Wednesday, January 5th, 2011
running amok

It rarely fails to happen:  The stock market puts together a multi-month run and the “days of dreck”the research puzzle | Today’s period is reminiscent of that of late in the winter of 2010, when this posting was written. begin again.  There’s no better time to sell speculative, volatile crap than when the recent volatility has been on the upside.

The purveyors of said crap are the shady carnival barkers of the investment world, allowed on the grounds by the authorities as long as they promise to behave.  Like the carnies they may toe the line, but they use deceiving claims and trick games to fleece an unsuspecting public.

Our exhibit today involves a “special situation” brought to my attention by a fat mailing that showed up yesterday from something called the Intelligent Investment Report.  The purveyor of the report, Jarret Wollstein, is said in the materials to have “one of America’s most successful stock picking records!”  Funny I haven’t heard of him.  To help me out, he included some prior recommendations, including ten-baggers and the like.  I looked them up:  All four are down over 90% now that the pump part of the pump-and-dump has ended.  Funny how that works.

Wollstein’s latest pick is Amarok Resources (which comes with the blogger-friendly ticker symbol AMOK).  He’s no dummy; it helps the illusion if the stock’s industry is hot, and, according to the Bloomberg description, AMOK has an “option to earn a 75% interest in the gold project located in Carlin Trend, Nevada.”  Wollstein uses a brilliantly-colored brochure and a sheet of newsprint (the mutual fund tables on one side allowing the gold-hype stories on the other to look as if they came from a real paper) to make AMOK sound like the find of the century.  Its land includes a golden vein!  Barrick and Newmont covet it!

Oh, and:  “If gold goes to $2,000, as many analysts are predicting for 2011 . . . the value of AMOK gold resources could hit $40 billion!”  (Being not quite as promotional as Wollstein, I didn’t use the bold font and yellow highlighting that he did.)

Excited for the opportunity, I decided to review Amarok’s most recent SEC filing, where I was disappointed to discover that its circumstances “raise substantial doubt as to the Company’s ability to continue as a going concern.”  It is taking steps on the operational front, however, having hired “an experienced outside accountant . . . to assist in our financial reporting process.”  Included in the work is “implementing procedures to improve segregation of duties in the cash receipts, disbursements, reconciliation and reporting process.”  It’s probably best to get those things straight before the money starts pouring in.

According to the filing, the evaluation that led to the hiring of the accountant was under the supervision of “our principal executive officer (who is also our principal financial officer)” — not to mention president, treasurer, and apparently only member of the board of directors.  I suppose he’ll answer the phone, too, should there ever be a problem with the stock you own.  (His name is Ron Ruskowsky.  Say “hi” for me; I decided to sit this one out.)

For the record:  The fine print of Wollstein’s pitch does say that he’s a paid shill (not the exact words used), earning $5,000 for the cogent analysis.  The distribution costs of the mailer, $335,000, were covered by Benchmark Media Ltd., which holds (or held, I’m not sure where we are in the promotional cycle) 1.5 million shares, so you can get an idea of where its break-even on the stock might be.

The questions that arise from the review of “special” situations like this are not that much different from those facing the operation of the mainstream parts of our investment markets:  What is the role of regulation?  What do we mean by disclosure?  To what extent should markets be unfettered and to what extent should there be investor protections in place?

No matter our answers, you can bet there will always be folks running amok.