Wade Cook -- true colors...

From: Jeff Salisbury <jeff@csd.sdl.usu.edu>
Subject: Wade Cook -- true colors...
Date: Tue, 29 Dec 1998 15:58:37 -0700 (MST)
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Note: I've been a critic of Wade Cook for some time.  Here is a supporting
story...

The following story appeared on deseretnews.com on December 27, 1998, 12:00 AM
MST

========

Headline: Wall Street pitchman under fire

Subhead: SEC, others investigating his high-risk methods

Author: By Jake Batsell



The Seattle Times



SEATTLE -- The thousands of people who have turned to Wade Cook for investment
guidance might not be as keen to emulate his diet: He eats leftover Chinese food
for breakfast.

The Seattle stock-market pitchman sometimes heats up leftovers and eats them on
the way to the office, "just to remind myself to be a little bit strange all day
long."

"You don't ever get rich by being logical, sensible, orderly or reasonable,"
said Cook, 49, a former Tacoma, Wash., cabdriver and one of the nation's most
well-known hawkers of Wall Street advice.

Advocating short-term-investment strategies he says can command monthly returns
of more than 20 percent, Cook's company, Seattle-based Wade Cook Financial, runs
dozens of "Wall Street Workshops" from Seattle to Salt Lake City to Savannah,
Ga., at $5,695 a head.

Cook has built a loyal following -- his books are New York Times business best
sellers, and about 35,000 investors each day log on to his $2,995-a-year online
service, the Wealth Information Network. His various businesses generated more
than $100 million in revenues last year.

But Cook's rise also has spurred investigations by the Securities and Exchange
Commission and regulators in several states, including Washington. And his
high-risk methods and sales tactics have drawn criticism from stockbrokers,
investment advisers and a contingent of dissatisfied customers.

The Texas Attorney General's Office has sued Cook's company, accusing it of
deceptively promoting lucrative returns without also telling customers the
company reported a loss of more than $800,000 on its own stock trades last year.
The SEC and the Washington state Department of Financial Institutions are
conducting investigations, and the district attorney's office in Fresno County,
Calif., is seeking refunds for dissatisfied seminar customers.

Cook also has tangled with regulators in Arizona, where he filed for personal
bankruptcy in 1987 and two years later was charged with selling $390,841 in
unregistered stock in a host of small companies. He was fined $150,000 and
ordered by the state to return $320,000 to investors.

Cook shrugged off the government scrutiny in a recent interview at his company's
Seattle headquarters. "I kind of feel like it's Wade Cook against the world, in
a way," he said.

Indeed, Cook sees himself arming investors with the knowledge they need to take
charge of their own finances, instead of heeding the advice of stockbrokers and
investment advisers.

"We're trying to help individual investors do a better job of handling their
money, so they don't have to rely on all these big mutual funds that take all
their money and charge all these fees," he said. "We're trying to teach them how
to take control of their own financial destiny."

An LDS missionary to Japan in his early 20s, he sometimes quotes scripture and
applies it to financial themes. One of his books is titled "Business Buy the
Bible."

His investment philosophy is centered on a strategy he calls the "meter drop"
method, which he developed as a part-time Tacoma cabdriver in the late 1970s.

Cook spent only 13 months as a cabbie, but he considers the experience a pivotal
chapter in his life. He often refers to himself as the "cabdriver who took on
Wall Street."

Making runs across Tacoma in Yellow Cab No. 22 -- he still thinks of 22 as his
lucky number -- Cook reasoned that since he could charge customers about $2 just
to get in his cab, it was more profitable to make a number of short runs than
hold out for a few big ones.

While other drivers focused on long trips to the airport, Cook shuttled
passengers a few blocks at a time, making three times the fares of his fellow
drivers. He went on to apply the same principle to real estate, buying dozens of
small houses, fixing them up and reselling them for a quick profit.

Today, Cook and his instructors promote the "meter drop" concept for stock
trading, stressing numerous short-term trades that produce quick profits. One of
Cook's favorite techniques is what he calls his "rolling stocks" strategy: the
practice of repeatedly buying and selling stocks that fluctuate within a certain
price range.

Cook often refers to Motorola as an example of a "rolling stock." Cook said he
bought 100 shares of Motorola stock at $50 in 1987, when the stock was teetering
between $50 and $60. He then sold his shares when the stock reached $60, earning
him a profit of $830 after commissions.

When the stock dropped to $50 again, Cook bought more shares, which he sold
again whenever they reached $60. He continued this pattern with Motorola stock
for more than three years in the late 1980s, generating thousands in profits.

The terms "meter drop" and "rolling stock," coined and copyrighted by Cook, were
at the center of a copyright-infringement suit in Tacoma in September that
pitted Cook against Tony Robbins, the self-help guru known for his late-night
infomercials.

Cook accused Robbins of using the two phrases without his permission in one of
Robbins' seminars, "Financial Power." The jury sided with Cook, awarding him
more than $650,000.

During the trial, Cook revealed a combative streak much different from the
easygoing persona he conveys during his workshops. After the jury found in his
favor, Cook told Bloomberg News the verdict signified a "good day for the good
guys," called Robbins a "spoiled brat" and referred to state regulators from
Arizona as a "bunch of weirdos" and "creeps."

Cook also runs seminars in real estate, day trading and executive leadership,
but it's his investment advice that draws the most scrutiny.

His approach elicits skepticism among stockbrokers and investment advisers, who
say his descriptions of quick, exponential returns are unrealistic, especially
for novices.

"In the profession, there is no way we would be able to make claims like that,"
said George Robertson, a certified financial planner for Seattle's KMS Financial
Services.

The SEC prevents brokers from advertising prospective rates of return, but Cook
doesn't have to follow those rules. He's an educational speaker, not a broker.
He doesn't handle stock trades. While Cook and his instructors often single out
particular stocks as examples, Cook-trained investors must make their own trades
through their own brokers.

Though Cook's company has disclosed the government investigations in corporate
filings to the SEC, Robertson said the probes ought to be prominently mentioned
during seminars and in the company's promotional literature.

Cook "seems to be skirting a lot of the safeguards that have been set up
specifically to protect the public," Robertson said.

Cook says the notion he promises overflowing returns for all trades is
misguided. The strategies he advocates, he said, are intended to be applied to
only the small portion of an investor's portfolio reserved for aggressive
investing -- perhaps 5 percent of one's money.

Still, the clear emphasis of any Cook ad, book or seminar is on making fast
profits, not prudent long-term investments. The back cover of his best-selling
book, "Wall Street Workshop," says the book shows how to "double your money
every 2 1/2 to 4 1/2 months with rolling stocks."

In one of his videotapes, Cook relates the success story of a 13-year-old boy
who followed his methods. Starting with $2,000 that his father gave him, Cook
said, the boy instantly began making $400 to $600 a month and was recruited by
his father's boss to manage an $80,000 portfolio.

Not all of Cook's customers are as satisfied. The state of Washington's
consumer-protection office has a file of 65 complaints, mostly from customers
seeking refunds on seminars.

Customers cite substantial losses based on Cook's trading methods or complain
the seminars are conducted at a bewildering pace.

"The level of arrogance is astronomic once they get your money," wrote a Cook
customer from Destin, Fla., who had trouble getting a refund when he tried to
cancel a spot he'd reserved at a Cook workshop.

Regulators, in determining whether Cook's track record falls short of the
returns he advertises, first have to establish what his track record actually is
- -- an exercise that requires going through thousands of trades posted on his
online site.

Gauging the veracity of Cook's money-back guarantee is a murky undertaking. At
the workshops, the company promises it will identify three trades within three
months that will earn a 300 percent return if averaged over one year.

But the guarantee requires only that Cook's company provide information on such
trades. It's up to the investor whether to follow them, choosing from among
hundreds of trades in a three-month period. Cook said the company has never
granted a refund based on not fulfilling its guarantee.

Of all the government agencies scrutinizing Cook's record, the Texas Attorney
General's Office has been the most zealous. In the state's lawsuit, filed in
May, prosecutors point out Wade Cook Financial posted a loss of $804,000 on
stocks it traded in its own company portfolios in 1997 -- a far cry from the
gains touted in seminars.

"We feel they need to disclose their losses (to customers) and that the use of
these strategies has a high financial risk to it," Assistant Attorney General
Raul Noriega said after filing the suit.

Cook says the $804,000 figure is misleading, reflecting mostly stocks that
dropped in value but weren't actually sold. The Texas allegations are unfounded,
he contends.

Some recent departures from Wade Cook Financial's board may give investigators
insight into the inner workings of the company, whose stock trades publicly for
around 60 cents per share, down more than 80 percent from a year ago.

John Childers, a director and the company's second-largest shareholder, resigned
in October and agreed to cooperate with state securities investigators. Three
other directors have left their positions over the past year.

Childers reportedly has criticized Cook's handling of the company's finances as
the company has boosted marketing and operating expenses and added subsidiaries
in the hotel and oil industries.

Despite the investigations and complaints, Cook also has a vocal following of
supporters.

Paula Young, a mortgage banker from North Bend, Wash., said she has made about
$4,000 a month using the "rolling stock" technique she learned at a Cook clinic
in August.

"I was very impressed with a lot of (Cook's) strategies," Young said. "I feel if
you apply them properly and you're cautious, you should do fairly well. But
there's also a lot to learn -- you have to take time and go through a learning
curve. You can't just jump in and get rich overnight."



Distributed by Knight Ridder/Tribune Information Services. 

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Copyright 1998, Deseret News Publishing Co.




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