Daniel J. Murphy d/b/a Financial Picks
SECURITIES EXCHANGE ACT OF 1934
Release No. 44881 / September 28, 2001
ADMINISTRATIVE PROCEEDING
File No. 3-10609
In the Matter of DANIEL J. MURPHY
Respondent. |
: |
ORDER INSTITUTING CEASE-AND-DESIST PROCEEDING, MAKING FINDINGS, AND ISSUING A CEASE-AND-DESIST ORDER |
I.
The Securities and Exchange Commission ("Commission") deems it appropriate that a public cease-and-desist proceeding be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Daniel J. Murphy ("Murphy") d/b/a Financial Picks.
Accordingly, IT IS HEREBY ORDERED that a cease-and-desist proceeding against Murphy be, and hereby is, instituted.
II.
In anticipation of the institution of this proceeding, Murphy has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein except that Murphy admits the jurisdiction of the Commission over him and over the subject matter of this proceeding, Murphy consents to the issuance of this Order Instituting Public Cease-and-Desist Proceeding, Making Findings and Issuing a Cease-and-Desist Order ("Order").
III.
On the basis of this Order and the Offer, the Commission makes the following findings:
A. Nature of Proceeding
1. This matter involves false and misleading statements made by Daniel J. Murphy on the website of Financial Picks, an Internet stock picking service. For a monthly fee ranging from $29.99 to $79.99, Murphy recommends stocks and options to subscribers, providing a suggested purchase and sale price and a recommended holding period (usually 3-10 days per pick).
2. The Financial Picks website, through which Murphy solicits subscribers, contained numerous misrepresentations concerning Murphy's expertise and the historical performance of his recommendations. For example, the website proclaimed that Murphy's past recommendations had resulted in trading gains of 185% to 1800% per year. In fact, had investors followed the Financial Picks recommendations, actual returns would have been significantly lower. In addition, the website touted Murphy's 15 years of experience in the market and his team of experienced co-workers; in actuality, Murphy is 26 years old, began trading in 1997, and operates the website himself.
B. Respondent
3. Daniel J. Murphy, 26, a resident of Mission Viejo, California, is the sole founder, owner, and operator of the Financial Picks website, which is located at www.financialpicks.com. Murphy has registered the business name "Financial Picks" with the State of California, but has not incorporated or otherwise formed a business entity.
C. Background
4. Financial Picks, founded by Murphy in 1998, is a subscription-based Internet service that recommends short-term trades in stocks, options, index funds, and index options. Financial Picksoffers four services, ranging in price from $29.99 to $79.99 per month. From its inception through June 15, 2000, Financial Picks collected approximately $65,000 in fees from approximately 200 subscribers.
5. Three of the Financial Picks services provide subscribers access to securities recommendations that Murphy posts on the password-protected members-only section of the website. Subscribers to the fourth service receive Murphy's recommendations by e-mail.
6. Each recommendation contains the name and ticker symbol of the security, the price at which Murphy suggests purchasing the security, the price at which Murphy suggests selling the security, and a brief comment about the security. Generally, Murphy's recommendations involve holding a security for approximately five trading days.
D. Performance Misrepresentations
7. The Financial Picks website prominently displayed materially misleading historical performance calculations. The front page of the website represented, "Gains have ranged from 185-1800% per year!" This statement was followed by a bar graph entitled "Trading Results." According to the graph, investors who followed the Financial Picks option-picking recommendations earned a 1,813% rate of return in 1998 and 1,633% in 1999; investors who followed the Financial Picks stock recommendations purportedly enjoyed gains of 211% in 1998 and 185% in 1999. For comparison, the graph illustrated that the S&P 500 index gained only 27% in 1998 and 20% in 1999.
8. The "Trading Results" graph was repeated elsewhere on the Financial Picks website under the headline, "So What Kind of Gains Can I Expect?"
9. The Trading Results graph was misleading. First, the illustrated results did not reflect actual trading. Murphy did not actually make the trades he recommended to subscribers, and the graphs did not reflect actual returns on an investment portfolio. Second, the purported trading gains were substantially higher than an investor following Murphy's recommendations could have actually experienced. Murphy calculated the results using a formula that annualized the results of short-term trades. This formula assumed any trading gains earned by an investor would continue to accumulate over the course of an entire year, when in fact Murphy typically recommended that investors hold the securities for only 3-10 days. The incorrect methodology resulted in dramatically inflated historical performance calculations.
E. Other Misrepresentations
10. The Financial Picks website also contained misrepresentations designed to give the illusion that Financial Picks is a full-scale firm with an experienced staff. For at least a portion of the relevant period, the website represented, "I spend the whole week looking at stocks and the 75 indicators I track everyday . . . even then, I must rely on the expertise of my co-workers before any decision is made." In fact, Murphy operates Financial Picks alone and has no co-workers.
11. The website further exaggerated Murphy's personal experience in the stock market. According to the website, "Creating a winning formula didn't happen over night. Personally, I've been trading since the mid 80's when computers were mostly word processors (a lot has changed in the last 15 years)." In the mid-1980's, Murphy was ten years old. He did not open his first brokerage account until 1997.
12. In order to further attract potential subscribers, the Financial Picks website included a "Double Your Money Guarantee" in which Murphy stated: "I want you to understand something . . . I trade the recommendations on our site. If they lose money, I'm losing with you. If they make money, I'm making money with you. Let me tell you something -- I don't like to lose." In fact, Murphy seldom traded in the securities he recommended to Financial Picks subscribers. Similarly, the website claimed, "I trade for a living. My mechanic fixes cars for a living. Let the professionals help you. That's what we're here for." Murphy never earned a living trading securities; during the relevant period, Murphy engaged in minimal securities trading, and generated no income from his trading activities.
13. The above misrepresentations were material. Reasonable investors would be expected to subscribe to the Financial Picks service, and to follow Murphy's trading recommendations, based on the inflated performance history and Murphy's purported expertise. Murphy, as the sole operator of the Financial Picks website, knew or was reckless in not knowing that his representations were false or misleading.
14. Based on the foregoing, Murphy violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
IV.
Based on the foregoing, the Commission deems it appropriate to accept the Offer submitted by Murphy. Accordingly, IT IS HEREBY ORDERED pursuant to Section 21C of the Exchange Act that:
Murphy cease and desist from committing or causing any violations or any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
By the Commission.
Jonathan G. Katz
Secretary