The Great Wall Street Swindle

This is the book Wall Street doesn't want you to read and readers can't put down. Legendary trader Jim Salim has teamed with former Wall Street Journal columnist R. Foster Winans to write an expose that reads like a novel and explains for the first time in one place all the ways Wall Street cheats investors every day, even the smart money. You'll never think of Wall Street or your money the same way again.  Click here for an excerpt of the book..

Description :
This is the book Wall Street doesn't want you to read, and readers can't put down. Insider tales of Wall Street usually involve crooks who get caught fleecing the public. This is the first insider account ever written by a swindled investor that exposes not just one scam but all the ways Wall Street cheats the public, even the smart money, every day, year in and year out. After four decades of experience as an individual trader, beginning with his first stock purchase at the age of 19, Jim Salim has shifted billions of dollars around the economic landscape. He's made and lost a couple of fortunes, and left a few more on the table. He can say something that can't be said by any other trader, or, for that matter, any stockbroker, money manager, analyst, economist, or journalist. He has seen and done it all. Now, through the narrative of his astonishing and rambunctious career as a lone wolf on the Street, he's telling it. Salim has been a stalker for corporate raiders, and a raider himself. He's rubbed shoulders with some of the biggest legends and slyest rogues in the investment world. He's traded every market, every way. In the process he has made, lost, and been swindled out of several fortunes. After a lifetime of expensive lessons and profitable revelations, Jim Salim is talking back to Wall Street through a self-portrait that is wry, intimate, and above all honest. In doing so, he has recorded a thoroughly entertaining portrait of American capitalism in the second half of the twentieth century. Not since publication in 1923 of Reminiscences of a Stock Operator, still one of the most popular Wall Street memoirs ever written, has a character as colorful as Jim Salim stepped out of the shadows to talk about what goes on behind the scenes. It turns out that Wall Street hasn't changed much in eight decades. It's still a carnival with subcultures of rigged games and bogus sideshows. All the government regulation, clever slogans, slick commercials, screaming technology, and sober-sounding advice in the world can't change the fact of Wall Street's eternal self-interest. It's them versus you. Having read his book, you'll never think of your money or Wall Street the same way again.

Excerpt from The Great Wall Street Swindle:
"The stockbroker’s role is to keep your money churning through his firm’s machine. Every time it moves, they get to keep a piece. You are merely the bee that brings in the honey."

One of the most fascinating people I´ve known through my trading career was the biggest penny stock scammer of his time. He claimed to have made more than a billion dollars doing it. I believe him. 

The name he used probably was not the one he got from his mother and father, and I wouldn´t be shocked to learn that he met an untimely end in the swamps of New Jersey. But just in case I´m wrong on both counts, I´ve changed his name to Frank Skinner. He was well known to serious Wall Street players in New York during the early 1980s. He did business with many brokers and other professionals who you´d swear were perfectly respectable and honest. 

His crime was highly organized but he was not the mobster portrayed in popular culture. About forty years old, he carried himself like a gentleman, handsome as a movie star, charismatic, with impeccable taste, and bold as brass. 

From the beginning of my years in New York, my path frequently crossed Frank Skinner´s, all over town, in all the Wall Street haunts. He always had beautiful women with him and wore crisp custom-made shirts and suits costing thousands. He usually had an entourage of sleazy stockbrokers with him. 

I got to know him by bumping into him here and there, and then discovering that he also lived in the Park Lane Hotel. 

Frank Skinner, I learned through the grapevine, maintained a network of corrupt stockbrokers and hypsters he used to distribute overpriced shares of small, shaky companies. He´d invite a group of these brokers from small firms to New York, take them out to Smith & Wollensky, one the finest steakhouses in the city, run them around in a limousine, buy them beautiful whores,and promise them a cut of the shares they sold. 

The next day these brokers would be on the phone stuffing hundreds of thousands of shares of Frank´s overpriced stock into their clients´ accounts. 

One morning, after seeing him the night before with a bunch of brokers from a Long Island boiler room operation, I was eating my breakfast at the Park Lane when Frank walked in and took the table next to mine. We exchanged pleasantries and started chatting. 

"You sure know how to entertain the troops, Frank. I don´t see how Smith & Wollensky could stay in business if it wasn´t for you." 

He laughed. "Guess how much money I spent last night?" 

"I have no idea." 

"I spent $5,500 between the girls, the food, the booze, the car, and the hotel rooms. 

"Guess how much money I made this morning in the first hour? More than $500,000." 

My jaw dropped. 

"Frank, why don´t you do me a favor sometime? Tell me before you start this nonsense and let me make a little money!" 

"Nah. You´re too goody two-shoes. You just go on doing it the conventional way, the legal way." 

We both laughed. 

Frank worked constantly. He never spoke about a family, wife, children, where he was from, nothing. He was like a gray ghost. Like The Great Gatsby, he could have been anyone from anywhere. 

He did end up tipping me off about a couple of his deals. I bought early, before they started to run, and made a couple hundred thousand dollars. Then he´d say, "You owe me, you son of a bitch." 

So we´d go out and I´d treat him to a $3,000 dinner, with several $500 bottles of wine. 

"I like you, Jimmy boy," he´d say. "You´re the real deal, a real player." 

I would have loved to see his book of business. It became clear to me over time that he had bought people in some high places at mid-level brokeragehouses, people in executive positions at firms that could put away a lot of stock. 

I encountered Frank at least a hundred times in three years, in all kinds of settings, but mostly restaurants and bars. He picked up the tab almost everytime, but I never once saw him use a credit card. At La Guardia Airport to catch a shuttle flight to Boston one day, Frank and I happened to arrive curbside at the same moment. He reached into his pocket to pay off his driver and pulled out a wad of $100 bills that would choke an elephant. I doubt he even had a bank account or a utility bill in his name. 

I finally got a piece of the inside story one boozy night. I was leaving a Times Square theater where I´d just seen a Broadway musical. As I was about to get in Sam´s limo, a voice called out, "Would you give a poor bastard a ride?" 

It was Frank. He said his car was in the shop. 

"Come along, Frank. Where do you want to go?" 

"Let´s have some drinks," he said. 

We stayed up until dawn. As the evening wore on and he got more and more tipsy, he began to open up about how much he made, and how he made it. 

"I´ve done more than three hundred scams," he told me. "I´ve made more han $1 billion. If I don´t pull $5 million on each one, I screwed it up. The worst year I had I only made $75 million because I got lazy and spent a month in the Caribbean. 

"If I want to put away a million shares, I can do it with one phonecall." Frank owned stockbrokers all over the country, mostly penny stockguys but brokers with big wire houses, too. 

"I´ve never bought a share of common stock in my life," he bragged. "I´ve never rented an office or hired brokers. I´ve never been licensed to do a damn thing but steal!" 

Frank Skinner flew so far below the radar that no one in a position to nail him even knew he existed. He was paying so many people off, no one had a good reason to turn him in. He was just too smart and careful. 

"Jim, if you´re trying to make an easy living, you´re sure going aroundit the hard way." 

"Okay. What´s the easy way?" 

As we bar-hopped our way around town, with interludes in Sam´s car, he explained the scam in detail. He had a dozen or so trusted associates around the country who dug up the private companies for the reverse mergers. The finder received 100,000 shares of stock to sell when the scam got running. Frank had stooges who would hold his millions of shares in their accounts for an 8 percent cut of the profits. His name appeared nowhere. Then he had the network of brokers who he courted with New York nightlife, drugs, and women and paid off to hawk the stock. 

Each broker received 100,000 shares to unload, and they could keep 10 percent of the shares to sell for themselves. The brokers knew never to put the stock in their own accounts. Instead, they put it in the account of a friend or relative. 

Once the deal was teed up, they ran the whole shooting match in two weeks. Volume went from nothing to a couple of hundred thousand shares a day. If the shell had 3,000,000 shares, and he paid his brokers 10 percent, and the finder got another 100,000 shares, Frank had 2,600,000 shares left to sell. His out-of-pocket cost was about $100,000. If he unloaded the shares at an average of $2, then he took in $5.2 million. 

He had somebody launder the money, which cost him a few bucks. By the time it was all said and done, he claimed to walk away with at least $5 million per deal. 

Frank had nothing but ridicule for the brokers who made him rich. It was from him that I first heard a story all stockbrokers love to tell. Each one has a different version. In Frank´s story, he knew a guy from Brooklyn who desperately wanted to be a player. The guy lied to Frank about having lots of customers. 

"It turned out the guy had one customer," Frank said. "And he calls him and tells him about the latest piece of used toilet paper we´re pimping and gets him to buy 10,000 shares at a buck. 

"Next day we´ve pushed the stock up 50 cents. The clown calls his customer again, gets him to buy another 10,000. 

"A few days later, the stock´s at $2.50. The prick talks the customer into buying another 30,000 shares. Now the mark is 50,000 shares long. The stock ticks up another quarter and the stupid broker calls him to brag. 

"The customer says, `Okay, sell it all.´ " 

"And the moron doesn´t know whether to shit or go blind. Finally he blurts out, `Who to?´" 

I laughed so hard I almost pissed myself. 

"Okay, I understand how you buy the brokers," I said, wiping tears from my eyes. "I understand how you get the fools to buy the stock. But when everybody gets burned time after time, where do the new chumps come from?" 

"Are you crazy? Jim, how many people live in New York City?" 

"Seven or eight million," I guessed. 

"How many people do you think I burn in a deal? Three hundred. There´s a sap born every minute, there´s another broker for sale, and three hundred more marks sitting out there and so what if they got burned? You know what? There are three hundred more chomping at the bit." 

I asked him about the law. Wasn´t he worried about getting busted? 

"They´ll never touch me." He was laughing in the face of the SEC. 

As industriously as Frank worked to unload all this worthless stock on the market, he was shocked and dismayed when one of the companies turned out to be the real thing. 

An influential private investment partnership had put a ton of money behind a Philippine mining company called Benguet Corp. Benguet started out almost a penny stock but wound up becoming huge, with a stock price to match. 

About the same time, purely by coincidence and by no grand objective of his own other than to make his usual $5 to $10 million, Frank found a little copper mining company in South America. He used a guy he´d bought at the American Stock Exchange to get the stock listed so it would look legitimate. Among professionals the Amex had a bad reputation. Any dog company could get listed. 

Frank´s brokers linked the two companies together in their pitches to customers, and Frank´s stock blasted off. He had three million shares. The stock leaped to $10. He sold out, bagging $30 million. He´d made as much as he usually made in five deals! 

But wonder of wonders, the stock kept going! It rose to $27 a share. By the time I heard of it, he was furious. His dog crap company turned out to have a major deposit. The banks agreed to lend the money to buy the equipment to dig it out, put up the smelters, and so on. 

"Aren´t you even a little bit happy for all these poor dopes?" I asked him. "At least you can feel good that you made somebody some money once in a blue moon. And now they´ll line up for your next deal." 

"Yeah," he growled. "Somebody actually made some money. Some sheep-plugger in South Dakota actually made some money buying my shares at $10 and selling at $27. The only thing that happened here, Jim, is I screwed up and left $50 million on the table." 

But 99 percent of Frank´s deals did not work out that way. 

The last I heard of Frank, he´d gotten himself in a bit of trouble with some other, less elegant swindlers. 

Frank had boxed the wrong stock. Some mobsters from north Jersey had heard about the company. Knowing it was a bogus deal, they were shorting it at $3. Frank kept his deals tightly controlled, so his brokers were touting the price higher and higher. The mobsters were getting burned, staring at a big loss. 

One night Frank got a visit in his hotel room at the Park Lane. The story I heard from someone who swore it was true is that when he answered the door, three goons rushed him. They grabbed his ankles and hung him out the window, thirty floors above the horse-drawn cabs and the sidewalk. While Frank was staring at Central Park South, they persuaded him to pull the plug on the stock in the morning or else. 

The most amazing thing about the penny stock swindle is its magnitude and consistency, and the fact that the SEC has only been able to mount a half-hearted effort to shut it down. Arthur Levitt Jr., the SEC chairman who recently retired, came closest to any recent SEC chairman to actually fighting for the small investor. But even he could do little more than wring his hands. 

In a town hall discussion in September 2000, Levitt told an audience of individual investors, "When there are so many more people investing, when it becomes so much more easy, the fraudsters come out of the walls. We had a case of someone offering an opportunity to make huge sums of money by investing in an eel farm. In the first place the eel farm didn´t exist, and by the time we got to close it down, investors had lost nearly $3 million." 

Arthur Levitt seems like a decent man with an honest desire to do the right thing. But I would suggest the SEC throw away the Band-Aids and hire and train some skilled investigators. Only then will the lawmen make a dent. It would be a cinch to strategically plant twenty-five moles in major cities where these scams are concentrated. It´s absolutely the easiest thing in the world to infiltrate the business. The promoters are begging people to come work for them. They have recruiters out there looking for bodies. All an investigator has to do is raise his hand. 

But I´m not holding my breath that anything will ever be done. Just remember Frank Skinner the next time a broker calls you breathless about some "cheap" stock he´s discovered. Ask him how the steaks were at Smith& Wollensky.