Lenny’s Boiler Room

• Posted by Adam Warner
• on June 28th, 2010

I know you’re all going to find this shocking, but Lenny may have some more ‘splainin’ to do. This from Randall Lane, the co-founder of Doubledown Media, publisher of The Players Club magazine.

In an era of epically wrong financial predictions, boisterous Jim Cramer’s declaration that “Bear Stearns is not in trouble!” a week before its March 2008 collapse, rated among the most moronic, or at least the most infamous.

But in turns out that Cramer made one call far worse: He decided to make a stock-picking star out of a mumbling former Major League Baseball All-Star named Lenny Dykstra, giving him a high-profile column and ultimately a expensive “premium” newsletter on Cramer’s site TheStreet.com. How did Dykstra return the favor? As I reveal in my book, The Zeroes: My Misadventures in the Decade Wall Street Went Insane, Dykstra took money—$250,000 worth of secretly issued stock—in exchange for recommending that stock to TheStreet.com subscribers. He also promised access to Cramer in exchange for the stock, which he apparently hid under his brother-in-law’s name.

Lenny apparently took money to both plug a stock via The Street, and also give the stock promoter access to Cramer. Kind of vaguelly remember this one, it was some penny stock, the company owned kiosks that vended disposable cell phones. Was quite the departure from Lenny’s “Buy Deeps on Famous Stocks He Cribbed from Richard Suttmeier’s Newsletter” strategy.

The writer goes to great length’s to exonerate Cramer from any complicity. He ends the article with this.

I reached out to Cramer while I was writing The Zeroes—using a personal email address that Dykstra supplied me—but he did not respond. As noted above, I’m sure he had no idea that Dykstra was selling both access to him and the audience at his otherwise-excellent website.

But it was Cramer’s repeated endorsements—echoed by de facto validation from everyone from CNBC to me—that enabled Dykstra to pull off the entire scheme. Dykstra has now filed for personal bankruptcy, and last year admitted to living in his car. Based on what I detail in my book, AVT could potentially face an SEC investigation into these shenanigans. Cramer, meanwhile, continues to draw hundreds of thousands of followers, via his CNBC show Mad Money—one of the few in the industry who managed to escape the past decade unscathed.

That’s just it though, Lenny’s Street cred. all came from the Cramer endorsement. But I truly have little sympathy for anyone taken in by his stock picking “prowess”. It took the tiniest amount of scrutiny to recognize Lenny’s act as fraudulent, from Cramer to this author, to Bernie Goldberg (although in all fairness, the liberal media forced Bernie into his HBO hagiography). I mean c’mon, you really think anyone can pick 96 straight winners without smoke and mirrors?

Just to review, since this is way in the past now, but back when Lenny ran his Deep Call newsletter, he would establish winners after a 1 point gain and double and re-double and re-re double losers until they (hopefully) lifted to a dollar above his average price. It did produce almost all winners, but the losers dwarfed the winners in magnitude, swamping as many as 100 wins each. So thus a 96-1 record might actually produce a negative portfolio. I know, tought concept to unravel.

The question I always have is why Cramer would attach his name to this? Guess we’ll never know.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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