02.02.10
Posted in All Categories, Fraud, Microcap at 10:29 am by Michael Goode
See the Dow Jones Newswire article for the story. That article is excerpted below:
The U.S. Securities & Exchange Commission sued a New York lawyer on Monday for allegedly writing bogus opinion letters to help stock promoters improperly procure unrestricted stock certificates in three unregistered “penny” stock offerings.The lawsuit, filed in U.S. District Court in Manhattan on Monday, alleges that Stephen Czarnik, a partner at Cohen and Czarnik LLP, assisted three stock promoters in the abuse of a rule that allows accredited investors to acquire unrestricted shares from transfer agents in unregistered securities offerings that don’t exceed $1 million.
The SEC said Czarnik continues to serve as a “one-man ‘opinion-mill’ for unregistered penny stock offerings.” The regulator said Czarnik has authored at least 111 opinion letters for unregistered stock offerings, involving the transfer of more than 2.5 billion shares to penny stock promoters by 43 issuers.
Disclosure: No positions in any stocks mentioned and no relation to anyone mentioned. I have a terms of use.
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01.21.10
Posted in All Categories, Fraud, Microcap at 12:54 pm by Michael Goode
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.
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01.20.10
Posted in All Categories, Fraud, Microcap at 2:36 pm by Michael Goode
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.
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01.14.10
Posted in All Categories, Microcap at 1:59 pm by Michael Goode
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.
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12.01.09
Posted in All Categories, Fraud, Microcap, Stocks at 1:52 pm by Michael Goode
The SEC has a habit of belatedly suing those that Andrew Left of Citron Research has criticized. This time the company is Home Solutions of America, a company that I have written about a few times. I have written about Left many times before. Definitely make sure to see my “Can you trust the StockLemon” series, Part 1, Part 2, Part 3, Part 4.
Here are some excerpts from the SEC’s litigation release:
The SEC alleges that Home Solutions of America, Inc. recorded millions of dollars in bogus revenue and issued a series of materially false press releases boasting robust financial results following Katrina and other weather-related disasters, thus inflating the company’s stock price. The stock price later plummeted after large insider stock sales, the filing of private securities lawsuits alleging fraud, and the company’s public announcement that it would restate its financial statements. Home Solutions then-CEO Frank Fradella, who is among seven individuals charged by the SEC in the scheme, dumped approximately $6.8 million worth of stock into the inflated market.
The SEC further alleges that Marshall engaged in a separate revenue-inflation scheme at Fireline, booking more than $9 million of fake construction revenue from undisclosed, related-party contracts with entities that Marshall controlled. In fact, at the time Fireline caused Home Solutions to record the revenue, very little work had been performed on the projects and most remained bare-dirt lots.
Unlike most SEC complaints, just about every executive at HSOA was named, and four of the lesser executives have already consented to the SEC’s findings, without acknowledging guilt of course
Four others charged today by the SEC simultaneously agreed to settle on the following terms, without admitting or denying the allegations in the complaint.
- Former Home Solutions CFO and COO Rick O’Brien agreed to pay a $130,000 penalty.
- Former Fireline controller Stephen Gingrich agreed to pay a $25,000 penalty and to an administrative order barring him from practicing before the Commission as an accountant for at least three years.
- Former Fireline COO Thomas Davis agreed to pay a $25,000 penalty and to pay disgorgement and interest of $32,850.
- In addition, O’Brien, Gingrich and Davis each consented to final judgments permanently enjoining them from violating Sections 17(a)(2) and (3) of the Securities Act and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.
- Finally, Jeff Craft, a business partner of Marshall, consented to a final judgment permanently enjoining him from violating Rule 13b2-2 under the Exchange Act.
So it turns out that once again the short seller was right, the executives were (allegedly) crooked, and the SEC was slow.
Disclosure: I have no positions and I have no connection to anyone involved besides reading Left’s blog.
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05.16.09
Posted in All Categories, Fraud, Microcap, Stocks at 7:47 pm by Michael Goode
A lot can be said about short sellers. One undeniable fact is that short sellers are the sellers of last resort. When everyone else wants to buy, the only ones who wish to sell are often short sellers. In fact, while many fear the depredations of short sellers manipulating the market with bear raids (of which there is little evidence), short sellers are the ones who protect the market from pump & dump schemes and bull raids (a bull raid being a concerted promotion of a stock when the promoter is not being compensated and has no position in the stock; certain stock pumpers will engage in these from time to time to enhance their credibility). It is worth noting that pump & dump schemes are common in OTC and Pinksheets stocks that usually trade for less than a dime per share, but there are almost none in higher-priced listed stocks. The reason for this is that margin rules and difficulties borrowing shares to short prevent short sellers from being the sellers of last resort for penny stocks. For listed securities they are more easily able to sell. It is the fear of short sellers that causes most stock pumpers to avoid stocks trading for over $1 per share on exchanges like the NYSE and Nasdaq.
Sometimes pumpers get a little cocky or a short seller gets lucky and a pump & dump runs headlong into the brick wall that is a motivated and well-funded short seller. Whatever the reason, this short seller was able to find plenty of shares to borrow of last Thursday’s pump of Alanco Technologies (ALAN). This pump (or in this case a bull raid, as the pumper reported having received no money to promote the company) came from stock tout Stockpreacher (about which I have written previously). Stockpreacher released its ‘report’ on the company just as the market opened and ALAN jumped 100% from an opening price of $0.49 to over $1.00 in less than a minute (this was no doubt caused by Stockpreacher’s idiot subscribers buying with market orders). The stock touched a high of $1.30 but very few shares traded hands above $1.05.
ALAN Daily Stock Chart (pump and dump day highlighted; click to enlarge)
Seeing that the stock was up an insane amount for no reason other than a bull raid and that there were shares available to short, I quickly started selling large blocks of shares. I knew that the only reason the stock was up was a bull raid and I knew from past experience that previous Stockpreacher bull raids dropped quickly from their highs. I quickly exhausted all 12,550 shares of ALAN available to short at my main brokerage, Interactive Brokers (see a screen shot of my trades there). I then moved on to another brokerage account that had shares available and sold short another 34,500 shares. I had an average short price of $1.01. My fusillade of short sales (I sold over 2% of that day’s volume in the span of a couple minutes) helped to keep the stock from hitting more outrageous highs than the already outrageous $1.30 it briefly hit. How do I know? Stockpreacher’s bull raid on BOSC from the previous week (for which no shares were available to short at any of my four brokerages) had driven the stock price from $0.60 to an intra-day high of $5.80.
ALAN Intraday Stock Chart (click image to enlarge)
About an hour and fifteen minutes after I first sold short, I covered my short position at prices between $0.60 and $0.65. I netted $17,322 for a few minutes’ work and I got the satisfaction of helping to counter the manipulation of a notorious stock tout. It was indeed a good day.
How You Can Profit from Pump & Dumps
Some fellow stock traders were impressed with my courage in short selling a stock that was up 100% on manipulation without even waiting for the buying pressure to ease up. My response was simple: manipulation has its limits. I am now nearly an expert on manipulation and hype, having learned from Tim Sykes how to short sell manipulated stocks. I knew from observing the previous Stockpreacher bull raids that the stocks always dropped quickly from their intraday highs. There are no easier trades than short selling a stock that has been manipulated 100% higher when you know the manipulation is going to cease (Stockpreacher does not keep pumping the stocks it selects for bull raids after the initial day). That being said, it is scary to quickly take a large short position in a volatile stock. To do so requires both understanding hype and manipulation and confidence in being right. Unfortunately, until the last couple weeks (during which I have made several great trades), my confidence has been poor (like my trading) this year.
As I have mentioned repeatedly in my articles on becoming a stock trader (Part 1, Part 2) and in my Introduction to Evidence-Based Investing, the bane of any trader (or investor) is emotion. Fear and greed are both anathema to successful trading; a trader should be confident but not overconfident. Trading involves implementation of a specific plan; emotion will distract from the plan and lead to poor decisions. I have struggled with my trading this year, suffering from a large draw-down in my secret super-awesome trading strategy, suffering from meager profits in my pennystocking trading strategy (Tim Sykes’ strategy), and even messing up my arbitrage trades.
As a result of the above troubles, my account dipped into negative territory and I was feeling horrible. While I gained 5.13% in January and gained 5.32% in February, I lost 3.81% in March and lost 9.90% in April. I resolved to dial down my risk a bit and focus on fixing my trading errors. I revised my super-secret trading strategy (which had been responsible for 80% of my profits and losses) in a way that only slightly reduces returns while greatly reducing risk. For my pennystocking trades, I focused on getting my confidence back. The best way to do that is to focus on the easiest trades. So, knowing how easy it would be to profit from short selling a Stockpreacher pump, I followed each one and did not let my fears keep me from taking a huge short position in ALAN. It helped that I follow Tim Sykes and he kept reiterating the ease of profiting from stocks up on hype alone. That strategy seems to be working as I am now up 12.14% so far this month (and May is only half-over!).
Now I have my confidence back and will look to improve my performance in more difficult trades. Of course, there is no reason for me to abandon the easiest trades! If possible, I will gladly sell short 100,000 shares of the next Stockpreacher pump!
Chart of my cumulative profit trading Tim Sykes’ strategy
Disclosure: No Positions. I am an affilliate of Tim Sykes as well as a customer, having purchased multiple of his DVDs (I recommend Pennystocking Part Deux; it is by far the best) and being a Lifetime TimAlerts member. I have a disclosure policy.
I have previously written about Tim Sykes:
March 2008: Timothy Sykes is Full of Bullship
September 2008: Why I Paid Timothy Sykes $2000
September 2008: How to Get Rich Trading Penny Stocks
January 2009: Update on Tim Sykes’ Trading System
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05.08.09
Posted in All Categories, Fraud, Microcap, Stocks at 10:55 am by Michael Goode
The SEC Enforcement Division just published a press release about a ’successful’ enforcement action in regards to stock manipulation of former penny stock Exotics.com (a pornography purveyor). The sad thing is that the press release once again highlights not the SEC Enforcement Division’s success but rather its complete and total failure. The gist of the release is that one of the alleged involved stock manipulators made $156,870.92 in illicit profits and his punishment is promising to never be a bad boy again and paying only $20,000 in fines (having few assets because he already spent his ill-gotten gains).
I don’t know how other people think, but if I were to make $156,870.92 in a penny stock manipulation scheme and then be fined only $20,000 by the SEC because I had already spent all the money, I would not feel very punished. In fact, I would not be dissuaded at all from participating in future stock manipulation. If I were a con man who had not previously engaged in stock manipulation and I saw this information, I would drop whatever I was doing and get into stock fraud because even if a perpetrator is caught their punishment is light and they usually end up better off than they were before the fraud.
A note to the SEC Enforcement division: for a punishment to deter offenders, they must actually be punished; in other words, they must be made worse off than before they committed the crime. How about fining them for three times the amount they stole and then hounding them for payment for the rest of their lives? Giving prison sentences would also be nice.
SEC Litigation Release
Disclosure: No positions. I have never been fined or sanctioned by the SEC or any other regulatory agency for anything.
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04.23.09
Posted in All Categories, Fraud, Microcap, Stocks at 8:43 am by Michael Goode
(click image for full chart)
I would congratulate Stockpreacher.com on the skill with which they have in consecutive weeks sent Candela Corp (CLZR: $0.00 N/A, market cap: $N/A) up 100% and on April 20, NetSol Technologies (NTWK: $0.993 -2.65%, market cap: $34.3M) up 60% (from $0.45 to a high of $0.72). However, their pump of NetSol attracted so much interest that it crashed their website. On the day it was pumped over 5 million shares were traded versus an average of 400,000 shares per day in the prior week. I can only guess that 1 million more shares would have been traded if StockPreacher’s website had not crashed.
Of course, like most pumped stocks, NetSol and Candela both fell after the pump and I profited from short selling both of them (I also profited from buying NetSol into the pump). Tim Sykes also has a post on this pump and how he (and I) profited from trading it. Do you want to learn how I have made $2577.30 in 2009 and $50,801.90 since last June by following Tim Sykes’ trading system? Buy some of Tim’s stuff (like his Pennystocking Part 2 DVD set … but skip Part 1) and find out.
For those who must know, I bought NTWK at $0.47 (because their website was down and my email was slow I found out which stock they were pumping from a post in the InvestorsUnderground Chatroom, which is a great place for day-traders), sold at $0.61, went short at $0.65, covered at $0.58, went short again at $0.64 (all on 4/20) and covered at $0.57 on 4/21. I made over $1500 in under 24 hours with no more than $4300 at risk at any time. Not bad, eh?
Disclosure: No positions in any stock mentioned. I am an affiliate of InvestorsUnderground and Tim Sykes and will make a commission if you buy junk using my links. I am a subscriber to InvestorsUnderground. I am a TimAlert lifetime member and have purchased Sykes Pennystocking 1 & 2 and received TimRaw as part of a TimSeminar I attended. I have a disclosure policy that loves to profit from idiots who put faith in stock touts.
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02.12.09
Posted in All Categories, Fraud, Microcap, Stocks at 9:59 am by Michael Goode
Some of you may remember Hydrogen Hybrid Technologies (OTC BB: HYHY.ob). It was a spam stock from last summer, perhaps the most recent successful pump and dump. The SEC just halted the stock, trading at 3 cents. During its pump & dump days, this stock reached $2.50.
Update later on the same day: The SEC just put out a release alleging that the majority owner of HYHY and other penny stocks made $20 million from illegal market manipulation. Impressive take.
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11.17.08
Posted in All Categories, Fraud, Microcap at 3:32 pm by Michael Goode
Over the last two months Kahan sold every share of Maxlife Fund Corp (OTC BB: MXFD) that he owned. He made $59,850 from the sales of 2,500 shares while also donating 500 shares to a synagogue. Not a bad profit for someone who is director of a company with essentially no operations, assets, or revenues (at least as of the last 10Q — I am eagerly awaiting the 10K and hey, maybe Maxlife will have actually done some business over the last quarter, but I am not betting on it).
Kahan’s average sale price was $23.94, 33% above the current stock price of $18. See the Form 4 here. Kahan still owns stock options, some exercisable at prices as low as $20.
Maxlife’s last 10Q shows a book value of $597,000, nil quarterly revenues, and a quarterly loss of $219,000. The company has a market cap (at a recent price of $18) of $545 million.
Disclosure: I have no position in MXFD.
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