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Beware of the Hucksters

I'm usually a pretty calm dude. My wife likes to say I sleep well because I never worry. That's not entirely true, of course. I do worry sometimes. And I do get angry.

Take this morning, for example. Reuters reported that con artists purporting to be from government "agencies," such as the so-called International Compliance Commission, have been bilking investors. An Australian woman, for example, lost $121,000 in one scheme. Another lost $19,000 when agents from a group known only as RJL International offered to buy shares for up to 200 times their market value, but not before receiving an advance fee. That payoff never came, of course.

Hearing this news pretty much ruined my morning. I mean, really, what kind of bottom-feeder preys on people like that? Frankly, I hope these jerks end up staring down the business end of a karmic freight train. No, I mean it. In fact, write me if you hear that one of these losers has been caught. I'll take any excuse to do a touchdown dance, and I can think of no better reason than if a stock huckster gets his comeuppance.

The sad truth, however, is that we shouldn't hold our breath waiting for justice, especially when there are too many legitimate schemes out there that could destroy a portfolio. Take penny stock Gulf Biomedical (OTC BB: GBIC), which had its pumpers spam me in June. This morning's events prompted me to do some additional research.

In business since 1988, Gulf Biomedical originally sold cold lasers for pain relief and healing. But approval from the Food and Drug Administration never came, and revenue dried up by 1995. Last October, however, the company purchased "Hair Magic," a dietary supplement that purports to promote hair growth. Stock-pumping sites such as say that Hair Magic has worked in all 70 of its trials. The problem is that this "miracle" product translated into exactly zero sales as of Dec. 31.

No financial reports have been filed since, but disclosures in the spam I received and at show that Gulf Biomedical has paid at least $13,000 to try to get others to buy shares. The company spent $152,000 on total administrative expenses during 2004, according to this financial filing. (The link opens a PDF document.)

Everything Gulf Biomedical is doing, at least as far as I can see, is perfectly legal. But it hardly appears to be a good use of shareholder cash. And bold promises amount to nothing when there's no proof available that Hair Magic grows cash the way the company says it grows hair. My guess is you'd be better off betting on a blind man playing blackjack in a casino full of deaf mutes than you would investing in this company.

So, do me a favor, OK? The next time some stock-pumping spam arrives in your inbox, delete it. And the next time a broker you don't know calls with a great offer on a stock that's "priced to move," hang up. I promise that your portfolio will thank you over the long run.

Get more good advice for shoring up your portfolio with this related Foolishness:

Don't let all this talk of stock scams ruin your portfolio strategy. Get help. Take a risk-free trial to any of our investing newsletters today.

Fool contributor Tim Beyers thinks stock hucksters ought to be forced to go broke buying all sorts of garbage they don't want. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile, which is here. The Motley Fool has an ironclad disclosure policy.

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