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Wade Cook Refunds Sought in California

From Bloomberg News

Wade Cook Financial Corp., which runs investment seminars across the U.S., should offer refunds to all California customers because its no-refund policy violated state law, said a Fresno County prosecutor investigating the company.

The company will face civil prosecution if it doesn’t agree to offer the refunds, Alan Yengotan, Senior Deputy District Attorney in Fresno County, said in an interview Thursday. If the county wins a lawsuit, the company could face a maximum penalty of $2,500 for each violation, in addition to refunds, he said.

“I’m going to seek a judgment allowing all Wade Cook customers in California to cancel their [seminar] contracts and get their money back,” he said. “I have no question it’s going to be in the millions of dollars.”

If large numbers of customers seek refunds, payments could wipe out 1997’s profit. Seminars in California provided the company more than $10 million of total 1997 revenue of $104.9 million. Revenue from the state exceeded last year’s profit of $8.99 million.

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Cook executives weren’t immediately available for comment.

California, which is Cook’s No. 1 market, requires seminar firms to give students three days, after sign-up, to change their minds and ask for a refund. State law says a student’s right to rescind the contract must be disclosed in every seminar contract. If it’s not, customers can get their money back.

Until recently, Wade Cook’s contracts read, “All sales are final,” which is illegal, Yengotan said.

Seattle-based Wade Cook presented 3,293 seminars in 379 cities last year, according to its year-end report filed Tuesday with the Securities and Exchange Commission.

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After learning of the probe on March 5 in a letter from Yengotan, the company began offering new California students the legally mandated three-day right of rescission, its year-end report said.

The company says its seminars teach students how to earn 20% monthly returns in the stock market; trade options; incorporate in Nevada; or invest in real estate.

Priced as high as $7,995, the seminars have attracted thousands of investors in California cities, including Los Angeles, San Francisco, San Diego and Fresno. Most seminars take one or two days.

The company also sells books by Chief Executive Wade Cook, whose bestsellers include “The Wall Street Money Machine” and “Stock Market Miracles.”

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Cook, a former cabdriver and college dropout, has gone from rags to riches since filing for personal bankruptcy in 1984.

It’s not clear how Wade Cook Financial would pay for massive customer refunds. As of Dec. 31, it had negative working capital of $11 million, with current liabilities of $23.8 million exceeding current assets of $12.8 million. In 1997 the company itself lost $804,493 trading securities.

Cook and the company already are the subject of two previously reported investigations: a Securities and Exchange Commission probe, started in March 1996, into possible securities fraud, and an investigation by Washington state securities regulators.

Both Cook and the company have denied any wrongdoing.

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Wade Cook shares fell 6 cents to $2.81 on Nasdaq’s Bulletin Board.


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