In his day, Bert Fingerhut was a Wall Street player. A top-ranked securities analyst for eight straight years, making calls that moved markets, Mr. Fingerhut rose to director of research at Oppenheimer & Co. in 1980. Three years later, he retired to Aspen, Colo. He was 40 years old.
In the Rockies, Mr. Fingerhut became as passionate about conservation as he once was about stocks. He joined the boards of a string of environmental organizations. So devoted was he to the wilderness that he got married in Wyoming’s Grand Teton National Park.
But he couldn’t get Wall Street out of his system. In the 1990s he picked up a copy of Peter Lynch’s “Beating the Street,” in which the former star manager of the Fidelity Magellan Fund wrote of a “can’t-lose proposition (almost)” called bank-conversion investing.
When mutual, depositor-owned banks convert to public companies, Mr. Lynch noted, they must let depositors buy stock at the initial-public-offering price. The new shares are often priced at a discount. So “the next time you pass a mutual savings bank or an S&L that’s still cooperatively owned,” Mr. Lynch suggested, “think about stopping in and establishing an account.”
Mr. Fingerhut took the advice to heart, and then some. Starting in 1995, he opened accounts at more than 400 banks across the country, from Wellsburg, W.Va., to Covina, Calif. He eventually got in on public offerings at many of them, and flipped their shares for quick profits. Over a decade, he made $11 million from the strategy.
There was one problem: The way he did it, he was breaking the law.
In May, Mr. Fingerhut pleaded guilty to conspiring to defraud banks and their depositors by secretly using other people as fronts to open accounts for him, thus increasing the number of IPO shares he could buy. He forfeited all the money he earned from the strategy. On Friday, a federal judge in Newark, N.J., sentenced the onetime star stock analyst to two years in prison.
Mr. Fingerhut’s scheme essentially boiled down to a new twist on an age-old investment technique: using leverage to pump returns. With friends and family, he boosted the number of accounts at mutual banks that might someday yield bargain-priced shares. Then he got a local Colorado bank to lend him money against the money deposited in those mutuals — loans he used to help buy more shares of more IPOs. By 2007, his lines of credit totaled $15 million, according to the Securities and Exchange Commission, which brought parallel civil charges.