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Taking Stock: It's important to know which Goldman you are dealing with

Malcolm Berko: Goldman Small Caps Research is not a part of Goldman Sachs.
By Malcolm Berko Published: December 15, 2013

Dear Mr. Berko: In early November, I got a call from a penny stock broker. He had emailed me an article by Goldman Small Cap Research about Endeavor IP, which generates licensing revenues from wireless communications patents it owns and other communications technology patents that it intends to own. So I bought 3,000 shares at $1.02. (I even got my sister and my brother to buy 1,000 shares.) During the next two days, it zoomed to $1.66, but then, during the following days, it crashed to $1.06. Yesterday it collapsed to 66 cents. I called the broker, and he insisted that because the price is lower, I should buy 3,000 more shares. Please tell me what happened here.

CB, Springfield, Ill.

Dear CB: Good gosh Macintosh and holy cow Charlie Chan, a few other readers also got their tutus in a twist when the wire services published a recommendation by Goldman Small Cap Research about Endeavor IP (ENIP) at 70 cents a share. That twist was especially painful because readers wrongly believed that Goldman Small Cap Research is part of a multibillion-dollar investment bank (Goldman Sachs) and confidently bought hundreds of thousands of shares of ENIP at prices higher than a buck. But this was a classic and beautifully orchestrated penny stock scam. Goldman Small Cap Research touts stocks such as WhereverTV Broadcasting (TVTV-$0.07), which has zero revenues but will broadcast anywhere in the world, and Daybreak Oil and Gas (DBRM-$0.47), which explores for energy but only during the day, and Petrotech Oil & Gas (PTOG-$0.01), which sells for a dollar attractive 1,000-share certificates used primarily for wallpaper. Goldman Sachs Group (GS-$170) is a pump-and-dump brokerage, too, but they pump and dump billions, not pennies.

Goldman Small Cap Research is run by a clever fellow, called Rob Goldman, who writes sponsored small-cap and micro-cap stock reports and the like. Neither Rob (what a propitious name) nor Goldman Small Cap Research is a registered investment adviser or associated with the Financial Industry Regulatory Authority in any capacity. However, everybody's name, including yours, is on a sucker's list somewhere. So imagine getting a phone call from a penny stock broker who tells you: “Goldman's research believes that this $1-a-share intellectual property stock is a pure-play technology issue. It has enormous potential licensing revenues and could enjoy similar success as (then names several successful stocks), which have market caps in the billions of dollars. Your $3,000 investment in this unique wireless intellectual property company could rival an original investment in Microsoft or IBM or Facebook.” Not a single word is false. And because you want to believe this could be true, you take the hook and bait with 3,000 shares. Isn't greed a wonderful motivator?

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