Dear Mr. Berko:

I got a research report from a brokerage firm called Groundfloor Stocks in Boca Raton, Fla., discussing a fascinating stock called Solar Enertech, and the price on the report is $1.67 a share. I would like to buy 1,000 shares of this stock because it’s cheap and I can put my hands on $1,750, if you think this stock has a good future. I like the stock because I think they have a good product, they’re in a good industry, and they have exciting and new management. The broker said the stock could be another Google. Please tell me what you think.

R.S., Everett, Wash.

Dear R.S.:

Solar Enertech Corp. (SOEN.OB-$1.01) has 76 million shares outstanding and a market cap of $76 million. However, the nutrients in a bucket of night soil are worth more than the legitimate net assets of this fuzzy, foul, calumnious crock of hogwash.

SOEN, a brand-new company without a single client, is supposedly involved in the manufacture, design, development and marketing of photovoltaic solar cells and photovoltaic modules. I quote from SOEN’s press release: “The company primarily targets European and U.S. markets.” Wow, am I underwhelmed and unimpressed.

SOEN has $2.86 million in the bank (thanks to selling $2.83 million worth of stock in the second quarter) and a negative cash flow. However, and get this, “SOEN announced that it has moved ahead in its strategic planning and formed a software products team under the direction of the company’s research and development division in order to capitalize on the new and growing demand for energy.” That’s pure, unadulterated persiflage and palaver. In other words, SOEN doesn’t even have a product to sell.

Now, I’ve never heard of Groundfloor Stocks, and I don’t know a bleeding thing about this brokerage company. My guess it that Groundfloor is a “schlock” house. There’s an area in Boca Raton that we call Maggot Mile, where hundreds of schlock brokerage houses have congregated to make passes at naive suckers who think a “blue chip” is a newly packaged brand of Doritos.

Boca Raton is famous for schlock houses that hire quick-talking gunslingers to peddle worthless stock inventory. The Florida Securities Commission won’t police them out of business. The reason, many say, is that these schlock firms are significant contributors to the election campaigns of the numerous corrupt politicians and lobbyists who stink up the landscape in Tallahassee.

Here’s how these firms make money. A company is cobbled together by a couple of silk-suit shysters and a crooked attorney. The proper corporate papers are completed and filed (usually in Utah), and shares are issued to the lawyer and his clients. For illustrative purposes, let’s assume this newly formed company is called Somewhere Over the Rainbow (SWOR), and it issues 10 million shares.

Now we have a schlock-brokerage firm that contracts with the attorney and the silk suits to sell SWOR to the public. These guys buy 70 percent of SWOR, which is a worthless shell (empty) company, from the two shareholders who own 100 percent of the stock for a penny a share. The brokers hire a public relations firm to dress SWOR with smoke, mirrors and sugarplums.

Then they rig the market, trading a few thousand shares between themselves to establish a market price between $1 and $1.50 a share. For a month or so, SWOR has an established Pink Sheet price of $1, while the promoters mail research to a purchased list of thousands of suckers suggesting that SWOR will be the next Google or Microsoft. Then smooth-talking schlock-brokers cubicled in dingy, smoke-hazed rooms with banks of phones begin dialing the “fish” who received the research.

Your 1,000-share purchase at $1 a share ($1,000) gives the house a profit of $990 (1,000 shares cost $10). The guy who sells you 1,000 shares of SWOR keeps $250. The firm or house or brokerage employing him gets $740, pays the two suits and the lawyer $240 and keeps $500. Just 10 sales of 1,000 shares net the house a $5,000 profit before paying for rent and utilities. These people are never disciplined unless they draw blood from a family member or the friend of a congressman or an elected state official.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

© Copley News Service