56 ATaleofTwoMarkets
the kind lots of 2000s maniacs salivate for: no earnings and no rev-
enue, though most of them also had no continuing operations. In a
number of other cases, spammers disguised the sender of e-mails to
make it look as if the recipient were reading an internal memo at a
major investment banking house containing “inside” information
about various stocks.^7
It has always been true that “tips” are suspect—whether from
your neighbor across the bac kfence, your hairdresser, or your den-
tist. The great investor Phil Carret advised avoiding them like the
plague;^8 an astute chronicler of trading markets, Edwin LeFe`vre,
stingingly observed that “Wall Street professionals know that acting
on ‘inside’ tips will brea ka man more quic kly than famine, pesti-
lence, crop failures, political readjustments, or what might be called
normal accidents”;^9 and Ben Graham was terser: “Much bad advice
is given free.”^10
What is different about the new tips is that more people create
them, more people hear them, and more people act on them than
ever before. When adapted for the Internet, not only do classic fraud
schemes dramatically enlarge the number of possible victims (and
the dollar receipts of the perpetrator), when peddled on many fi-
nance bulletin boards and chat rooms they can carry special weight.
This is the case because these boards and rooms often create a spirit
of camaraderie among their users that generates trust in other par-
ticipants and what they have to say.
The most classic scam being adapted to the Internet is the pump-
and-dump, and it has been going on for many years. As early as
October 1996, for example, a pumper bought shares of Omnigene
Diagnostics for around $1 each and then posted a slew of pretty
much identical lies on AOL boards saying that the company was hot
and sales were growing rapidly. The stoc ksprinted to nearly $7 in
about six weeks, whereupon the pumper dumped the stock for an
illicit but huge gain. The lies were dispelled when an employee of
Omnigene announced on the company’s own Web site all sorts of
operational and financial problems. The SEC ordered a halt in trad-
ing of the company’s stock. When it later lifted that halt, the stock
traded bac kbelow the $1 a share it had been resting at before the
pump-and-dump.^11
A more recent pump-and-dump example began one Friday after-
noon in late November 1999, when three Beverly Hills twenty-
somethings bought fifty thousand shares of a bankrupt commercial
printing company, NEI Webworld, for nickels and dimes a share.