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The Fame Game

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By Jack Waymire


www.paladinregistry.com


Celebrity financial advisors can attract a lot of attention—and clients. But are they better at marketing than advising?


Companies spend hundreds of millions of dollars to develop brand names that help them sell their products. But celebri­ties can create brand names for next to nothing—the media does it for them. Sometimes the media even pays the celebrity. Most of the time, that’s harm­less enough: If a tabloid wants to pay Kim Kardashian for photos of her wedding dress, who really cares? But when a celebrity with a brand name decides to leverage his name by providing financial advice, things can go very wrong.


The example that comes to mind is Lenny Dykstra, the for­mer All-Star baseball player with the New York Mets and Phila­delphia Phillies. A passionate, scrappy athlete—his nickname was “Nails,” as in, “tough as …” —Dykstra retired from baseball in 1996 at age 33 primarily due to injuries. In 1993, coming off a statistically remarkable sea­son—which, he later admitted, was fueled by steroid use—he’d signed a four-year, $24.9 million deal with the Phillies.



 

After his retirement, Dykstra parlayed his sports celebrity into a career in business. He started an upscale car wash and named it Lenny Dykstra’s Car Wash, with three locations in Califor­nia. He partnered with several other businesses (QuickLube Centers, for example) that used his name to boost sales. And before long, he moved into port­folio management, eventually starting a company called Nails Investments. His fame gave him access to potential clients, and the jock-turned-investment guru made a great story for outlets such as Fox, CNBC and HBO. Fellow investment celebrity Jim Cramer even hired Dykstra to write an investing column for TheStreet.com.


The investment claims on his website site should have set off alarms, and if Dykstra weren’t a famous, popular athlete, they probably would have. He used baseball vernacular to describe his stock-picking success: “223 wins and zero losses.” One testimonial said the inves­tor made over $300,000 using his system. Another claimed to be “making money hand over fist.” His call to action was “Join now, begin making money tomorrow.” Three thousand investors signed up to obtain reports of his stock picks.


Predictably enough, Dykstra’s investment empire turned out to be a house of cards, alleged in dozens of lawsuits to be based on cooked books, unpaid bills and shady deals. In 2007, Dykstra had purchased hockey star Wayne Gretzky’s California McMansion for $18.5 million; just two years later, Dykstra declared bankruptcy and was reportedly living out of his car. In 2008, Dykstra claimed a net worth of $58 million; his July 2009 bankruptcy filing showed assets of $50,000 and liabilities of $10 million to $50 million. Today he is charged with over 20 counts of fraud, grand theft auto and drug possession. Lacking the funds to post bail, Dykstra is in jail in California and has started a website, SaveLenny.com, where he asks fans to contribute to his cause.

 


THE LESSONS OF LENNY DYKSTRA’S FALL


1. Never be mesmer­ized by a “brand name,” whether it is a person or a company.


2. When self-proclaimed gurus make claims that defy common sense—such as never making a bad stock pick—take your money and run.


3. Always check the guru’s credentials in the areas of education, experience, licensing and certifications.


4. Look for legitimate documentation that confirms the guru’s performance, risk and expenses.


5. Look for website disclo­sures that document the methodology of the guru’s investment practices.


6. Don’t believe anecdotal or even published reports testifying to the advisor’s skill. Never assume that the people praising the guru have done more digging than you.


7. Above all else, trust your instincts: If some­thing about the guru doesn’t feel right to you, find someone else to manage your investments.