Quote of the day

"The UAE cabinet, local emiri courts and executive councils will nominate those eligible for the citizenship under clear criteria set for each category.”

—United Arab Emirates Prime Minister Sheikh Mohammed bin Rashed Al-Maktoum, announcing that the UAE will open a path to citizenship for a small number of foreigners. It’s a very rare move, since UAE citizens get cradle-to-grave welfare, and yet only a very small minority of people living in the UAE are actually citizens.

Welcome to our new subscribers! I hope you enjoy Understandably, and that maybe you’ll share it with others. If someone passed this along to you, here’s the easiest way to subscribe.

5th Period Study Hall

Around 20 years ago — probably pretty close to 20 years to the day, in fact — the author Michael Lewis (think Moneyball and The Big Short, although he hadn’t written them yet, plus Liar’s Poker, which he had), sat down for an interview with Arthur Levitt, who was then the chairman of the Securities and Exchange Commission.

Their topic of discussion: Jonathan Lebed, aged 15, holder of a somewhat inglorious record for being the youngest person ever to settle with the SEC over allegations of stock market fraud.

I came across this whole episode over the weekend, along with Lewis’s 9,000-word article about it in the New York Times magazine back on February 25, 2001. This was part of my effort to figure out whether what’s happening right now with GameStop, Reddit, Robin Hood and all that is just an interesting story, or a true inflection point.

I’d thought the latter: inflection point. Maybe it will prove to be one. But reading this two-decade old article, I felt a bit (fittingly, given the date tomorrow), like Bill Murray in Groundhog Day.

If you have the time — I don’t know, 20 minutes? — I’d recommend reading Lewis’s article for sheer entertainment and historical interest. The short version is that Lebed wasn’t just the youngest person ever in the SEC’s crosshairs; it’s that he was an early Internet-era target.

It’s also a clear, early example of a financial regulatory system designed in the 1930s attempting to govern Wall Street and retail investors in the digital age. And, not doing it very well.

Lewis actually incorporated a lot of this into his 2001 book, Next. The details sound charmingly anachronistic now, but they’re the second cousin at least, of the WallStreetBets/Game Stop/Robin Hood situation:

[F]rom his bedroom in the northern New Jersey suburb of Cedar Grove, armed only with accounts at A.O.L. and E*Trade, the kid had bought stock and then, 'using multiple fictitious names,' posted hundreds of messages on Yahoo Finance message boards recommending that stock to others.

He had done this 11 times between September 1999 and February 2000, the S.E.C. said, each time triggering chaos in the stock market.

After six months of trading, Lebed amassed $800,000. Then, Lewis amassed quotes from Levitt and other lesser gods of the SEC on what they thought of the teen:

• “A little jerk.”

• “Exactly what you or I hope our kids never turn out to be.”

• “A bad kid.”

However, when Lewis pushed the SEC at the time, including Levitt and his head of enforcement, he reports that they couldn’t articulate exactly what it was that Lebed did wrong.

Let me just quote from the story in case you don’t click through. Here’s Lewis interviewing Levitt—who, remember, was the head of the SEC:

“Can you explain to me what he did?”

“He'd go into these chat rooms and use 20 fictitious names and post messages. . . .”

“By fictitious names, do you mean e-mail addresses?”

“I don't know the details.”

“Don't know the details?” Lewis writes. “He'd been all over the airwaves decrying the behavior of Jonathan Lebed.“

(By that time, 60 Minutes had done a story, and Levitt was indeed on the episode, characterizing what Lebed did as: “pump and dump … buy, lie and sell high … He used fictitious names. He made predictions...without any foundation.”)

Lewis clearly doesn’t buy it, and two decades later, I have a hard time, too.

For one thing, the “fictitious names” was arguably less than it appears; Lebed was posting 200 identical, verbatim, bullish messages every morning before school, and changing email addresses, in his telling, to get around the early Internet version of a spambot.

It’s plausible, anyway.

Regardless, here’s the question that keeps coming up over and over in the article: What was the real difference between a kid talking up stocks on Yahoo Finance, and analysts making a name for themselves by talking them up on CNBC, during that Bubble 1.0 era?

Lewis takes the fact that the SEC didn’t take all of Lebed’s money as evidence that it wasn’t sure it could sufficiently articulate what he’d done wrong to win in court. Lebed paid almost $300,000, but he kept another $500,000 — not a bad haul for a teen-ager back in 2000 or so.

Anyway, it’s not a straight line, and there are other factors involved. But this story sounded so much like the early, less scalable version of WallStreetBets, that I wonder if it might turn out to be as good a place as any to start the history.

Lewis spent a fair amount of time with Lebed, along with some of his high school friends. They told him that besides the SEC, the only person who objected to what they were doing (they all traded, but only Lebed got caught up legally) was the school librarian.

“'Fifth-period study hall was like a little Wall Street,” one of Lebed’s friends explained. “But sometimes the librarian would say the computers were for study purposes only.”

7 other things worth your time

• Ever wonder who would take over Amazon if Jeff Bezos were to move on? Meet Andy Jessy. (Business Insider)

• One of the largest Covid-19 vaccination sites in the USA was temporarily shut down Saturday, when anti-vax protestors blocked the entrance, frustrating hundreds of motorists who had been waiting in line for hours. (LA Times)

• Another 5,000 people were arrested in Russia for protesting against the detention of Alexey Navalny. Here’s a good range of photos of what it looks like. (Axios)

• This is going to be kind of fun to watch: Apple and Facebook are basically officially at war against each other, after comments by Tim Cook and Mark Zuckerberg last week. (CNBC)

• A 22-year-old graduate student with no health experience convinced the city of Philadelphia that he could vaccinate as many as 1.5 million people. It didn’t work out well, according to the city. Health commissioner: "In retrospect, we should have been more careful…” (NPR)

• Everyone on public transportation in the U.S. now is required to wear a face mask, after a new CDC rule released Friday. Separately, people rushed to Seattle University and University of Washington clinics one night last week, after a freezer broke and health officials had to get rid of 1,600 Covid-19 vaccine doses before they expired. (Politico, KING5)

• Hey, it’s snowing. I don’t plan always tell you the weather where I live, but there’s a massive snowstorm in New York City and environs right now: a foot and a half or more coming, they say. So, if you’re somewhere else, when you talk with people in the northeast USA today, you have an easy subject for smalltalk. (Accuweather, NY Post)

Thanks for reading. If you liked this post, and you’re not yet a subscriber, please sign up for the daily Understandably.com email newsletter, with thousands and thousands and thousands and thousands of 5-star ratings from happy readers.  

And of course, please share Understandably! Seriously, if you’ve wondered, What can I do to help Bill build this? That’s the #1 thing—for people who enjoy this newsletter to encourage friends and family to sign up as well. Thank you!

Share Understandably

Once again: Instead of the one-click review and feedback links that I usually include, if you liked this post, can you click the little heart icon below? Comments welcome too. The platform I run this on (Substack) is kind of a mystery to me sometimes. I want to see if doing that has any positive effect on how often this newsletter gets promoted or shared. Thanks!

Leave a comment