What's billed as a chance to hear upbeat lectures from famous people like former Secretary of State Colin Powell is actually a vehicle for companies to sell investing tactics, with the implicit promise of high returns.
The Rev. Rick Christy’s story about how he lost $11,500 trading options starts in a Michigan sports stadium with Colin Powell, Rudy Giuliani and Terry Bradshaw.
They were headliners at an event called Get Motivated! in Grand Rapids a year ago that cost Christy $4.95 for a ticket and a few bucks for a concession-stand soda. He was looking for inspiration, and he said they delivered it in speeches that brought the crowd of 12,000 in Van Andel Arena to its feet.
It was a TD Ameritrade Holding representative who left a lasting impression. Bob Kittell, a square-jawed athlete, delivered a pitch he’s honed across the country: A photo of a Corvette flashes on a screen and he asks, Wouldn’t you like one? Articles about secretaries and steelworkers who got rich in the stock market scroll by, and he asks, Wouldn’t you like 17 percent returns?
He suggests it’s possible with options trades.
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Christy was lured by the bait of celebrity and hooked by the promise of easy money at a road show that’s been traveling the U.S. for a decade, drawing as many as 400,000 people a year.
What’s billed as a chance to hear upbeat lectures from the famous is actually a vehicle for companies to sell investing tactics, with the implicit promise of high returns, on the same stage as luminaries like Powell.
The pastor said he stepped forward when Kittell urged people to buy a $99 course from TD Ameritrade’s Investools. A few hours later he signed up for more investing lessons sold by another company.
Soon he was buying call and put options and using a complicated strategy known as the “Iron Condor.” His accounts shrank to $8,500 from $20,000.
“I feel taken,” said Christy, senior pastor at Voice of Hope Church in Wayland, Mich. “I really thought I was going to turn my life around financially, and I’m actually worse off a year later.”
Americans are easy marks, particularly at a time of economic uncertainty and a seesawing stock market, said Lynn Turner, the U.S. Securities and Exchange Commission’s chief accountant from 1998 to 2001.
“People are so hungry for an investment that will give them enough to retire on,” Turner said. “If someone from a well-known firm stands up, and people have just heard this speech by a celebrity and got their adrenaline pumping — this is a place where you can sell an Eskimo a refrigerator.”
Act One: The bait
Until a change of ownership at Get Motivated Seminars earlier this year, Investools, a TD Ameritrade unit since 2009, was the largest source of income for the events, said Richard Nash, a spokesman for the Tampa, Fla.-based seminar series. The partnership with Get Motivated ended in February.
Before former first lady Laura Bush took the stage at a Get Motivated assembly in Oklahoma City on Feb. 16, a speaker named Kory Thurston asked people to wiggle their index fingers.
“You just proved you can make money on the Internet,” Thurston said, as the crowd in Chesapeake Energy Arena clapped.
By purchasing a $29.95 class in Web marketing, he said, almost anyone could learn to make $1,000 a month clicking a mouse. He represented National Marketing Resources, another company that paid to appear on Get Motivated programs.
Billboards and ads in cities ahead of Get Motivated events tout ticket prices as low as $1.95 for lessons on success and leadership, without disclosing the sales pitches sandwiched between the stars. A website says attendees will “be sold on the value of continuing education” and that “follow-on workshops may be offered.”
People should consult with “tax, legal, financial, accounting or other advisers before implementing any views, opinions or advice given during the seminars,” fine print on the back of a ticket says.
The seminars were started in 2002 by Peter Lowe, the son of a missionary who spent time in India, and his ex-wife Tamara Lowe, a self-help book author who writes Christian rap. The events, which have filled stadiums in more than 30 cities a year, give Americans a chance to enjoy a show and see prominent people in person, said Nash, the spokesman.
TD Ameritrade was happy with its Get Motivated partnership, according to Ted Bloomberg, the Omaha, Neb.-based brokerage’s managing director of investor education. He declined to say why it ended.
“I would dispute the notion that there’s a hard-sell environment in a 10,000-person arena,” said Bloomberg, who has no relationship to Bloomberg News. “We were always very pleased with the way they presented our product.”
Get Motivated provided as many as 300,000 of the 500,000 students who took Investools classes over 10 years, according to Nash. Bloomberg called it a “significant portion.”
The collaboration continued after Investools agreed to pay $3 million in 2009 to settle SEC allegations it let instructors mislead students into thinking they could make “extraordinary profits,” and to claim they were expert options traders when their income really came from selling more courses.
Investools didn’t admit or deny wrongdoing in the case, which covered 2004 to 2007, before TD Ameritrade’s purchase.
Investools teachers disclose all risks and don’t make guarantees, Bloomberg said. “One of the things we’re very concerned about is people having an irrational view of what’s possible from a return perspective,” he said.
Act Two: The hook
At an Investools course in February, the teacher told students that options, contracts to trade a security at a set price by a certain date, could yield 18 percent annually. That is a performance achieved by fewer than 1 percent of about 41,000 mutual funds over the past five years, according to data compiled by Bloomberg News.
A speaker introduced as Mark Larson promoted courses in what he called tax-lien investing that he said could offer 18 to 25 percent annual returns. “And listen closely to the last part of this: guaranteed,” he said.
Larson and Thurston, who had people wiggle their fingers, both represented National Marketing Resources of Kearney, Mo., according to Nash. It sells online coaching and also specializes in credit-card processing, marketing and direct mail, according to its website.
Telephone calls and emails to National Marketing weren’t returned. The speakers couldn’t be reached for comment.
Most speeches lasted about 20 minutes. TD Ameritrade’s Kittell took an hour. He talked about covered call options, in which someone who owns a stock sells to another investor the option to buy it. The stock owner pockets the option payment no matter what happens to the stock, he said.
“How many of you would like to get a brand-new car and have the premiums take care of it from your covered calls?” Kittell asked, to whoops.
He closed with a special deal. The Investools course Investing Foundation, usually $2,245, was $99. Lights came on in the walkways. He told people to head toward the light — and hurry, “it’s going to get crazy.”
Hundreds streamed down.
For TD Ameritrade, the largest U.S. discount broker by daily trades, Investools is a “secret weapon,” Chief Financial Officer Bill Gerber said at an investor forum in Miami in February. “We have an education business that I think is very unique and helps differentiate us, that really talks about how to invest mostly in options.”
Unlike stocks, options expire, so traders often place new orders. TD Ameritrade charges $9.99 for an order plus 75 cents for every 100 shares involved. Stock trades are $9.99. Options customers average 30 options trades and 31 stock trades a year, compared with 24 stock trades for others, according to a survey released in 2010 by the Options Industry Council trade group.
Andrew Stoltmann, a Chicago securities lawyer, called Investools courses “the holy grail for a brokerage firm” because “they get people to pay large sums of money to trade one of the most profitable investment products around.”
While lucrative for brokers, options are risky for amateurs, said Mark Sebastian, a former floor trader at the Chicago Board Options Exchange who teaches at Option Pit Mentoring, which charges $1,800 for a 14-week seminar.
They’re not unlike a Super Bowl wager with a point spread: you have to get both the magnitude and the direction right. Sebastian said about 10 percent of his students make more trading options than they would leaving their money in the bank.
Act Three: The sinker
Eight days after Get Motivated in Oklahoma City, 300 people sat in a suburban conference room for the Investools Investing Foundation course. Instructor Rob Lant said he would level with them: Trading isn’t as simple as Kittell made it seem.
Lant said he had no intention of getting into the market until taking the same Investools class seven years ago, which changed his life and has “blessed everybody” in his family. He showed pictures of his wife and children and their mountainside home, talked about their recent vacation at the Wynn resort in Las Vegas, and shared his love of horseback riding.
He started with basics — how a broker handles trades, how banking and brokerage accounts can be linked — and noted TD Ameritrade representatives were there to help open accounts. He asked students to bring in financial statements. Then he had everyone write down two words: option trading.
“This is not an options class; this is a stock class,” he said. “But at the same time, I personally like to trade advanced options strategies.”
He said most people hand their money to mutual-fund managers and pay fees. “What if we could get 1.5 percent return on your money every month?” he asked. “That would be 18 percent a year. Do you guys think this is possible?”
It is, he said. Lant said he aims for 3 to 5 percent a month — 36 to 60 percent a year — trading options.
In an interview after class, Lant said he couldn’t say whether he hit his objective. “I don’t say what my returns are,” he said. “It’s a highly regulated industry. I can tell you my goal.”
Stevie Wonder’s “Signed, Sealed, Delivered I’m Yours” sent students off to a break. Later, Lant told them about stock and options courses that cost $5,999 and a Complete Investor class at $19,999, marked down from $28,999.
Many students are happy with the instruction, according to TD Ameritrade. It provided the name of Evie Petrikkou, a Colorado Springs, Colo., photographer who said she has paid $30,000 for Investools classes. She and her husband now handle most of their money themselves after watching professionals miss warnings of the 2008 crash, she said.
“We’re learning so we can actually do at least as well as what these guys are doing,” Petrikkou said. She declined to say what her returns have been.
In Michigan, Christy took the two-day Investools course and put $4,000 on a credit-card to pay for options trading. He said he learned the drawbacks of the covered-call strategy Kittell heralded. For one thing, he had to buy stock so he could sell options on it, and he said he could afford only second-rate shares that lost value, wiping out the options premiums he was paid.
“Nobody tells you that,” he said.
The pastor said he also signed up during Get Motivated for a workshop offered by James Smith Companies, now called WealthRock. He later bought $12,000 in more WealthRock courses, he said, financing them at $300 a month.
A WealthRock instructor showed him the Iron Condor, which requires buying four options on one security with four strike prices and two spreads; it takes its name from a payout diagram resembling a bird with outstretched wings.
Christy said he complained to WealthRock after the strategies didn’t work as advertised. A representative offered to reduce the debt by $2,000 and provide more coaching, said Christy, who hasn’t given up on trading.
“I know I have been gullible,” he said, blaming himself and “the ones who made it all sound so easy. They didn’t outright lie. They just made it sound way better than reality.”
WealthRock is owned by Get Motivated’s new owner and former CFO, Joseph Johnson, of Apollo Beach, Fla. He said WealthRock stands by the quality of its classes, which cost up to $25,000. Nash said Johnson paid $11.75 million for Get Motivated. The business had $4 million in net income in the first nine months of 2011, according to filings in the Lowes’ divorce, which became final last month.
The Lowes reached agreements that would let them remain involved in the events, he as a $1 million-a-year consultant and she as a $25,000-per-appearance speaker, according to documents filed in the divorce. They declined to comment.
Johnson said it wasn’t necessary to continue the Investools partnership now that WealthRock and Get Motivated are under the same management, though he didn’t rule out reviving it.
Until he took over, Investools made wire transfers based on revenue-sharing that were Get Motivated’s largest source of funds for most of its history, according to spokesman Nash. Bloomberg declined to elaborate on the financial terms.