01.26.10
The Keynes v. Hayek Rap
I’m probably the last to post this, but it is worth watching if you have not yet seen it.
01.21.10
SEC Pursues Individuals Behind My Vintage Baby and Beverage Creations Pump & Dumps
The SEC just published a litigation release, announcing that it had:
sued Summit Advisory Partners, LLC and its managing partner, Robert Feeback, for directing and providing essential services in a scheme to “pump and dump” the stock of various penny stock companies in Texas. According to the complaint, the actions of Feeback and Summit allowed three stock promoters – Ryan Reynolds, Jason Wynn and Carlton Fleming – to purchase millions of shares of stock for pennies per share, hype the companies through promotional mailers and other advertising, and illicitly sell their shares to the public for millions of dollars in profits. The Commission alleges that because the shares were not registered, public investors were deprived of full and fair disclosures necessary to make an informed decision to purchase the stock.
The pump and dumps mentioned in the complaint are “My Vintage Baby, Inc., Alchemy Creative, Inc. and Beverage Creations, Inc.” I suggest reading the SEC’s full legal complaint (pdf). The best part of the complain is the SEC’s description of how the pump & dump allegedly worked:
In each of the MVBY, Alchemy, and BCI offerings, the Promoters applied the same basic “pump and dump” formula. The Promoters (a) organized a reverse merger of the company into a public shell, (b) purchased large blocks of common stock at pennies a share from the Issuer in a purported Rule 504 offering (in an effort to evade registration requirements and obtain a large percentage of the company’s stock without investing much of their own cash), (c) created initial trading volume for the stock by selling some of their shares to a tightly controlled group of friends, family, and affiliated brokers, (d) touted the company to the public through spam, television advertising, and mass mailers, and then (e) dumped their shares on the investing public without registration at prices grossly inflated by their promotion activity.
Furthermore, the SEC complain alleges that
The Promoters also touted the Issuers through a penny stock promotion website, www.thestockpic.com, then run by Ryan Reynolds’s sister. In addition, the Promoters helped create a flurry of press releases for each Issuer to release during the first few weeks of public trading.
The pump & dumps worked and the stock prices of all three stocks pumped soared:
BCI’s stock price more than doubled, from an intraday low of $.55 per share on January 30 to its February 21 close at $1.25 per share. Likewise, in the first five weeks of trading, Alchemy’s stock price soared almost 75%, from an intraday low of $1.90 per share on December 5, 2007 to an intraday high of $3.32 per share on January 11, 2008. My Vintage Baby’s stock price experienced even greater gains over its first five weeks of trading, rising from an intraday low of $.40 per share to an intraday high of $2.88 per share.
The scheme was also allegedly highly profitable:
“Fueled by the pump, the Promoters sold their purported 504 shares to the investing public for a total profit of over $20 million.
Disclosure: No positions in any stocks mentioned and no relation to anyone mentioned. I have a terms of use.
01.20.10
An open letter to Nicholas Czuczko
When writing about stock fraud and other illegal activities it is important to keep in mind that people’s reputations can be destroyed. Much of the time this is right and just punishment for wrongdoers who have violated the laws and harmed others. However, I am cognizant of the undue harm to a person’s reputation that can come to someone who is charged with a crime by the SEC or others when those charges are later dropped. I have in the past cut a section of an article in response to a request from someone who was named in a securities enforcement action but later dropped from that action. But just as I believe that I should not contribute to the undue sullying of the reputations of those who do not deserve it, I believe that those who violate the laws deserve to have their reputations destroyed.
So when I received an email from Nicholas Czuczko asking me to take down this past blog post about his loss in court to the SEC, my inclination was to not comply. Simply put, my reporting of the SEC’s litigation release on the matter was fair and accurate. Furthermore, a search of SEC litigation releases since that time did not reveal any additional information related to the case. So I am certain that my blog post did not libel Czuczko.
For those of you who are not familiar with the case, here is a quote from the SEC’s litigation release, highlighting the judgment of the US District Court for the Central District of California:
The Commission filed its complaint on August 1, 2006. On December 5, 2007, the court entered judgment enjoining Czuczko from future violations of the antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder), as well as from future violations of the ownership disclosure provisions of the federal securities laws (Section 16(a) of the Securities Exchange Act and Rule 16a-3 thereunder). In addition, the court ordered Czuczko to disgorge $1,552,463 in ill-gotten gains plus $121,105.64 in prejudgment interest, imposed a $100,000 civil monetary penalty, and barred him from participating in penny stock offerings and from serving as an officer or director of a publicly traded company.
I suggest that interested readers also read the SEC’s original complaint (pdf) in the case and the press release announcing the SEC’s civil lawsuit against Czuczko. I have also found and uploaded the court’s final ruling in the case (pdf).
Below is the email I received from Czuczko through the contact form on this blog. Surprisingly enough, he did not accuse me of libel in asking me to remove the blog post. Instead, he cited copyright and trademark infringement.
To whom this will concern:
As a media organization, I’m sure you value your trademarks and copyrighted
material. Be advised I am requesting removal (as soon as possible) of
copyrighted and trademarked material under U.S. Law that I own from your site.
The webpage is:http://www.goodevalue.com/2007/12/20/sec-vs-the-stockster/
Since there are no backlinks to the page, the material seems to have no
editorial value to your website.I have documented that your website has been publishing this content without
permission since 2007.Although this request is meant to be a friendly request, I am advising you that
I will file a Digital Millennium Copyright Act (DMCA) take-down notice, and all
other necessary steps to have this content removed from your website, if not
done in a timely manner. Thank you ahead of time and your timely removal of my
copyrighted and trademarked material from your website.Sincerely,
Nicholas A. Czuczko
Upon reading the above letter I was flabbergasted; nothing in my blog post could be construed as violating copyright or trademark. My post was text and except for a brief quote from the SEC litigation release (for which Czuczko most certainly does not own the copyright), it was all in my own words. Needless to say, I will not be removing my original blog post.
——
Let me conclude by pointing out that in some cases, issuing a DMCA takedown notice can itself violate the law. I do not know if that would be the case here if Czuczko were to issue a DMCA takedown notice, but anyone who has considered issuing a DMCA takedown notice should consider whether this might apply to them. I suggest that the interested reader see the decision in Online Policy Group v. Diebold, Inc., 337 F.Supp.2d 1195 (N.D. Cal. 2004). Below the court cited the relevant section of the law:
17 U.S.C. ß 512(f) provides as follows:
Misrepresentations.–Any person who knowingly
materially misrepresents under this section–
(1) that material or activity is infringing, or
(2) that material or activity was removed or
disabled by mistake or misidentification,
shall be liable for any damages, including costs and
attorneys’ fees, incurred by the alleged infringer, by
any copyright owner or copyright owner’s
authorized licensee, or by a service provider, who
is injured by such misrepresentation, as the result
of the service provider relying upon such
misrepresentation in removing or disabling access
to the material or activity claimed to be infringing,
or in replacing the removed material or ceasing to
disable access to it.
The court stated (in a decision in favor of the plaintiffs, who had sued Diebold for using a DMCA takedown notice against them), “Thus, any person who sends a cease and desist letter with knowledge that claims of infringement are false may be liable for damages.”
Disclosure: No positions in any stocks mentioned and no relation to anyone mentioned. I have a terms of use.
01.14.10
MaxLife Fund Corp Update
Those of you who have followed me for a bit know I have a thing for Maxlife Fund Corp (OTC BB: MXFD). Today they filed a new 10-Q (the filing was late, too). There was nothing surprising in the filing. Sales remain at $0, the company’s book value continues to shrink, and the stock barely trades. I have to admit that now I am a bit mystified by this company. When the stock price first soared back in 2007, my belief was that the company was nothing more than a promotable shell for a pump & dump stock promotion. That a stock promoter named Itamar Cohen owned almost half the shares only reinforced my belief, and evidently the writer of Forbes Informer agreed with me; he wrote the following in early 2008:
A potentially controlling 46% of the shares belong to Itamar (Eddy) Cohen of Concord, Ont. He also owns four-year-old investor relations firm Maxwell Network Group, whose Web site proclaims, “We will work to quickly and dramatically increase your stock’s marketability and liquidity.” Not always with lasting results: Shares of recent clients Royal Spring Water and Red Rock Pictures Holdings have fallen 97% off their 2007 peaks. Cohen, 46, tells FORBES he’s not promoting MaxLife and “This is not a pump and dump.”
Cohen canceled his shares in August of 2009, which would support his earlier assertion that MaxLife wasn’t a pump & dump. But Maxlife is also not a real company (it has had no consistent revenues and remains in the ‘development stage’), despite having had two years since I started watching it to develop a real business. During that time the company has seen its book value fall to $284,411 (as of the most recent 10-Q) from $557,473 (as of the January 2008 10-QSB) and its accumulated deficit has increased from $29,616 to $1,697,564. It had actual revenues for only one or two quarters and the company’s total gross profit since inception in 2006 is $26,750 (on the sale of one life settlement policy).
Maybe Maxlife Fund Corp will become a real company with real revenues. Maybe not. But no matter what, this company is a great illustration of how there are many shell companies and barely functioning companies with no revenues trading on the OTC BB exchange. While there are plenty of outright scams and barely-legal pump & dumps, ‘investors’ in the poorly functioning or shell companies can do just as poorly. Considering Maxlife Fund Corp’s continuing insane valuation (over $100m) investors in the company will likely suffer no matter what happens to the company.
Disclosure: No positions. This blog has a terms of use.