Re:Fast-trades - CNBC
msnbc.com
Web site raises question of conflict
Fasttrades.com
touted “hot”
stocks — and
traded them too
Massachusetts investor
Charles Wilson says he lost
$10,000 trading a stock
touted on fasttrades.com
Web site.
By Ward Lassoe and Garrett Glaser
CNBC
April 9 — With the explosion of Web sites touting
the next hot stock, many investors may be
surprised to learn that the people making those
recommendations are sometimes buying the stock
themselves just before they tout it — and then
jumping out just as the price rises. CNBC's
Business Center began looking into a stock touting
site weeks ago, only to see the site shut down
suddenly with no explanation. Now investors and
regulators are looking more closely at what some
say is a blatant conflict of interest, and may even
be outright market manipulation.
CHARLES WILSON is a Massachusetts father of three
who considers himself a savvy investor. He's made several
hundred online trades in recent years. But earlier this month,
he says, he got burned.
‘We're not
investment
advisors. “We're
just a group of
individuals who
profile
undervalued
stocks.'
— DOUG COLT
fasttrades.com
Wilson began visiting a Web site called fasttrades.com.
The site recommended a new stock each week — usually
one trading at a very low price. Fasttrades.com hyped the
upcoming announcement of its picks all week. Then, as
soon as they released the name of the stock, the price took
off. The spike was usually short-lived, but Wilson decided
to give it a try.
“I thought if I come in at two bucks or even four,” he
said, “if you double your money and get out quick, it looks
like you could do that.”
One stock was American Education Corp. (Symbol:
AEDU) selling for about $2 a share. Wilson says he jumped
in to buy 2,000 shares. But because trades on the Internet
are not instantaneous, as he waited for a confirmation of the
market order from his on-line broker, he says, the stock
price took off.
“A couple of minutes go by and I'm still getting real
time quotes,” he said.” And I'm seeing the stock in the
sevens. And I get an execution at 10. Which means I spent
$20,000.”
Wilson had expected to spend only $4,000.
“I figured right away, sell it right back,” he said.
But it wasn't that easy. By the time the sell order was
executed, the price had dropped to $5 a share. His total
loss: $10,000.
That costly mistake got Wilson to wondering: who was
making these picks? On what basis? And were they making
money at his expense?
Until recently, fasttrades.com
hosted a site touting "hot"
stocks. Today, the site lists
several dozen domain
names for sale -- including
fasttrades.com.
In fact, fasttrades.com stated what it did on its Web
site, though you had to scroll down to find it.
In a disclaimer, fasttrades.com acknowledged that its
representatives may, and in many cases do, invest or hold
positions in the companies profiled. And it said they may
buy or sell the securities at any time.
‘Most people
should raise a red
flag and say,
“Wait a second.
What does that
mean about the
quality of the
advice. Is that
advice biased? Is
there a hidden
agenda behind
it?”'
— NANCY SMITH
Securities & Exchange
Commssion
Is that legal?
“I don't know what else that company is doing,” said
Nancy Smith, Director of Consumer Education at the
Securities & Exchange Commission. “So I can't speak to
that specific example. But most people should raise a red
flag and say, ‘Wait a second. What does that mean about
the quality of the advice. Is that advice biased? Is there a
hidden agenda behind it?'”
The SEC says it's not illegal for the representatives of a
Web site simply to trade a stock they're touting, but such
activity does becomes illegal when it involves price
manipulation. The hard part in such cases is proving intent.
“If someone is trying to profit by making a specific
recommendation,” said Smith, “and they're trying to move
the price of that stock in a particular direction and profit
from it, that's where you get into the area of fraud and illegal
behavior... First of all, for investors, they should be thinking
about ‘How do I protect myself in the marketplace?'”
POLICING CYBERSPACE
Phil Aidikoff is a Los Angeles attorney who represents
aggrieved investors.
“The SEC is doing the best job they can, but it's a
question of resources,” he said. “There are hundreds of
thousands of online trades a day. So there's a question of
just how many cyber police can be hired to deal with this
problem.
There were no names on the fasttrades Web site, but a
quick check shows the site is registered to a Doug Colt in
Colorado Springs, Colo.
Business Center contacted Colt, but he declined an
invitation for an on-camera interview.
“We're not investment advisors,” he said. “We're just a
group of individuals who profile undervalued stocks.”
He declined comment on whether the fasttrades Web
site constitutes market manipulation.
“I'm really not comfortable talking about that,” he said.
“It's such a hot topic right now.”
Too hot perhaps? Today, fasttrades.com is no longer
touting stocks: it lists a few dozen domain names for sale —
including fasttrades.com. After Colt's conversation with
Business Center last week, fasttrades' site suddenly
suspended operations. A message on the site says it hopes to
be back online as quickly as possible. Business Center was
unable to reach Colt again to find out just when that would
be.
But in the initial interview, Colt did say that he sold
16,000 shares of American Education Corp. during the
stock's brief price spike on the same day the company was
touted on his Web site. That's the same stock that cost
Wilson $10,000.
Colt maintained that the sale “didn't make a blip because
millions of shares changed hands that day.”
BUYER BEWARE
No regulator has said fasttrades.com broke the law or
manipulated a market, but those familiar with stock fraud say,
buyer beware.
“Investors should be aware that when they see a
disclaimer like that, it's a red flag informing them loud and
clear that that's exactly what's going on,” said Aidikoff.
The SEC reportedly is investigating some stock chat
Web sites. They've requested the trading records for the
operators of tradingplaces.net, for one. The Wall Street
Journal has reported that the agency is also looking into
daytraders.com. The issue is whether the site has accepted
compensation from the companies it's touting.
Daytraders.com says they have nothing to hide and say such
scrutiny helps the industry. And unlike fasttrades.com,
daytraders.com strictly prohibits its staff from trading the
stocks it's recommending.
“Our view is that it's a gross conflict of interest to have
that going on,” said Ray Johns, president of
daytraders.com. “It gives everybody kind of a bad name. I
think it's time that the SEC does take a look at it. I think it
will be good for the entire industry.”
MESSAGES TO MILLIONS
At the heart of the problem is that just about anyone
with a computer and a few bucks can set up a Web site.
“If a manipulator wants to get out a message to a lot of
people,” said Kenneth Kramer, a New York securities
attorney, “all they have to do is type it and it's available to
millions of people instantaneously.”
The SEC has just over 100 lawyers looking for fraud in
cyberspace. The agency warns it's up to investors to be on
their guard.
“There can't be a securities cop at every Web site at
every moment,” said Smith. “So investors need to take
precautions when making investments.”
But experts say a few high-profile prosecutions will go
a long way.
“While they can't police everyone who comes on and
touts a stock,” said Kramer, “bringing enforcement actions
in certain areas and developing publicity around them will be
a very effective way of telling people they can't do this.”
A LESSON LEARNED
Wilson says he's certainly learned a lesson.
“When it looks like it's too easy,” he said, “it's never
that easy.”
The bottom line advice from the SEC. about short term
trading on the Web?
“Don't do it unless you're prepared to lose all the
money you put into it,” said Smith. “It's very risky. It's no
place for amateurs.”
For more tips on Internet trading, visit the SEC's Web
site at www.sec.gov. |
