Business & Technology: Friday, February 22, 2002

Wade Cook accused of violating settlement
 

By Drew DeSilver
Seattle Times business reporter

Wade Cook and his investment-seminar company are still misleading people by claiming they can make huge profits with Cook's strategies and have improperly dragged their feet in paying millions of dollars in refunds to dissatisfied customers, the Federal Trade Commission charged yesterday.
The FTC asked a federal judge to hold Seattle-based Wade Cook Financial, and Cook personally, in contempt for repeatedly flouting the terms of an October 2000 consent decree.

"We don't file a lot of contempt actions," said Bob Schroeder, the FTC's assistant regional director in Seattle. "Their violations were serious and substantial."

A spokesman for Wade Cook Financial did not return a call seeking comment.

Thousands of people have paid to learn Cook's system, which involves making many small trades using relatively arcane financial instruments such as covered call options.

The consent decree required the company to back up claims of high investment returns in its marketing materials and to disclose its own trading results (it's had negative returns since April 2001).

Although the written materials were altered, Schroeder said, company speakers continued to make unsubstantiated claims at "financial clinics" used to market Cook's seminars and books, including claims that people can earn returns of 20 percent per month.

As recently as Jan. 9, the FTC complaint said, speaker Lance Strauss told clinic attendees that after taking Cook's Wall Street Workshop they wouldn't lose money in the stock market and would all be retired by 2005.

"And I'm serious about this — three years," the complaint quoted Strauss, citing a tape recording made by an FTC investigator. "And let's not start with, like, gobs of money. Let's just start with a little bit of money. Let's start with $1,700."

The consent decree also set up a refund program to settle claims by the FTC and 14 states, including Washington. However, the FTC alleges, the company has repeatedly missed deadlines for mailing claim forms, processing and paying claims.

Although the main category of refunds should have begun to be paid by last May, the complaint states, the first checks didn't go out until January. The company is now paying about four claims, for a total of $14,000, a week.

However, the agency said, the company has approved about $600,000 in refunds and likely will owe an additional $3.4 million — not counting about 900 claims that were denied, "many of them improperly."

At that rate, the agency said, Wade Cook Financial will take more than five years to pay all the refunds. The agency wants to take control of the refund program away from the company and force it — or Cook, as he promised to pay the refunds himself if the company couldn't — to deposit $5 million into a refund account.

Between 1996 and 2000, company reports show, Cook earned $28.8 million, mostly in royalties from sales of books and tapes.

Although Cook told the FTC his net worth was $267,000, the agency said the bulk of his assets are held through corporations and trusts.

For example, Cook and his wife own, directly or indirectly, 64.1 percent of Wade Cook Financial's stock, according to a disclosure statement filed with the Securities and Exchange Commission. At yesterday's closing price of 19 cents, those shares would be worth $7.7 million.

Drew DeSilver can be reached at 206-464-3145 or ddesilver@seattletimes.com.