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Porter Stansberry and ‘the Stansberry scam’ (cont)
“2. Numerous subscribers purchased the defendants “inside tips” and made investment decisions based on that information. The purported inside information was false and, as a result, the subscribers did not realize the profits the defendants promised.
“3. The defendants, however, profited handsomely. On information and belief, Agora received in excess of $1 million from the sale of false information to its newsletter subscribers.”
These charges, in summary, are the nub of the matter, although a great deal of detail followed later. The complaint named three defendants. First, Agora Inc, Porter Stansberry’s employer, which at the time was said to operate at least 15 financial websites, plus a range of online publications such as Penny Stock Advisory, The Red Zone, The Cutting Edge, Daily Reckoning Investment Advisory, Carpathia Letter, Taipan, The Flying V Lockup Trader, Rogue Trader, CSX Trader, Fleet Street Letter, Options Hotline, Outstanding Investments, Jim Davidson’s Vantage Point Investing, Richebacher Letter, Strategic Opportunities, and the Contrarian Speculator.
The second defendant was Pirate Investor LLC which ran a website and newsletter, pirateinvestor.com, which Stansberry edited, also owned by Agora.
Frank Porter defendant
Finally, the third defendant was Stansberry himself, or Frank Porter Stansberry, as he is named in the case. At the time he was not only the editor of pirateinvestor.com, but also of another Agora newsletter, “Porter Stansberry’s Investment Advisory”. Apparently, he was in part paid with a percentage of the revenues from these.
In briefest summary, the SEC’s case in 2003 was that, while Agora’s newsletters, including Stansberry’s pirateinvestor.com, claimed to offer “independent, original and thoughtful research”, on everything from gold prices to the future of shale oil, in fact they put before investors “nothing more than baseless speculation and outright lies”.
Now, for some of the detail of the “Stansberry scam”. In words that must surely have proved deeply disturbing at Agora’s Baltimore offices, Martinez, Melto and Baker evidenced their general allegation with one specific example. This related to a mail-out from Agora on 14 May 2002, offering recipients the chance of making a fast buck from apparently valuable information. The email was headed:
“DOUBLE YOUR MONEY ON MAY 22ND ON THIS SUPER INSIDER TIP.”
According to the email, Pirate Investor had learnt that an agreement was to be reached that, in the words of the Baltimore operation, “will create more than $2.5 billion in profits for one small company.” The business field was said to be nuclear energy, and the company involved in the deal would garner the windfall profits from a disarmament treaty between the United States and Russia.
In a literary style common to Porter Stansberry’s investment advice, the 2002 email – a so-called “Super Insider Solicitation” – said that investors would “make a fortune” because Pirate Investor’s source was what it called a “senior executive” in the company concerned. This executive was “definitely in a position to know” the intimate deals of the deal and, perhaps as importantly, when it would be approved. Therefore, Stansberry claimed, Pirate Investor was in a position to tell subscribers to its investment newsletter “exactly when” the deal was to be finalized and announced.
Investment guaranteed
According to the SEC, the email advised recipients to bet the farm on this information, and to stake their entire investment portfolios on the unnamed company. It said that investors would be able to double their “investment dollar in a single day.” The day to buy would be May 21st 2002, and shares should be held for just two days, until May 23. It promised: “There is nothing else you have to do.”
Of course, Stansberry wasn’t providing his business intelligence for nothing. The email didn’t give the company’s name, but said that it was listed on the New York Stock Exchange. Investors could buy its name for $1,000, in a report from Agora and Porter Stansberry.
Well, not quite “Porter Stansberry”. The material was presented in the name of “Jay McDaniels”, a pseudonym borrowed by the newsletter editor.
On payment of $1,000, readers received a report that named USEC – a leading world supplier of nuclear fuel which operates the only uranium enrichment facility in the United States – as the mystery company with the impending contract.