Wade Cook: Guru Of Get-Rich-Quick -- He Insists He's Trying To Help The Little Guy, But Federal, State Regulators Beg To Differ

The thousands of people who have turned to Wade Cook for investment guidance might not be as keen to emulate his diet: He eats leftover Chinese food for breakfast.

The Seattle stock-market pitchman sometimes heats up leftovers and eats them on the way to the office, "just to remind myself to be a little bit strange all day long."

"You don't ever get rich by being logical, sensible, orderly or reasonable," said Cook, 49, a former Tacoma cabdriver and one of the nation's most well-known hawkers of Wall Street advice.

Advocating short-term-investment strategies that he says can command monthly returns of more than 20 percent, Cook's company, Seattle-based Wade Cook Financial, runs dozens of "Wall Street Workshops" from Seattle to St. Louis to Savannah, at $5,695 a head.

Cook has built a loyal following - his books are New York Times business best sellers, and about 35,000 investors each day log on to his $2,995-a-year online service, the Wealth Information Network. His various businesses generated more than $100 million in revenues last year.

But Cook's rise also has spurred investigations by the Securities and Exchange Commission (SEC) and regulators in several states, including Washington. And his high-risk methods and sales tactics have drawn criticism from stockbrokers, investment advisers and a contingent of dissatisfied customers.

The Texas Attorney General's Office has sued Cook's company, accusing it of deceptively promoting lucrative returns without also telling customers that the company reported a loss of more than $800,000 on its own stock trades last year. The SEC and the Washington state Department of Financial Institutions are conducting investigations, and the district attorney's office in Fresno County, Calif., is seeking refunds for dissatisfied seminar customers.

Cook also has tangled with regulators in Arizona, where he filed for personal bankruptcy in 1987 and two years later was charged with selling $390,841 in unregistered stock in a host of small companies. He was fined $150,000 and ordered by the state to return $320,000 to investors.

Cook shrugged off the government scrutiny in a recent interview at his company's Seattle headquarters.

"I kind of feel like it's Wade Cook against the world, in a way," he said.

Indeed, Cook sees himself arming investors with the knowledge they need to take charge of their own finances, instead of heeding the advice of stockbrokers and investment advisers.

"We're trying to help individual investors do a better job of handling their money, so they don't have to rely on all these big mutual funds that take all their money and charge all these fees," he said. "We're trying to teach them how to take control of their own financial destiny."

The `meter drop' method

A Mormon missionary to Japan in his early 20s, he sometimes quotes Scripture and applies it to financial themes. One of his books is titled "Business Buy the Bible."

His investment philosophy is centered on a strategy he calls the "meter drop" method, which he developed as a part-time Tacoma cabdriver in the late 1970s.

Cook spent only 13 months as a cabbie, but he considers the experience a pivotal chapter in his life. He often refers to himself as the "cabdriver who took on Wall Street."

Making runs across Tacoma in Yellow Cab No. 22 - he still thinks of 22 as his lucky number - Cook reasoned that since he could charge customers about $2 just to get in his cab, it was more profitable to make a number of short runs than hold out for a few big ones.

While other drivers focused on long trips to the airport, Cook shuttled passengers a few blocks at a time, making three times the fares of his fellow drivers. He went on to apply the same principle to real estate, buying dozens of small houses, fixing them up and reselling them for a quick profit.

Today, Cook and his instructors promote the "meter drop" concept for stock trading, stressing numerous short-term trades that produce quick profits. One of Cook's favorite techniques is what he calls his "rolling stocks" strategy: the practice of repeatedly buying and selling stocks that fluctuate within a certain price range.

Cook often refers to Motorola as an example of a "rolling stock." Cook said he bought 100 shares of Motorola stock at $50 in 1987, when the stock was teetering between $50 and $60. He then sold his shares when the stock reached $60, earning him a profit of $830 after commissions.

When the stock dropped to $50 again, Cook bought more shares, which he sold again whenever they reached $60. He continued this pattern with Motorola stock for more than three years in the late 1980s, generating thousands in profits.

The terms "meter drop" and "rolling stock," coined and copyrighted by Cook, were at the center of a copyright-infringement suit in Tacoma in September that pitted Cook against Tony Robbins, the self-help guru known for his late-night infomercials.

Cook accused Robbins of using the two phrases without his permission in one of Robbins' seminars, "Financial Power." The jury sided with Cook, awarding him more than $650,000.

During the trial, Cook revealed a combative streak much different from the easygoing persona he conveys during his workshops. After the jury found in his favor, Cook told Bloomberg News the verdict signified a "good day for the good guys," called Robbins a "spoiled brat" and referred to state regulators from Arizona as a "bunch of weirdos" and "creeps."

Methods draw scrutiny

Cook also runs seminars in real estate, day trading and executive leadership, but it's his investment advice that draws the most scrutiny.

His approach elicits skepticism among stockbrokers and investment advisers, who say his descriptions of quick, exponential returns are unrealistic, especially for novices.

"In the profession, there is no way we would be able to make claims like that," said George Robertson, a certified financial planner for Seattle's KMS Financial Services.

The SEC prevents brokers from advertising prospective rates of return, but Cook doesn't have to follow those rules. He's an educational speaker, not a broker. He doesn't handle stock trades. While Cook and his instructors often single out particular stocks as examples, Cook-trained investors must make their own trades through their own brokers.

Though Cook's company has disclosed the government investigations in corporate filings to the SEC, Robertson said the probes ought to be prominently mentioned during seminars and in the company's promotional literature.

Cook "seems to be skirting a lot of the safeguards that have been set up specifically to protect the public," Robertson said.

Cook says the notion that he promises overflowing returns for all trades is misguided. The strategies he advocates, he said, are intended to be applied to only the small portion of an investor's portfolio reserved for aggressive investing - perhaps 5 percent of one's money.

Still, the clear emphasis of any Cook ad, book or seminar is on making fast profits, not prudent long-term investments. The back cover of his bestselling book, Wall Street Workshop, says the book shows how to "double your money every 2 1/2 to 4 1/2 months with rolling stocks."

In one of his videotapes, Cook relates the success story of a 13-year-old boy who followed his methods. Starting with $2,000 that his father gave him, Cook said, the boy instantly began making $400 to $600 a month and was recruited by his father's boss to manage an $80,000 portfolio.

Not all of Cook's customers are as satisfied. The state of Washington's consumer-protection office has a file of 65 complaints, mostly from customers seeking refunds on seminars.

Customers cite substantial losses based on Cook's trading methods or complain that the seminars are conducted at a bewildering pace.

"The level of arrogance is astronomic once they get your money," wrote a Cook customer from Destin, Fla., who had trouble getting a refund when he tried to cancel a spot he'd reserved at a Cook workshop.

Record difficult to track

Regulators, in determining whether Cook's track record falls short of the returns he advertises, first have to establish what his track record actually is - an exercise that requires going through thousands of trades posted on his online site.

Gauging the veracity of Cook's money-back guarantee is a murky undertaking. At the workshops, the company promises it will identify three trades within three months that will earn a 300 percent return if averaged over one year.

But the guarantee requires only that Cook's company provide information on such trades. It's up to the investor whether to follow them, choosing from among hundreds of trades in a three-month period. Cook said the company has never granted a refund based on not fulfilling its guarantee.

Of all the government agencies scrutinizing Cook's record, the Texas Attorney General's Office has been the most zealous. In the state's lawsuit, filed in May, prosecutors point out that Wade Cook Financial posted a loss of $804,000 on stocks it traded in its own company portfolios in 1997 - a far cry from the gains touted in seminars.

"We feel they need to disclose their losses (to customers) and that the use of these strategies has a high financial risk to it," Assistant Attorney General Raul Noriega said after filing the suit.

Cook says the $804,000 figure is misleading, reflecting mostly stocks that dropped in value but weren't actually sold. The Texas allegations are unfounded, he contends.

"What we'd love . . . is when they're done with their stupid investigation, is to give us a clean bill of health and say, `You know, guys, we were wrong. This is a great company,' " Cook said. "They will never have enough guts to say that."

Some recent departures from Wade Cook Financial's board may give investigators insight into the inner workings of the company, whose stock trades publicly for around 60 cents per share, down more than 80 percent from a year ago.

John Childers, a director and the company's second-largest shareholder, resigned last month and agreed to cooperate with state securities investigators. Three other directors have left their positions over the past year.

Childers reportedly has criticized Cook's handling of the company's finances as the company has boosted marketing and operating expenses and added subsidiaries in the hotel and oil industries.

Cook has loyal following

Despite the investigations and complaints, Cook also has a vocal following of supporters.

Paula Young, a mortgage banker from North Bend, said she's made about $4,000 a month using the "rolling stock" technique she learned at a Cook clinic in August.

"I was very impressed with a lot of (Cook's) strategies," Young said. "I feel if you apply them properly and you're cautious, you should do fairly well. But there's also a lot to learn - you have to take time and go through a learning curve. You can't just jump in and get rich overnight."

Young said she's aware of complaints, but thinks all investors are ultimately responsible for their own decisions.

"Those people who have lost money, I feel bad for them," Young said. "But it was their choice and decision. I wouldn't be blaming Wade Cook for the choices they made. . . . The market has no favorites."

Cook's outlook toward the scrutiny he faces is embodied in a quote engraved on a plaque in his office: "The dogs may bark, but the caravan continues."

"They keep going down these roads trying to find dirt on us," he said. "And we're squeaky clean as can be."

Information from Bloomberg News is included in this article.

Jake Batsell's phone message number is 206-464-2595. His e-mail address is jbatsell@seattletimes.com

------------------- Tips from Uncle Sam -------------------

The Federal Trade Commission offers these tips for those considering an investment pitch or paying for a business seminar.

-- Take your time. Don't be rushed. Avoid high-pressure sales pitches that require you to sign up now or risk losing out on the opportunity.

-- Investigate. Talk to experienced business people and experts about the promoters before spending any money. Taking precautions before you invest is a more effective way to safeguard your money than trying to get a refund after the investment has been made.

-- Be wary of "success stories" or testimonials of extraordinary success.

-- Ask questions. Be cautious about making purchases from representatives who are reluctant to answer questions, or who give evasive answers to your questions.

-- Read the fine print. Ask how much money you need to qualify for the investment or sales opportunity, and ask about the company's refund policy. Get this in writing. Keep in mind that you may never recoup the money you have spent, despite the operator's stated refund policies.

Source: Federal Trade Commission. Home page - http://www.ftc.gov/bcp/conline/pubs/invest/seminar.htm