Hustles From a Shell

Wall Street is taking "money for nothing" to absurd lengths.

To date, eight startups with no active operations to speak of have sold shares to the public this year, raising $410 million, according to investment banking research firm Dealogic. In all of last year, just six of these so-called "blank-check'' shells completed initial offerings, raising $275 million in the process.

The resurgence in blank-check IPOs, which have a history of being abused by unscrupulous stock promoters, is the latest sign that speculation is alive and well on Wall Street.

After all, what could be more speculative than shares in the IPO of a company whose sole raison de etre is to spend money on a business it hasn't even identified?

Talk about blind-faith investing.

"This is really a poke-and-hope situation,'' says David Menlow, president of IPO Financial Network, a stock-offering research firm. "It's something I would look at with a jaundiced eye.''

Menlow's skepticism isn't shared by the investing public. Besides the eight completed blank-check IPOs, there are another 17 deals still awaiting approval from the Securities and Exchange Commission.

The most notable of this year's crop of blank checks is Fortress America, a Bethesda, Md.-based company that's the handiwork of C. Thomas McMillen, a former Maryland congressman, NBA player and Rhodes Scholar. The six-month-old concern hopes to raise $42 million in an IPO to buy a company that "contracts directly with the government on homeland security projects."

In an attempt to ensure Fortress America's bona fides with investors and government officials, McMillen has attracted an all-star cast of characters from the defense and intelligence communities, including former Sen. Don Nickles (R-Okla.) and Asa Hutchinson, former undersecretary for the federal Department of Homeland Security.

Most blank-check companies are not targeted to a specific industry like Fortress America. In fact, most blank checks are vague in discussing their business strategies and leave a lot of discretion to the company's managers.