There just OLI Rubes. They figure that if the longs ar dumb enough to buy ZSUN they should like up in droves to sign up and pay $3,000 for a infomercial stock training seminar that gives them the hope of making a killing in the market. Wade Cook and Charles Ponzi would be proud of OLI.
Wading In
The Stock Detective sits in on a Wade Cook freebie
and hears the pitch that's snared thousands while
making Cook millions
By Lynn N. Duke, staff writer
What would convince you to max out a credit card or two, dip into your savings or perhaps raid your retirement funds? The health of a loved one at stake, a lightning strike to the AC in July? Still thinking?
How about gambling? Better yet, how about gambling on investment gimmicks proffered by someone who's being investigated by three states' attorneys general and the federal government?
Oh, a tad shy now? What if you get a guarantee that you'll be able to make a 300 percent annualized return in 90 days on just three trades. PLUS a money back guarantee. AND proof that the whole thing is child's play.
Uh, huh. Now they've gotcha.
Attendees at the free "bait" seminars Wade Cook Financial ( OTC BB: WADE) hosts across the country generally hear this "borrow against your better judgment" pitch escalate throughout the three-hour program, until they are almost shamed into taking on debt in order to make Wade Cook a little richer.
The free sessions are designed to whet investors' appetites for what are billed as two-day, money-making orgies. Cost: $4,000-plus. These get-rich-quick testimonials come from a walking gallery of "success stories", some of whom seem to be operating somewhere between the golly gee of Gomer Pyle and the foppish erudition of Frasier Crane.
But what they don't tell their wide-eyed audience about is the rainbow of investigations into Wade Cook's operations. Nor do they 'fess up that Wade Cook Financial's own trading account lost more than $800,000 last year using the same methods they're being asked to risk their retirement or their credit rating to learn. And while Wade's minions are hawking the benefits of borrowing tax-free against retirement plans, they leave out the fact that those funds have to be repaid…..with interest.
Kiman Lucas, general counsel for Wade Cook Financial, explained away the $800,000 loss, and denied that speakers are trained to encourage investors to run up their credit cards in order to attend a Wade Cook workshop. "They're independent contractors," Lucas said. "They have a lot of latitude."
Lucas said most of the $800,000 loss can be attributed to unrealized losses. These are losses on paper only, since the stock or option had not been sold at the time accounting was done for the 10K. The rest of the account's loss was an aggregate of losses from trading accounts set up for live examples during seminars that were never cleaned up. These accounts often ended up with options in them that expired worthless, ending up as red ink. That system has been changed, Lucas said, and accounts used during seminars are now more closely monitored.
Despite the red ink, Wade Cook Financial Corporation has taken in a lot of money through these seminars. Last year, 400,000 people attended seminars in 379 cities, ringing up $100 million in gross revenues. That's equal to more than 90 percent of the income earned by its 16 subsidiaries combined. And it's almost triple 1996 sales, and more than a 10-fold increase compared to 1995, when the seminar business took in a mere $7 million.
Although there are signs Cook's empire may be crumbling, you'd never know it by sitting in on one of his freebies, where even veteran traders said they learned a trick or two.
Patience, common sense and other myths
"Buy low and sell high: that's the common theory on how to make money in the stock market," Patrick James told a curious group recently in Orlando. "I'm going to show you something today that defies gravity. Something that turns the stock market into a cash machine, and you don't even need an ATM card."
James, a thirtysomething father of three, ex-teacher, ex-insurance salesman, starts his aw-shucks gambit by telling investors that two years ago he didn't even know what the stock market was. "I didn't even know who Dow Jones was," he quips, as he gears up for the initial soft sell.
To hear James tell it, he suffered before becoming a Wade Cook convert. Sure he attended the free seminar, just like they were sitting in now. And he was savvy enough to spread the cost of the Wall Street Workshop onto two credit cards, 'cause he barely had grocery money, never mind a couple a grand to stake his future.
But the workshop came with Wade Cook Financial's infamous, ambiguous guarantee: Wade Cook Financial "shall find during your Wall Street Workshop, or within 3 months afterwards, at least 3 transactions earning a 300% annualized return."
But poor Pat, he didn't open a brokerage account BEFORE attending the Wall Street Workshop. So he just had to sit by and watch as all his classmates allegedly made small fortunes in those two days just by mimicking the workshop leaders' trades.
"After I got back from the Wall Street Workshop, I did whatever it took to open a brokerage account," James confided to his new found flock. "You can make excuses, or you can make money, but you can't make both."
Lucky Pat. In just one month, he'd made $7,000; after four, he'd grossed $84K, and prepared to quit his day job. All by following Wade Cook's "strategies." Strategies that he was willing to share, for free on that balmy Friday in Florida, because he's got a big heart.
According to Pat, he made $52,000 in the stock market in September. Way more money than you can shake a stick at, so what was he doing in an Orlando Sheraton less than a week before Thanksgiving?
"It's fun," James said in an interview during a break. "If it wasn't fun, I wouldn't do it." Wade Cook Financial does not pay seminar instructors a salary, but they do get a percentage of whatever they sell, and all their travel and accommodation expenses are paid by the company.
James later told possible workshop enlistees that it was a higher calling that took him away from his counting house and into their lives. "I don't know why God chose me, but I feel like the most blessed person in the world," James said to the open room. "And if you do it, it will bless your life ten-fold."
Child's Play
During the free seminar, James wowed his audience with brief glimpses of his own brokerage account balance. And he pulled the workshop net tighter as he walked them through a series of fairly complicated, and often risky, successful trades that he'd made writing covered calls, trading options and Wade's signature "strategy", rolling stocks.
Now writing covered calls can be one of the most lucrative games on Wall Street, but generally you need a $10,000 to $20,000 stake to get started. That puts it out of most peoples' price range. James made trading options look easy, although experienced traders know the pitfalls loom large.
In order to profit from "rolling stocks", investors have to identify them. A rolling stock is one that consistently moves up and down between two points, so that its graph looks like a roller coaster. The best way to find these stocks is by subscribing to Wade Cook Financial's "network", WIN (wealth information network), according to James.
WIN is almost a necessity for anyone who rises to the Wall Street workshop seminar bait. Remember the guaranteed three trades posting a 300 percent annualized return in three months, or your money back? Well, the only place you can get the information to make those trades is on WIN. Annual subscriptions to WIN run about $2,000, but are often folded into the workshop package, either to hide the true cost or to make people think they're getting a better deal - you decide.
As the seminar started winding down, James knew time was running out to close some deals. So he stooped, stooped lower than most people would imagine: He pulled out the kids. Not pictures from his wallet, even worse. James used his two oldest children as examples of how simple Wade Cook's system is. According to James, his nine-year-old and seven-year-old had made $79,000 and $72,000 respectively since Jan. 1 by using Wade Cook's "strategies." Each child has a custodial account with a discount brokerage, their father said.
So, come on, surely you're as smart as a second-grader?
Then there's the issue of the IRS. Early on, James told his audience that they should incorporate themselves, for a number of reasons, including tax purposes. Although the Wall Street Workshop is the big sell, James tells listeners they can attend that for free, if the "buy" the BEST (basic entities skills training). The BEST seminar, he says, tells them how to keep the money they earn in the market through tax strategies. Since it's tax related, the cost of the BEST seminar could be deducted from their taxes, if they incorporated, as a business expense. While that was pretty much the end of the incorporation talk, it wasn't the last time investors heard about the seminar as a tax write-off. James dropped that hint several more times during his presentation. So it's easy to understand why some people sign up for the seminar, at several thousand dollars a clip, thinking that they can write it off, but forgetting the tidbit about incorporation.
Without that Inc. on the end of your name, forget about the deduction. According to IRS publication No. 529 you are allowed to deduct the cost of tax preparation fees, including the cost of software and publications (scroll almost all the way down). But that's it. Investment seminar deductions are expressly prohibited, in IRS publication No. 550. Even fees for counsel on tax preparation are limited to whatever exceeds 2 percent of your adjusted gross income, according to IRS rules.
But let's go back to that guarantee. Many people never actually read it in print, they only hear it bandied about in between overhead slides of Pat James' phenomenal confirmation tickets from his broker. But listen closely and you'll realize that all that Wade Cook is guaranteeing is that he'll share information with you.
Cook's organization promises to show you proof that they will successfully complete three trades with a 300 percent annualized return within three months of the workshop you attend. Those trades could take place during the workshop. And it promises that you will have access to the same information (if you have a subscription to WIN), but there's no hand holding involved, Lucas said.
"You will get a letter from us that says 'here's a copy of three trades that were successful for us since the Wall Street Workshop you attended'," Lucas said. "But it's not for you to copy me, it's to show you that it can be done."
However, what they don't tell you about are all of the other trades (of which there are likely dozens, perhaps hundreds) made during that same period that got either much less spectacular returns or even lost money.
As for the money-back guarantee, well, there are plenty of people out there who have not gotten their money back and that's what some of the state investigations are examining. At least one state, California, forced Cook's organization to allow a 7-day cancellation period for consumers there. Since that decision, the 7-day cancellation period has become company policy. But that is only during the seven days following the date you sign up for the workshop. Not after you attend.
Lucas said if people are unhappy after the workshop, they try to work with them by offering other products to help them get the most out of what they earned. As for getting their thousands back from enrollment fees? Not likely.
"If we don't deliver on the three trades in three months, we would refund their money," Lucas said. "But that's never happened. There's never been a time when we didn't complete three of those trades within 90 days." According to Wade Cook Financial's last 10K, refunds in 1997 equaled about 2 percent of sales.
Family Feud
All of the turmoil swirling around Cook from the state and federal investigators, as well as unhappy customers, didn't seem to have much effect internally, until recently.
In October, John Childers resigned from Wade Cook Financial's board of directors, after he was fired as a national speaker trainer. At the time, Childers was the company's second largest investor, with 1.1 million shares. Since then, according to SEC documents, Childers and the rest of his family have registered to sell slightly more than 1.1 shares of restricted Wade Cook Financial stock, valued at $857,700.
Childers also has agreed to cooperate with the Washington State Attorney General's office in its investigation of Cook's enterprise for possible securities fraud.
Lucas said Childers was not fired, that as an independent contractor, he worked pretty much at the whim of Wade Cook. When Cook decided he wanted to take on more of the day-to-day training chores, there was no need for Childers, Lucas said. And she said Childers' conversations with the state's securities office were no surprise.
"Everytime someone leaves Wade Cook Financial, Washington State Securities division calls within a day or two," Lucas said.
That office hopes to issue a cease and desist order by Dec. 31, which would prohibit Cook's organization from violating Washington's securities laws. The specifics of those alleged violations are will not be known until a complaint is filed, according to Rex Staples, lead attorney on the Cook case from the Washington State Securities office. But on issue being explored is whether Wade Cook is being truthful about his trading record, according to Deborah Bortner, director of securities, in Washington's department of financial institutions.
In the meant time, the seminars continue. By the end of his three-hour spiel, Pat James had enticed almost half of the 50-plus audience to sign up for the two-day, hands-on workshop. "A person with experience is never at the mercy of a person with a theory," James said, pushing harder for workshop contracts.
When asked about the various investigations into Wade Cook Financial, Pat James pleaded ignorance and moved on, tightening his grip on this group of seemingly well educated, fairly sophisticated investors. Playing on their insecurities and the innate, human desire to get rich quick. |
