The tone of the pitch was classic Porter Stansberry. The language was pitched at street level. "See how it works?" asked the email, eventually distributed through Agora networks to some 800,000 newsletter subscribers and other individuals. "It's a total insider deal Money and favors in exchange for a fat deal with the Russians. Hey, I know it's dirty. But I don't make the rules and I don't run the company or involve myself in politics. On the other hand, I see nothing wrong with profiting from my insider knowledge of this deal and I don't think you should be ashamed to do so either."
Continuing his explanation, Stansberry wrote:
"And guess what? The deal with the Russians has ALREADY BEEN SIGNED. That's right. It's all done, locked up. Finished. The only thing that both sides are waiting on is the proper media event..."
In his thousand dollar report, Stansberry advised: "Call your broker now and tell him to buy shares of USEC."
As it later transpired, Porter Stansberry's story about the USEC deal wasn't simply made up in Baltimore. Stansberry had indeed spoken to a "source" at the company, although no kind of "mole" or whistleblower. It was later confirmed that he'd gained background information about an upcoming Washington-Moscow announcement involving the company from USEC's director of investor relations. A publicist.
As with any business publicist aware of market sensitivities, this guy, one Steven Wingfield, gave information of advantageous generality. Interviewed by SEC investigators, he took issue with the Pirate information. While Stansberry had claimed to investors that Wingfield told him the US and Russian governments would approve the agreement involving the company and another called Tenex on 22 May 2002 - the day before the start of a summit between president George W Bush and Vladimir Putin - Wingfield said he'd made no such statement to Stansberry.
According to Wingfield, he'd told Stansberry the same thing he told all analysts who called the investor relations department at USEC. Stansberry had merely asked Wingfield about the pending approval of the contract by the U.S. and Russian governments, and Wingfield responded by saying that USEC "expected it would be approved in the near future."
As the SEC would allege in their complaint. "Wingfield did not tell Stansberry, directly or indirectly, that the pricing agreement with Tenex would be approved by any governmental entity on May 22, 2002. No one at USEC knew when or if the pricing agreement would be approved."
Thus, Stansberry had no basis whatsoever for his claim that the deal would be approved on that date, much less that investors would be wise to put all their money on any such certainty, and withdraw it two days later. Nevertheless, his thousand-dollar report repeated claims made in the email. Not only had the source purportedly told him that the deal would be done in advance of the Bush-Putin summit, Stansberry claimed that his USEC insider had told him explicitly: "watch the stock on May 22nd".
The sting of the fraud alleged
Responding to Stansberry's mass circulation "Super Insider Solicitation", 1,217 copies of his report naming USEC were sold, resulting in net proceeds of $1,005,000 to Agora, of which Pirate received $626,500. How much of this Stansberry pocketed personally is a figure I don't think came out.
At the same time, trading in USEC stock became brisk. As the SEC investigators would later note, from January 2, 2002, through May 13, 2002, volume in the company's common stock averaged about 189,000 shares a day - at prices ranging from $5.78 to $7.37 a share.
From May 14 through May 23, however, volume shot up to an average of more than 3.3 million shares a day, with closing prices ranging from $7.85 a share on May 14 to a high of $9.98 a share on May 20.
But purchasers who took Stansberry's "Super Insider Solicitation" advice weren't as fortunate as he was. The stock fell on the day he recommended. Nothing was announced by the company on 22 May, with the common stock price trailing down 15% from $9.54 to $8.20, when it should have been rocketing those holding them to fortunes.