Promoters of penny stocks should be diligently ignored

February 04, 2004|By JAY HANCOCK

Last week Jerry Wenger, former Columbia resident and former host of The Next SuperStock national radio show, received a well-deserved reward for a prominent career in securities analysis: 46 months in a federal prison.

"I expect it to be a camp," says his lawyer. Better it should be a supermax slammer with peeling paint, but we'll take it. Crime occurred, prosecutors bestirred themselves, a jury did the right thing, and a judge sealed the deal Jan. 28.

High time, too. Wenger has been, shall we say, a person of interest to the Securities and Exchange Commission and the Justice Department for years.

His pump-and-dump rap sheet goes back to 1984, when he was dinged in a civil settlement for allegedly dealing in penny stocks - shares selling for less than $1 - that he covered in his newsletter. The offense for which he was just sentenced in Salt Lake City occurred a decade ago.

Here's Jerry Wenger on the radio in February 1994. He's talking to Bob Weeks, president of PanWorld Minerals International Inc. Jerry is bullish on PanWorld, which supposedly owns mining rights for Peruvian iron ore, and he and Bob are brimming with information about the company.

"I was very impressed with looking at the pictures" of a mine business meeting, says Jerry.

He is also "impressed" that another company supposedly has signed onto the project. He is "impressed" by checks supposedly written to purchase mining stock. The backing of Peru's government for the deal, he says, is "impressive."

And how, says Bob. Peru's minister of mines, Bob tells the radio audience, "felt like this was going to be one of the finest, if not the finest, mine in all of Peru. It has huge potential. He's been following it for years. He is a mining engineer. He knows what he's talking about. A very savvy guy. He says this is a No. 1 project."

What Bob and Jerry didn't tell listeners was that Bob had given Jerry 2.1 million shares of PanWorld stock and that Jerry was heaving Bob's stock overboard as fast as he could bail while bloviating on about "one of the wealthiest mines in Peru."

PanWorld stock bounced around between 10 cents and 18 cents a share for a few weeks after Wenger's show and then plummeted to a penny by the end of the year. Wenger sold more than $100,000 of PanWorld stock in 1994, according to prosecutors.

Some kinds of white-collar crime come only once a generation. Great, Enronesque fraud requires brilliant criminals, complex deception and heroic portions of money, greed and stupidity.

Then there are the Jerry Wengers and their victims. Penny-stock scammers, dealing in cheap shares with thin floats and huge volatility, are the cockroaches of securities markets: slimy, low-grade eternal pests.

From 1981 to 1983, Wenger bought stocks at least four times just before his Columbia-based Penny Stock newsletter recommended them, according to a consent decree in which he neither admitted nor denied wrongdoing.

The guy was quoted as an authoritative source in Money and Time before the SEC settlement and afterward in U.S. News & World Report - appropriately, on Oct. 19, 1987, the day of the big stock crash.

In the 1990s, after he moved to Bethesda, Wenger's talk show aired on WPGC-AM and WMET-AM locally and on other stations around the country. He bought the airtime and often took pay from the companies he promoted, the SEC says, while broadcasting toll-free numbers so that listeners could contact the companies and then be transferred to brokers selling the stock. Jerome Mooney, Wenger's Utah attorney, says Wenger disclosed during broadcasts that he was a "consultant" for the featured companies, including PanWorld.

The SEC says that's not enough, and after ignoring pump-and-dump schemes for years, under Chairman Arthur Levitt it moved against Wenger and other penny stock operators in 1998. "Mr. Wenger is from a group of people that kind of preys on investors," says Leslie Hughes, an SEC lawyer who helped prosecute Wenger. "While they appear to give disinterested advice to investors, they are paid touters."

Noting his 1984 consent deal, she said that "he's known for a long time that this was inappropriate activity."

Wenger's defense involved some implausible assertions about free-speech rights and the notion that disclosing "consulting" details after the radio show to anybody who inquired would have been OK. And besides, says Mooney, it's not Wenger's fault that people lost money on stocks he recommended. "You do your own due diligence," Mooney says. "If you take at face value what you hear on the radio or the television, you're in trouble. Don't be a lemming."

There you have it, folks, from no less an authority than a penny-stock scammer's lawyer. Take his advice. Don't listen to people like his client.

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