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Nit-Wit

Low-rent online broker Wit Capital gives high-roller access to some of the Internet's hottest IPOs. But clicking for them is a grubber's game.

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Hundred-million-dollar 26-year-olds and truck-driver tycoons have created the impression that Internet investing is a lot of fast money. I'm here to tell you that it's hard work. Just this afternoon I spent 35 minutes banging on my browser's reload button, trying to register for a piece of the barnesandnoble.com IPO.

The Web page belongs to a lower-Broadway stock brokerage called Wit Capital. You know how Barron's or PC Magazine is always naming some big advertiser the best online broker? Well, Wit is the worst. They don't answer the phones, the site regularly goes haywire, and I've had both money and stock purchases misplaced. One guy named Fontanetta seems to answer all the e-mail, when he gets around to it. Even the design of the Web pages comes off fly-by-night, with apologies about poor service posted on the home page. The company is known in online message boards as "DimWit" and "Clownshow."

It is also known, though, as one of the only outlets where small-fry investors can vie for public offerings of new Internet stocks. For the past six months, this has been a dumb but surefire way to make money. (Wit's only balance requirement is $1,000; accounts numbered more than 20,000 as of April.) I signed up for my Wit account last November after watching theglobe.com price at $9 and then, in one of the most dramatic examples of Internet mania, start trading at $87. Why should spreads like that only belong to Al D'Amato and big brokerage clients? Anyone who was able to get 100-share lots at the $9 offering price had the chance to buy at $900 and sell the same day for $8,700.

It's not shrewd investing; it's not daring trades. Like I said, it's stupid.

Despite Wit's bad-joke service, the company has a rich pedigree. Andy Klein, Wit's founder, graduated from Harvard Law School to Cravath, Swain & Moore. He left to found a microbrewery called Spring Street, makers of a wheat lager called Wit Beer. After offering shares of Spring Street directly to investors over the newfangled World Wide Web, Klein started Wit Capital in late 1997. Although his grand vision involves digital trading systems that cut out investment-banker middlemen, his company has flourished mostly as a kind of retail backdoor for the most insider Wall Street deals. Goldman, Sachs, feeling its own way around the brave new world of digital populism, bought 22 percent of the company in March. Wit staff includes name-brand recruits from other Wall Street firms -- the head of research is Jonathan Cohen, a top-rated Internet analyst stolen from Merrill Lynch, and the chairman and co-CEO is Bob Lessin, the former vice-chairman of Salomon Smith Barney.

Wit's site has warnings about "flipping," or dumping shares as soon as they go public. That's of course what many institutional clients do; first-day trading volume often outpaces the number of shares available. Wit alludes to some kind of point system for penalizing flippers that's never actually explained. But I was not opening a Wit Capital account to get in early on the next Microsoft. (And despite a few whiz kids like eBay and Priceline.com, Net IPO's, once public, have actually underperformed the Dow since last fall.) I just wanted to hitch a quick ride on the first-day Internet run-ups. Other online brokers like E*Trade, DLJdirect, Schwab, and now Discover also hand out the winning lottery tickets, but none prides itself on the first-come, first-serve free-for-all hosted by Wit.

Lately I'm worried that I killed my Wit account by flipping too much. Online discussions about what it takes to get on the wrong side of Wit tend toward the paranoid and superstitious. I was on top of Wit's listing of an April IPO called Net Perceptions -- came out at $14, started trading above $30 -- but was never allocated any shares. I know at least three friends with relatively new accounts who got shares but weren't any faster at registering.

Those friends owe me lunch. Others still don't understand what's going on. Even with all the bull-market background noise, I still sometimes fail to communicate the Wit deal. Most mistakenly think it requires investment skill, although one day-trading Schwab friend frowns that it's not sporting. He's making too much off Amazon.com to bother with these 100-share crumbs.

Each Wit convert is pledged to sound the alarm when a Wit offering is detected. A chain of relationships connects us even though we don't all know one another. I picture these cells all over the country, allies united against unknown online masses. The phone will ring at lunchtime with a staccato "Wit." Then the dive for the bookmark, almost always resulting in a server error, as Wit's operation buckles under the customer attack. Registrations seem to run 200 per minute, and most of these offerings go to only a few thousand customers. Caught in the crush -- the methodical reload, reload, reload -- slogging through the four-step process of registering interest, you can spend half an hour in this mindless clicking before scoring the final serial number and time stamp.

One of my recruits procured a program called WebWatcher that checks the Wit Capital IPO page for changes every 60 seconds. I have no idea who wrote the program. Like some virus or chain letter, it came from a friend who got it from a friend. It doesn't show up on any online searches, and it has the feel of a homemade effort. It's also hard-coded with the specific Wit Capital IPO page. Sometimes it doesn't work, popping up false-positive "Page has changed" alerts even when nothing's new. For a while I thought Wit had installed some kind of server countermeasure; then just as suddenly the program started working again.

Mission creep is a constant threat. You track the progress of IPO fodder even after dumping it. VerticalNet did this to me in February. I got 100 shares at the offering price of $16, which I sold the next day for 42 1/4, racking up a $2,600 profit. But then it kept going past $100. This worked on my conscience; maybe it's worth keeping my good name with Wit after all -- especially if the stock's going to double again. Some people even treat IPOs as investing (presumably the ones bidding up the shares I'm so anxious to dump). There's an endless stream of IPO commentary that analyzes underwriter quality, first-mover advantages, and price-to-sales ratios. But that news has nothing to do with me. All I need to know about OneMain.com when it shows up one afternoon on Wit is that the name is golden. I don't care that the company controls the Kansas market for dial-up Internet access, or that Bob Dole sits on the board. All that matters is it's an Internet IPO I can flip.

Wit used to have a discussion area for customers, since taken down. Now the best talk takes place on a stock gab site called Silicon Investor. Customers, some of them obviously not well heeled, compare time stamps. Experienced users share tips on how to get through on the phone: Dial for ten minutes until you get put on hold, then leave the speakerphone on, sometimes all day. "I go to meetings, lunch, et cetera, with the phone on, and if I get lucky I get an answer when I'm at my desk."

For most, Wit is Oz-like. I've visited the Wit offices at 12th Street and Broadway to deposit extra money before a pricing. It was downtown chaos, an underfurnished real-estate or telemarketing office. The receptionist worked a fully illuminated phone console -- ah, so that's where it all happens -- while also sorting through a large pile of account applications and deposit envelopes. The next week, a notice on the site warned off drop-ins.

Two of my biggest scores, both in the 100-share range: CBS's MarketWatch.com, priced at $17, dumped at $97; iVillage, priced at $24, unloaded at $89. At the start of this decade, films and other businesses were scrappily financed with credit-card debt -- will new funding mythologies spring from the retail spoils of Internet IPOs? There's even a site called Invest-o-rama using iVillage IPO profits as marketing seed money. Maybe Wit will help underwrite its IPO one day. After getting 100 shares of Priceline.com through an E*Trade account -- offering price $16; first-day sale $68 7/16 -- a poet friend exclaimed, "It's better than Yaddo."

Wit won't comment these days about its service or ambitions because -- why else? -- it's filed for its own IPO. That will probably happen next month, provided Internet stocks don't boil over first. One of the recent service apologies from founder Klein announced new phone lines, but the service seems more overrun than ever. A Wit registration statement, submitted to the SEC in March, conceded the point: "To date, we have been given only minimal share allocations. . . . We have experienced a high level of customer dissatisfaction."

But I won't have any complaints if I get 100 barnesandnoble.com shares.


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