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Investigative reporter Brian Deer reviews the notorious case that led to the SEC’s prosecution of Porter Stansberry. Was this share tipster a fraudster?
Investment adviser Porter Stansberry wasn’t happy. Worse. He was mad. “I understand my story might be hard to believe,” he raged in the Agora group newsletter, The Daily Reckoning, which promotes every kind of business and financial opportunity, from the greenback to gumshoes. “I maintain my writing was honest, materially correct, and is certainly protected by the First Amendment of the U.S. Constitution.”
Stansberry was writing shortly after the Supreme Court refused to hear a complaint from him against findings first reached in the Maryland federal district court that he had defrauded many thousands of investors. Those findings were later upheld on the fourth circuit court of appeals. And, as I say, Porter Stansberry – charged as “Frank Porter Stansberry” – wasn’t a happy man.
“Unfortunately, so far, almost none of the critical issues at stake in my fight have been accurately reported. Worse, people who have no idea what they’re talking about continue to assume my case is another example of a financial publisher acting scurrilously.”
So what’s it all about, the so-called “Stansberry scam”? Is life too short to care? Certainly, some say so, such as rival tipster Timothy Sykes (“Learn How To Make $30,000 in 7 Days!”) who goes after the same customers as Porter, and delights in accusing him of wrongdoing. “Porter Stansberry scam,” is how he sums up the situation, accusing his competitor of nothing short of “blatant lies”.
Another commentator, called “the independent individualist”, similarly wades in, declaring “Porter Stansberry is a convicted crook.”
But what’s the truth behind the allegations and rumours? Is the abuse just sour grapes, or opportunism, among rivals? Or is there something more substantial of concern? These issues are important. Stansberry has become a force among investors in recent years, becoming the subject of a New York Times editorial (an honour we share) and sometimes leading big and small punters to gamble their bucks on his advice. As hundreds of thousands of subscribers are bombarded each day, week and month, with tips and invitations about where to put their money, how are folk to make sense of what happened with Stansberry? As I say elsewhere: friend or fraud?
So who is Porter Stansberry?
You only need Google to get a sense of the man’s reach. He has a cluster of websites to play with. Top of the list is stansberryresearch.com, site of Stansberry & Associates Investment Research. This is where one finds the Stansberry Investment Advisory, which introduces itself in the following terms:
“Every month in his Investment Advisory newsletter, Stansberry & Associates Investment Research founder Porter Stansberry alerts his subscribers to several types of investments: 1) “No Risk” stocks that represent ultra-safe, long-term investments 2) “Next Boom” recommendations that feature undervalued stocks poised for growth, and 3) “Forever” stocks that are cheap blue-chips which will provide excellent returns… forever.”
Alongside the “advisory” are something like twenty further products, segmented by target audience. There’s True Wealth, Advanced Income, Retirement Trader, Growth Stock Wire, The Daily Crux… The list goes on, and sometimes changes.
As for the man himself, there’s less to be sure of. A New York Times report in August 2003 noted that Stansberry at the time was 30 years old, and that he was an employee of the Baltimore-based Agora group, which specialises in financial newsletters. The paper quoted him as saying that he had delivered pizza and worked as a lifeguard while at college, and had stared at Agora as a lowly file clerk in 1996.
The fraud allegation
As for what Porter Stansberry did, the first clear description was set out in April 2003. That was when Karen L Martinez, Thomas M Melto and Brent R Baker of the Securities and Exchange Commission’s Salt Lake City office filed a complaint with the federal district court in Baltimore, Maryland, where Stansberry’s investment newsletter business was located. They alleged:
“1. Defendants engaged in an ongoing scheme to defraud public investors by disseminating false information in several Internet newsletters published by Agora or its wholly owned subsidiaries such as Pirate. Through various publications, defendants claimed to have inside information about certain public companies. Defendants suggested that its readers could cash in on the inside information and make quick profits. The defendants offered to sell the inside information to newsletter subscribers for a fee of $1,000.
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Brian Deer welcomes feedback on Porter Stansberry, Stansberry Research, and any novel Stansberry scams or successes. This site is not affiliated with Porter Stansberry
The recent surge in bitcoin and the drop in gold prices have increased the talks in the market that whether the digital coin would become more attractive than those traditional safe-haven assets like dollar or gold.
From a fundamental perspective, the rally in bitcoin is mainly driven by the unprecedented central banks' liquidity injection and rising retail investors' enthusiasm. However, the price rally may pause in the near future as virus spreading starts showing signs of easing.
There are three reasons driving the rally in bitcoin prices.
First, the U.S. Federal Reserve and other central banks around the world have pumped huge liquidity into their economies and financial markets.
The unprecedented expansion of the Fed's balance sheet last March has not only channeled the cash into stocks and bonds, but traders also bought much of the alternative assets like bitcoin.
Second, some big companies are increasingly investing in cryptocurrency, which also increases the influence of bitcoin. Tesla revealed it had purchased around $1.5 billion of Bitcoin in January and plans to begin accepting the cryptocurrency as a form of payment in the future.
Also, payment company Square purchased $50 million worth of bitcoin last October.
Third, many people are forced to stay at home as countries around the world aim to contain COVID-19. The U.S. retail trading volume has been surging recently as many not only trade stocks, but also seek markets where institutional investors are less involved, including those stocks like GameStop.
Bitcoin is another hot option for them. For markets lacking institutional investors, flows become much more important than the fundamentals.
Looking ahead, central banks' monetary stimulus is expected to become more moderate as the virus shows signs of easing. Many retail investors would also gradually return to their 'normal life.' Both of these would have a negative impact on the bitcoin price.
U.S. Treasury Secretary Janet Yellen said Monday night that bitcoin is highly speculative and is an 'extremely inefficient way of conducting transactions, and the amount of energy that's consumed in processing those transactions is staggering.' Bitcoin dropped as much as by 17 percent in Monday trading, hitting a low of about $47,900.
What defines safe-haven assets?
To a certain extent, some investors have also believed that bitcoin is gradually replacing gold as safe-haven or reserved assets.
Data showed a clear inverse relationship between the price moves of bitcoin and gold.
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The gold price has been substantially falling since August last year, and it could be due to fewer uncertainties in pandemic and increasing expectation on inflation to rise from the fundamental perspective, but it's not likely that the drop in gold prices is because of the flows into bitcoin.
To be considered as safe-haven assets, such as the Japanese yen and the U.S. dollar, they usually carry a negative correlation with the risk assets like stocks.
The fact is that bitcoin has been surging with global stocks this year amid improving expectations on the global economic outlook, so it cannot be defined as a haven asset.
If its move stays in line with stock market, it should be taken as a risk asset.
Recently, rising U.S. bonds yields have triggered some stocks selling off as traders worry that the higher borrowing cost would affect the equities' valuation. If the correlation between bitcoin and stocks were held, some selling flows might appear in bitcoin as well.
Safe-haven assets are generally well known by the majority of investors, with great liquidity. From the perspective of bitcoin itself, it certainly has potential values to invest in, but most of the investors lack sufficient knowledge of it.
Furthermore, Bitcoin was designed around the principle of a finite supply of 21 million coins. That means there's a fixed upper limit on how many bitcoins can ever come into existence.
The stock market is likely to face some headwinds in the near term as investors need some time to digest the higher rates environment's impact on equities' valuation.
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Having that said, bitcoin's status as a safe-haven or speculative asset could be proven very soon. It may continue to move in a similar direction to stocks because both of their prices are highly influenced by the rates and Fed's monetary stance.