MSNBC Article Talks about Organized Crime Involvement .......
Ever wonder why so many of these internet plays are run out of the the favorite retirement location for east coast organized crime scam bosses, ie. southern Florida .......? The MSNBC article does, as does the SEC. Something to think about over the long Holiday weekend.
msnbc.com
Here's the text of the article from the link above:
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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.
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
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.
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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I'm also beginning to wonder about all this also. God help us all eventually.
George
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