Compliments of Marion
Very truly yours,
Glenn D. Rudolph
FAX 814 337-0754
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From: MarionsutS@aol.com
To: grudolph@toolcity.net
Subject: Story- be wary of stocks puffed on the net
Date: Sun, Jul 12, 1998, 6:45 PM
Be wary of stocks puffed up on the Net
By Humberto Cruz
SYNDICATED COLUMNIST
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<Picture>Wall Street analysis from Harvard Equity Research has issued a STRONG
BUY recommendation on (fill in the blank) stock. Dick Meredith was quoted as
predicting a $22 to $25 price near-term with a "high probability of a $35-$40
stock by the end of the year."
Harvard Equity Research is so confident of their projections that they are
offering their subscribers a money-back guarantee on their subscription if
(fill in the blank) doesn't at least double within the next year.
To reiterate: an IMMEDIATE & STRONG BUY recommendation on (fill in the blank).
If you are interested in this tip -- and the name of the stock, of course --
you just confirmed the worst fears of securities regulators trying to warn
investors about online fraud.
"Many investors have been chasing inexpensive stocks, driven by hype, high-
pressure sales and Internet promotion," said Mary Schapiro, president of NASD
Regulation, the self-policing arm of the National Association of Securities
Dealers.
The tip from Harvard Equity Research is just one of many the company and
others have been posting on Internet chat rooms and sending via junk e-mail to
thousands of computer users, including subscribers of America Online.
No matter which stock is being touted, the pitch from Harvard Equity Research
is the same, word for word. The price predictions are adjusted to reflect the
current price of each particular stock.
And the person who is "quoted" -- never identified by title -- can be "Dick
Meredith" one day, or "Robert Renquist" or "William Rambo" the next.
Problem is, nobody seems to know who Meredith, Renquist or Rambo are, let
alone Harvard Equity Research.
Regulators don't know, and even officers of the companies whose stocks are
being touted have disavowed any knowledge or connection. Harvard Equity
Research is not registered as an investment adviser, and the address it gives
-- always only a post office number -- bounces all over the place from Toronto
one day to Geneva, the Seven Mile Beach on Grand Cayman and back home at
Cambridge, Mass.
That's the home of Harvard University, but don't be misled into thinking
Harvard Equity Research has any ties to the Ivy League school.
"We take an extremely dim view of somebody abusing the good name of the
school," said Alex Huppe, director of public affairs at the university.
"Whatever this company is, it has nothing to do with us."
Company proves elusive
Nor can the claims of publishing a "top-rated" newsletter be substantiated.
"Your suspicions are right, I never heard of them," said Mark Hulbert, whose
widely followed Hulbert Financial Digest sets the industry standards for
tracking the performance of investment newsletters.
In my search for Harvard Equity Research, I wrote to a couple of the post
office box addresses more than a month ago, but never got a response. I also
checked, without success, with members of news.admin.net-abuse.email, a
newsgroup set up by owners and operators of Internet service providers to
combat junk e-mail. But why should I be able to find the company, if federal
regulators can't?
"We don't know who Harvard Equity Research is, or why anybody would be
interested in their recommendations," said Randall Fons, regional director of
the U.S. Securities and Exchange Commission in Miami.
Regulators worry that many people are interested, however. The Harvard Equity
Research postings direct users to legitimate Web sites with links to online
brokers. The assumption by regulators is that the people behind Harvard Equity
Research are buying a stock and pumping it up, hoping to drive the price up
and sell it at a profit.
One of the stocks hyped -- the one I referred to at the top of this column --
rose from $14 to $16.50 immediately after the "strong buy recommendation"
before plummeting to $9.38 the next month and sinking as low as $3 recently.
"You really have to ask why anybody would be recommending some of these
stocks," said Cameron K. Funkhouser, director of market regulation for NASD
Regulation. Most of the stocks touted by Harvard Equity Research -- and many
others hyped online by others -- are "microcap" stocks of small companies
selling at very low prices.
These stocks pose special risks, including lack of liquidity. You may find few
takers when you want to sell, and may be forced to lower your price
drastically.
To combat microcap fraud -- one of the biggest concerns of securities
regulators today -- the NASD has approved a rule requiring brokers to review
current financial statements of a company before they recommend it. Brokers
also must disclose, in writing, the risks of investing in microcap stocks. The
rule still has to be approved by the SEC.
'Greed impairs judgment'
But no rule will help those who buy and sell stocks online on their own, a
growing group of clicking investors estimated at more than 4 million.
"I worry about that kind of trading," Schapiro said at a training session for
securities regulators in Fort Lauderdale, Fla., last month. "Many investors
don't stop and think."
Two days later, at a hearing in Washington, D.C., before a House Commerce
subcommittee, lawmakers and industry leaders also bought up the problem of
Internet fraud. Joseph Fox, chairman of Web Street Financial Group,
recommended that penalties be tightened, and urged closer scrutiny by
regulators of online investment "chat rooms" linked to brokerage firms. The
chat rooms "may be used for the purpose of hyping a particular stock, due to
the anonymity of chat room participants," Fox said.
New technology by NASD Regulation, called NetWatch, allows the agency to
monitor how often a company is being recommended on Web sites and online
discussion groups. "But surveillance is that, surveillance. It's not going to
tell you how bad the bad guys are," Funkhouser said.
So ultimately it's up to us to use common sense."Greed," Funkhouser wisely
observed, "impairs judgment."
*
Send questions and comments to Humberto Cruz in care of Tribune Media
Services, P.O. Box 4410, Chicago, Ill. 60680-4410. |
