading around $19. But no deal has been announced, and the stock has languished, closing on Friday at $12.375.
Copyright 1998
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