Read this very carefully folks , also a piece on IFLY ,, as to why I think it is a scumbag ,,
Net mania will burn down the Street
Momentum investing in Internet stocks has some shady
goings on, but market authorities are just dumbfounded
OPINION
By Christopher Byron
MSNBC CONTRIBUTOR
Dec. 29 — There are not many things in this life
that an investor in the stock market can be sure
about, but this is one of them: a riot has broken
out in Internet stocks, and it's spreading. I'll get
to the particulars of what happened Monday in a
minute, but first some thoughts on the wild,
free-for-all buying panic that has taken over the
sector
Are Net stocks out of control? Weigh in on the Byron BBS
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I, AMONG OTHERS, have been writing about the
developing speculation in Internet stocks for well over a
year now, and in that time we have seen this speculation
swell into a bubble and now into a full-bore stampede. It is
a riot that neither the Securities & Exchange Commission
nor the National Association of Securities Dealers has any
idea whatsoever how to quell — and with every day of
inaction the riot gets worse.
Stocks that used to take a month to double in price
now double in a week, a day, even mere minutes. There are
so many examples they hardly need citing anymore. Nor do
we need bother listening any longer to strained “new
paradigm” rationales for why price-earnings ratios don't
matter. We don't even hear anymore talk about
“price-revenues” multiples, and similar nonsense. Now all
that one needs to do in order to make a stock take off is to
put out a press release announcing plans for a Web site.
You don't even need the actual site — just the “plan” for
one will do well enough.
The criminal underworld is now spreading like oil on a
mud puddle throughout this whole mess. It is impossible to
escape the feeling that crimes like front-running — in which
a broker trades for his own account before submitting a
customer's order that he knows will move the market price
of a stock — are now rampant. Yet the scale on which they
are taking place is so vast that the cops just seem to stand
by dumbfounded.
Examples abound. Every day I talk to market veterans
who tell me stories of Wall Street figures who take secret
positions in stocks via Canadian and European brokerage
accounts, then tout the shares to their acolytes on the Web.
Some foreign exchanges seem to have sprung up expressly
to court this sort of activity. But no one in a position of
authority is doing anything to stop any of it.
In fact, there may well be nothing anyone can do, since
the combined buying power of retail investors on the
Internet has now engulfed and overwhelmed not just the
market policing apparatus of the regulators, but indeed the
whole of the stock market itself — in particular the
market-making system of Nasdaq, where the riot has
reached its most deafening decibel level.
In the process, more than a half a century of
scholarship and study into the nature of investment and the
theories of financial analysis have been trampled into the
dust. Remember the so-called “efficient market theory”? It's
the theory that holds that more or less everything worth
knowing about a stock is built into its quoted price in the
market — which in turn means, of course, that the best
investors are those best able to analyze the known facts. It's
the theory that explains, for example, why Warren Buffett is
a billionaire whereas Ivan Boesky — who stole information
about various stocks and traded on it before the information
could be reflected in the market — is now an ex-con living
quietly in France.
Yet what is now taking place on the Nasdaq stock
market in the name of “momentum investing” in Internet
stocks has thrown the efficient market theory out the top
window of a 50-story building. Investors in Internet stocks
need know only two things: (1) the stock's ticker symbol,
and (2) whether some day-trading guru they follow on the
Web says the shares are “going up.” What the company
actually does, doesn't matter. Whether it ever made a dime
(or ever will), doesn't matter. All that matters is whether the
chat rooms say it's going up.
This is a disaster developing right before our eyes —
for the markets, for investors, for Wall Street as a whole …
and unless it ends soon, it will prove a disaster for the
nation. Sadly, I fear that the end is nowhere in sight.
Some of the biggest and best-known firms on Wall
Street are in this oily vat up to their necks. They've all
plotted to game the system. Their favorite strategy: gin up a
2 million share IPO for some juvenile, no-name company,
then get a handful of momentum hedge funds to buy the deal
at $10 or $15 a share, hold it for an hour or two, then flip it
into the grasping, open hands of retail investors on the Web.
If market regulators thus want to do something really
useful for their pay, they could subpoena every trading
record, memo and document generated by Bear, Stearns &
Co. and its momentum-fund clients in theGlobe.com IPO
from Nov. 13th and ask some tough, no-excuses questions
as to how that smelly deal was priced by Bear at $9 when
everyone involved knew the stock's first after-market trade
would probably be north of $50. Within minutes after that,
the shares were at $97! Shame on them.
MONDAY'S MADNESS
theglobe.com, inc.
(TGLO)
price
change
$35.13
-1.875
800 Travel Systems,
Inc. (IFLY)
price
change
$13.06
-3.063
Active Apparel Group,
Inc. (AAGP)
price
change
$19.00
+7.500
SkyMall, Inc. (SKYM)
price
change
$40.75
+5.188
Data: Microsoft Investor and S&P
Comstock 20 min.delay
As for what happened on Monday, well, there's plenty
the market cops could look into there too if they only
would. I personally think they're too shell-shocked even to
try. A week before Christmas, I spoke to an SEC
investigator about the most recent Outrage of the Week —
evident games-playing in the shares of a Web-site operator
named Tel-Com Wireless Cable — and he said that getting
to the bottom of it would probably be too hard: foreign
brokerage accounts, and that sort of thing.
So I doubt anyone at the SEC or Nasdaq or anywhere
else will be rushing to ask why it was that an obscure
Nasdaq SmallCap stock named 800 Travel Systems Inc.
(IFLY) sold for $6.75 last Wednesday yet by 4 p.m.
Monday was selling for $16.12. This company, which went
public last spring at around $5 per share, quickly sank to
barely $1 in the after-market, and was still selling for barely
$4 as recently as Thanksgiving week. Then came Monday
when, for no apparent reason, the stock nearly tripled in a
day, on roughly 70 times normal volume.
Why? One good place to start looking for answers
would be the co-underwriter of the company's IPO: First
Liberty Investment Group Inc. The SEC investigated an
employee and a consultant of the firm, a microcap
underwriter, as part of a 1997 probe of penny stock
swindles. If that avenue leads nowhere, then investigators
might ask questions of at least one IFLY board member:
Pasquale Guadagno. Guadagno may be pure as the driven
snow in all this, and no evidence is known to suggest
otherwise. But he might have some helpful suggestions for
investigators since prior to joining IFLY's board he served
as a senior vice president of a now-defunct Boca Raton
swindle-shop, Euro-Atlantic Securities, that was expelled
from the National Association of Securities Dealers for
market manipulation and deceptive sales practices. Maybe
Pasquale has some thoughts on how IFLY got from $6.50
to $16.12 in a day.
Here's another company the feds might take a look at:
Active Apparel Group Inc., a direct mail retailer of sports
fashions for women. Between the start of the year and
Christmas Eve, this stock sank from $3.50 to $1.25 per
share. Then, on Monday morning at 7 a.m. ET — two and
one-half hours before the start of trading — the company
put out a press release announcing that it would begin selling
its wares over the Web. By noon the stock was selling for
$15.
Data provided by MSN Investor
It would be interesting to know if anyone associated
with the company — or who knew of the pending press
announcement — was among those who bought stock the
previous week, when an average of about 30,000 shares
per day changed hands. On Monday an unbelievable 15
million shares were traded — i.e., 500 times normal
volume.
The feds might also take a look at the trading in a
company called SkyMall Inc., another $2-plus stock for
most of the year. SkyMall sells consumer goods via
catalogues such as the ones you find in the seat-backs of
airplanes. On Dec. 9th the company announced that it
would begin selling its wares over the Web as well, and this
$3.80 stock became a $5.87 stock. Then, for no apparent
reason, on Monday SkyMall became a $35.50 stock on
volume of nearly 26 million shares; a week earlier daily
volume had fallen as low as barely 50,000 shares. Why?
Most press accounts have pointed to investor excitement
over reports that retail business was brisk on the web this
Christmas.
Be that as it may, it would be interesting to know
whether any of the Web chat room operators who were
touting SKYM on Monday were front-running their
recommendations.
AUTHORITIES REMAIN SILENT
The reason these questions are important is because no
one in a position of authority seems to be asking them. I
remember once, several years ago, visiting the NASD's
market surveillance operation and watching a large room full
of people do nothing but watch CNBC to see when Dan
Dorfman, the then Wall Street stock columnist, would come
on the air with news of some deal. When that happened,
everyone would sit bolt upright and instantly begin staring at
their computer monitors in hopes of detecting irregularities in
the trading that followed.
Nothing even remotely like that seems to be going on
now. But it should, before the fire that is burning through the
Internet sector consumes the whole of Wall Street. The
stock market is ablaze and the firemen are just gawking at
the spectacle.
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