Did Barron’s Bite Him?

In January of 1996, Alex Shogren, a Deadhead who had twice been kicked out of boarding school before graduating from Georgetown University, started a business marketing hedge funds out of his home in posh Locust Valley on Long Island. Basically, for a small fee, he drew upon wealthy connections to help hedge funds raise money.

A year later, the business had picked up enough speed for him to move into a pleasant office within minutes of the local train station and the first tee at the country club. Soon Mr. Shogren bought out his partner. He moved two large sofas into the office, hired a dozen staff members, hung a picture of Jerry Garcia on the wall and set about trying to take over the hedge fund world.

Now Mr. Shogren, 31, finds himself besieged by what he calls “slimeballs.” The battleground, as usual, is an obscure stock of quirky provenance and uncertain prospects. The stakes, as usual, are credibility and money. But the combatants are unusual-a Gold Coast golfer versus a shadowy, nameless posse of short-sellers. When the discreet and clubby world of hedge funds clashes with the rogues and pirates who populate the message boards, stocks swing and slime flies. Such battles can be extremely hazardous to a man who wishes, as Mr. Shogren clearly does, to be taken seriously.

Mr. Shogren’s company, Tuna Capital, is a partner in another family of hedge funds called Blue Water Partners, which he helped start. Blue Water, in turn, invested a major portion of its capital in NetSol International, a financial software manufacturer whose programmers are based in Pakistan. When Blue Water started buying NetSol last year, its shares were trading at around $4 a share. Beginning in November 1999, they shot up-reaching 80 at one point-and Blue Water was up about 140 percent in the first quarter of this year. Things were good.

Fast-forward to May 15. Barron’s , the Dow Jones financial journal, ran a column by Alan Abelson that trashed NetSol as a grossly overvalued company. Mr. Abelson singled out Blue Water and Mr. Shogren for ridicule for their outsize position in NetSol. In the wake of the story, NetSol stock plummeted to just over 32. On Monday, May 22, it closed at just above 20. Blue Water’s core holding, the basis for its recent success, was in free fall.

On May 15, the stock-watchers who frequent online message boards plastered Mr. Abelson’s story all over the Internet. Blue Water quickly issued an unorthodox press release declaring that its partners felt “compelled to address some recent negative press concerning its concentrated position in a company called NetSol International.” The release did not have a byline, but Mr. Shogren was listed as the only contact.

The message boards-sponsored by Web sites like Raging Bull and Go2Net’s Silicon Investor-are cultish but influential. Legions of investors scan the boards daily, posting messages about stocks and about each other, using names like Bugger6, BIGMACK, CaptWallSt2 and Greenface. While their banter and bickering can be amusing, there are many participants who follow the advice of fellow message-posters religiously-which can create a snowball effect that makes or breaks a particular stock. Knowing this, there are people who use the message boards to manipulate stocks, on the upside and the downside.

After justifying its unusually large investment in NetSol-which began as a Pakistani designer clothing company before going into the financial software business-Mr. Shogren’s press release posited that the bad press was “most likely the result of manipulation from those who short NetSol.”

Mr. Shogren also runs Hedgefund.net, an online information source for more than 1,400 hedge funds with an average value of $93 million each. It is with Hedgefund.net that Mr. Shogren hopes to transform the world of hedge funds from a scattering of isolated loners into an interconnected community. Mr. Shogren, of course, would be the conduit for all the valuable information passing between investors and fund managers. Hedgefund.net was the first, for example, to report problems at the Manhattan Investment Fund, which, earlier this year, got caught issuing phony account statements while losing over $300 million of its investors’ money.

On Friday, May 19, Mr. Shogren sat with his feet up on his desk in Locust Valley. He wore faded blue jeans, a faded black Hedgefund.net baseball cap, a green long-sleeve polo shirt and black, wood-soled clogs. Maggie, a field spaniel, wandered the office. A photo of Jerry Garcia smiled down on him from the wall, but Mr. Shogren was not smiling as he reflected on the collapse of Blue Water’s prize stock.

“It’s upsetting when something bad happens,” he said. “We pride ourselves on being good, honest people, and we’ve left a lot of money on the table for it. These are bad people. They’re slimeballs.”

He said he was not sure exactly who the bad people were, but they were the ones responsible for NetSol’s downfall. Mr. Shogren also contended in his press release that people who held short positions in NetSol fed the press negative information about the company. But in his office, he refused to speculate as to who they might be.

According to Mr. Shogren, his office received a call from a Barron’s reporter late in the afternoon on Friday, May 12. The story reached newsstands the following day.

In his story, Mr. Abelson cites the reporting of Jaye Scholl, a Los Angeles-based reporter for Barron’s, whom Mr. Abelson in his story called ” Barron’s expert eye on the wonderful world of hedge funds.” Ms. Scholl declined to comment for this story, deferring to Mr. Abelson, who could not be reached by press time.

In any case, the column said that Mr. Shogren’s “modest ambition [was] to take over the hedge fund world.”

“I wouldn’t mind taking over the hedge fund world,” Mr. Shogren admitted in his office the other day. “It’s a totally fragmented, entrepreneurial world, and those are the reasons it almost needs someone to step in.”

Mr. Shogren was raised on the North Shore. Despite his sub-par record at prep school, Mr. Shogren eventually got his General Equivalency Diploma, and he was accepted to East Stroudsburg University in East Stroudsburg, Pa.

“I knew the dean of admission and he gave me a chance,” Mr. Shogren said.

After his first year, he transferred to Georgetown, where he got a degree in marketing. For a few years he followed the Grateful Dead. He spent time living in California, Minnesota, Pennsylvania, New York and New Jersey. But eventually, he returned to Locust Valley. After Jerry Garcia died, he focused on golf. “I substitute golf for Jerry,” he said. “I got my handicap way down after he died.”

Contrast him with one of the people who have been shorting NetSol: Anthony Elgindy, a minor celebrity in the world of stock message boards. A self-proclaimed cyber vigilante, Mr. Elgindy, a 32-year-old native of Cairo, seeks out questionable stocks and attacks them zestfully on the boards. He also moderates a stock-advice Web site with some 350 subscribers who pay $600 a month to follow his trades. When he shorts stocks, his acolytes short with him.

Mr. Elgindy, himself a bucket-shop refugee, has had some run-ins with the authorities over the years. Most recently, on May 15, he was sentenced to four months in federal prison after being convicted of felony mail fraud. But he has claimed repeatedly in press reports that he has cleaned up his act and that his methods and his intentions are pure.

Reached in his office in Del Mar, Calif. (he begins serving his sentence June 11), Mr. Elgindy dismissed Mr. Shogren’s suspicions of media manipulation.

“The guy probably hallucinates all the time,” he said. “You know, for the most part, the evil short-sellers are to blame for every stock going down. All we do is short stinky stuff that goes up that doesn’t have any fundamental basis for going up. In this particular case, I certainly didn’t know the press [story] was coming out. Was I short? Absolutely. Do we make money when stocks go down? Yeah. But we also carry a very real risk in that when we are wrong, we have a price to pay.”

The mail fraud charges against Mr. Elgindy, to which he pleaded guilty on Feb. 24, stemmed from payments he received from the Bear Stearns Companies and Barron Chase Securities Inc. while he was simultaneously receiving disability benefits from the MassMutual Life Insurance company.

Mr. Elgindy maintains simply that NetSol, like many others in the recent tech-stock sell-off, was overvalued and has been lowered to a more reasonable price-through no doing of his.

“What brought the stock down is the fact that the company has no sales, no earnings, no nothing,” Mr. Elgindy said.

A spokesman for NetSol declined to comment for this story. Mr. Shogren conceded that NetSol has negative earnings, but he argued that Blue Water believes the stock is promising and is not changing its position.

“We’re a hedge fund, and hedge funds are for big boys,” Mr. Shogren said. “If you go up huge, you can go down huge just as easily.”