Frothy Market Prompts Old Tactic with a Twist

wolfThe market was hot, and virtually all participants were making money.

Around the time that the movie, “The Wolf of Wolf Street” was out, folks in the IR industry were rolling their eyes a lot. The hyper, cold-calling brokerage salespeople depicted in the movie—but taken from real life—did almost anything to establish new accounts and sell penny-stocks to unsuspecting clients.

Their tactics usually began by offering shares in a well-established company, as a safe, relatively risk-free investment, helping to establish credibility. Then weeks, sometimes days later, they would call again, touting a sure-bet penny-stock that no one ever heard of, but that they knew was about to go through the roof. The purchase, of course, had to be made on the spot, prior to the stock rising, since it certainly was going to happen very soon. The brokers usually were paid by the issuer or by a stock promoter, in addition to garnering a commission from the unsuspecting mom-or-pop investor.

Another penny-stock, promoter-driven tactic during that era was the use of fancy, glossy-printed fliers, occasionally stuffed into the plastic bags of newspapers that were delivered to thousands of homes.

That was then. What about now?

The market is hot, and virtually all participants are making money.

A few months ago, I wrote about some Wolf-like cold calls I was beginning to receive, on my cell phone, no less. And just last week, stuffed into the plastic package with my still home-delivered Los Angeles Times (OK, I get the New York Times digitally), was a glossy stuffer promotion for a recent IPO, “Now Nasdaq Listed: BHF,” read the heading. Only this was not for a penny-stock.

I was mildly shocked that any stock was being promoted this way, and even further surprised to learn that the company, Brighthouse Financial, is not some sleaze-ball publicly-traded shell with no revenue or earnings, but a real company, an annuity and insurance seller, with $223 billion in assets.

Perhaps this sort of tactic again will become a trend. And in this scenario, because the company is real and not even close to penny-stock status, maybe the tactic will work.

But wait. On the first day of trading, August 7, the shares fell 4%, closing at $60.72. And digging a little further, it is interesting to note that while MetLife still owns 20% of Brighthouse, a filing said it plans to sell all of its holdings “as soon as practicable.” I wonder what they know that the rest of the investors do not. Same ole promotion resurfacing with a twist…at least the issuer has assets.

Roger Pondel,