Jersey boy was caught by securities regulators in 2000, after he racked up profits of hundreds of thousands of dollars in a pump and dump scheme. The kid, who became the envy of a lot of other teenagers for his prowess, bought shares of lightly traded companies and then promoted them with hundreds of messages on Internet bulletin boards. When they soared, he bailed out. He was the youngest stock swindler the government has ever come across, but I fear he won't be the last. When asked why he did it, he said, "Everybody does it."
Part of the problem is that greed obscures judgment. Even though it makes no sense to risk your savings on unknown people who call you up or post messages on online bulletin boards, otherwise intelligent people seem to do just that with outright fervor. Here's my favorite illustration of how ridiculous it can get. In 1994, the Motley Fool, a popular personal finance website, concocted a fictitious stock as an April Fool's joke. They mentioned a company, Zeigletics, in their newsletter, and said it developed technology that connected sewage disposal systems in Chad and traded on the Halifax Exchange. Almost at once, messages turned up on financial bulletin boards discussing the merits of the company, and people actually tried to buy shares in it.
CAPER CRUSADERS
It's astounding how far a con artist can take a securities scam. No matter how outlandish the pitch, there are investors who swallow it. Two New Jersey scam artists collected nearly $2 million by promising safe, high yields investing in wishing wells that solicited money for charity. In another case, a bunch of people saw no reason not to invest in an eel farm. If this seems far-fetched, it isn't. The animal kingdom is actually quite well represented in the scam world. There are schemes centered on snail ranches and ostrich stud farms. There was an ostrich farm in Australia where the ads claimed, "The birds just won't stop laying." A coconut production business in Costa Rica was promoted on a website. The promoter said he had agreements with A&P for coconut chips.
A popular fraud has to do with selling "U.S. Dollar Bonds." Scamsters who market them spin colorful tales of how they were issued in the 1930s and 1940s by the Central Intelligence Agency (CIA) to assist Chiang Kai-shek in fighting the communists. The way they tell it, the bonds were buried in caves by his generals and their descendants, and then lay there untouched until they were recently discovered; now you can buy them for just a fraction of their face value. The con artists print up official-looking Treasury bonds that they sell, and people do buy them, often clients in China, Taiwan, and Singapore.
No such Treasury securities were ever issued, and they don't even look like anything the Treasury ever issued, as they often list the Ministry of Finance of the United States and the Washington Bank of America as their place of origin. Neither ever existed. Confront the con artists with this information, and they'll say, "Well that's the CIA for you, you know how they are."
There are many instances of criminals essentially creating a shell company simply to attract investors. One of the most ambitious was the infamous ZZZZ Best carpet-cleaner caper. This was the one where a teenage swindler named Barry Minkow truly constructed a house of cards. In 1982, when he was sixteen and living in Reseda, California, he began a rug-cleaning business in the garage of his parents' house. He called it ZZZZ Best. Friends admired his drive and lofty aspirations. The business always seemed prosperous, although in fact it lost money. But Minkow had thievery in his blood, and he raised capital to fund the business in ways that most corporations rarely consider. He orchestrated burglaries to collect insurance money. He forged money orders from a local liquor store. When customers paid with credit cards, he would add fraudulent charges to the accounts.
Feeling the need for a bigger arena, he created a fake appraisal company that purportedly arranged restoration work for insurance companies. A bizarre friend of his became the company's head. The fake appraisal company created fictitious paperwork indicating that Minkow's company had received contracts from insurers to restore fire-damaged buildings. Minkow used this fictitious business, confirmed by the appraisal company, to persuade bankers and investors to give him money. Out of thin air, he concocted endless contracts from insurance companies to tackle office buildings that had been devastated by fire