Year: 2012

Ten easy steps to 1000% gains: How to create a pump company from scratch

One thing that most investors and traders do not know about the crazy, slimy underworld of OTCBB and Pinksheets stocks is that a large proportion of the companies are created for the sole purpose of being used in pump and dump schemes. Below is a guide to how penny stock operators create listed companies for pump and dumps. Not all of these steps are used in every pump and many pumps do not involve many of these steps.

(Note: I am not an expert on this so it is quite possible that there are significant errors in this post. As always I welcome corrections.)

The Ten-Step Guide to Creating a Pump and Dump

Option 1: Start from scratch

1. Create a corporate shell.
2. Use a Regulation S placement to sell stock to a few close associates. These ‘seed’ shareholders often pay just a few thousand dollars for the stock.
3. Do a reverse merger with some company with a promotable product or technology (the best companies have cool new technology in the development stage so they can be hyped without worrying about actual sales or profits). You can buy some technology that doesn’t work but sounds like it should to laypersons for a couple hundred thousand dollars or a chunk of shares in the public company. If you have no good ideas and have no connections, start your own mining company, lease a mining claim for $10,000 and pay an engineer $5,000 to say it is worth digging.
4. Fund the company by selling convertible debt to insiders / friends. Bonus points are earned for using front companies based offshore to hide the identities of the beneficial owners of the debt.
5. Do a large forward split to get the share count into the tens or hundreds of millions. (These first five steps can take up to a year or more in order to ensure that all your shares are free-trading and not restricted shares.)
6. Contract a stock promoter to promote the stock at an arbitrary price ($1.00 per share or thereabouts is common for big promotions).
7. Sell some shares at a pre-arranged price in large blocks to the promoters or friends. Use these sales to create a bit of a price history at a high price.
8. Install a friend or compliant stooge as the company’s President/CEO and make sure that he follows your instructions.
9. Have the CEO/President start putting out press releases to coincide with the start of the promotional campaign. This way people unfamiliar with pump & dump campaigns will interpret the new volume in the stock as legitimate investor interest (and not the blatant stock promotion it is). It is much harder for the SEC to go after promoters who lie and exaggerate than it is for them to go after corporate officers who lie, so stick to verifiable facts and positive opinions in the press releases.
10. As soon as the promotion starts, start selling your shares on the offer and let the stock slowly uptick to keep traders interested. Because you controlled the company from the very beginning, all the shares being sold belong to you and your associates. Selling shares slowly while letting the stock go up slowly seems to be the most effective way to sell the largest number of shares. Careful manipulation of the price action by providing bid support is also important (it is also illegal but very hard to prove).

Option 2: Purchase control of a publicly-traded shell company

1. Purchase control of a traded shell company on the OTCBB or Pinksheets. Last I checked, such companies, depending on the details (OTCBB companies are more valuable than Pinksheets companies, operating companies with few operations are more valuable than shell companies), the publicly traded shell can cost from $100,000 to maybe $500,000.

2. This step is not necessary.

3.  Same as step 3 above — do a reverse merger with a company (that you control) with a promotable technology or product. You can use the reverse merger to dilute the existing shareholders into irrelevance.
4. Same as step 4 above  — fund the company by selling convertible debt to yourself and friends. Again, if there are lots of other shareholders, you can use unfavorable debt deals to dilute them into irrelevance.
5.  Same as step 5 above — do a stock split to increase the number of shares outstanding. Unlike when starting from scratch, you have a number of shares of your company that are still in the hands of the public. You will thus want to support the stock price or manipulate it higher during and after the stock price. Real companies share prices drop in proportion to the increase in number of shares during a stock price. You are looking to increase the market cap of your company drastically so you will have to keep the price from dropping. The few public shareholders of your stock will benefit handsomely but they should have mostly been diluted into irrelevance by steps 3 and 4.
6. Same as step 6 above — contract with a stock promoter.
7. Similar to step 7 above, but there are already shares out there and a trading history, so it is best to use wash sales and matched trades between multiple accounts to build a trading history at the current (high) price that you wish to start the promotion at. (Caution: this is illegal.)
8. Same as step 8 above — install a friend or stooge as company CEO/President.
9. Same as step 9 above — have the CEO issue press releases to coincide with the promotion.
10. Same as step 10 above.

For an investment of some time and up to $5 million dollars for the most expensive of promotional campaigns, it is possible to realize over $100 million in profits. It is quite possible to put together a pump like this for under $1 million (and for just a few hundred thousand) and you can still expect to realize returns in excess of 1000%.

An example of the 10 steps to creating a pump & dump

Following are the steps allegedly taken by the insiders and promoters of RCYT (promoted in February 2010). All quotes below are from the SEC complaint (pdf). See also the SEC litigation release about the lawsuit. Note that many of the steps were completed in a different order than I have above. First, though, meet the defendants in the lawsuit:

A. Defendants

8. Recycle Tech is a Colorado company. From February 16, 2010 through June 2010 its principal place of business was Miami, Florida. Its common stock is quoted on the OTC Link (formerly, “Pink Sheets”) operated by OTC Markets Group Inc. under the symbol “RCYT.” From no later than February 2010 to June 2010, Recycle Tech purported to be a development and engineering firm specializing in “green building.”

9. Sepe, age 54, is a resident of Miami. At the time of the scheme, he was a longtime acquaintance of Halperin and is listed as the officer or director of several private Florida companies.

10. Halperin, age 63, is a resident of Aventura, Florida. He is an attorney licensed to practice law in Florida and is the sole member of the law firm Ronny J. Halperin, P.A. Halperin also served as CEO of HydroGenetics, Inc., a Florida corporation, from January 2009 until April 2009, and served as its director from 2009 until late 2011.

11. Gonzalez, age 33, is a resident of Miami and a friend of Sepe’s nephew. Since February 16, 2010, Gonzalez has been the CEO and President of Recycle Tech.

12. OTC Solutions is a Maryland limited liability company formed by Thompson in 2007 as a marketing and advertising company. From no later than January through March 2010, it was associated with “Explicit Picks” and “Ox of Wall Street,” both stock promotional newsletters.

13. Thompson, age 35, is a resident of Bethesda, Maryland. From no later than January through March 2010, he was the sole member of OTC Solutions.

14. Pudong is a Florida limited liability company with its principal place of business in Delray Beach, Florida. From no later than January through March 2010, it was a marketing and advertising company associated with “Penny Pic,” a stock promotional newsletter.

15. Fung, age 37, is a resident of Delray Beach, Florida. From at least January through March 2010, he was the sole member of Pudong.

16. Rees, age 44, is a resident of Salt Lake City, Utah. He is a corporate and securities attorney licensed to practice law in Utah. He is a partner at the Utah law firm Vincent & Rees, LLC.

1. “On February 16, 2010, Sepe and Halperin orchestrated the purchase of Recycle Tech from the professional shell provider. Sepe paid more than $200,000 to the professional shell provider for Green Building’s purchase of the majority of Recycle Tech’s [RCYT] shares. Halperin, in turn, provided a common stock purchase agreement to Gonzalez for his signature. Pursuant to this agreement, Green Building became the owner of the controlling majority of Recycle Tech’s shares. With the reverse merger completed, Gonzalez took his position as CEO and president of Recycle Tech.”

2. This step was not necessary.

3. Completed in step 1.

4. Rather than issue convertible debt, the people involved with RCYT allegedly purchased already outstanding convertible debt: “In late January 2010, Halperin retained Vincent & Rees to coordinate the purchase, assignment, and subsequent conversion of Recycle Tech’s debt into purportedly free-trading stock. Halperin also asked Rees to issue an opinion letter regarding the transactions, and he provided Rees with the necessary documents and signatures for the transaction.” The outstanding share count of RCYT was doubled by the conversion of the debts into shares: “In early February 2010, pursuant to the Opinion Letter and the corporate resolution, Recycle Tech’s transfer agent issued more than 25 million shares of stock to more than twenty Assignees, including OTC Solutions, Pudong, and Halperin”

5. This step was not taken.

6. “Four days after the February 18 press release, OTC Solutions and Pudong started touting Recycle Tech stock in their newsletters. Thompson and Fung, the respective owners of OTC Solutions and Pudong, had previously agreed to coordinate their touting with each other and with Sepe. Before they issued their newsletters, Sepe agreed to provide Thompson and Fung with 2.325 million shares each of Recycle Tech stock. Halperin provided the actual shares to Thompson and Fung.”

7. In the case of RCYT, the SEC has not alleged that the insiders/promoters engaged in manipulative trading.

8. “With the reverse merger completed, Gonzalez took his position as CEO and president of Recycle Tech.”

9. “From February 18 to 25, 2010, Recycle Tech issued seven false and misleading press releases. As CEO of Recycle Tech, Gonzalez had ultimate authority over the press releases. He drafted them, hired a public relations consultant, and provided the releases to the consultant. Gonzalez also instructed the consultant to issue the press releases pursuant to a time schedule Sepe set.”

10. “Taking advantage of Recycle Tech’s artificially raised stock price, a number of the Defendants sold their shares. From February 23, 2010 to March 2, 2010, Halperin sold 1,130,000 shares for $235,060. From February 22, 2010 to February 25, 2010, OTC Solutions sold 2,325,000 shares for $441,722. On February 23, 2010, Pudong sold 2,325,000 shares for $456,457. On February 23, 2010, Rees sold 25,000 shares for $5,982. Sepe, who did not directly receive shares of Recycle Tech stock pursuant to the conversion of debt, was compensated from others’ sales of Recycle Tech stock. Halperin wired Sepe’s company, Charter Consulting, $300,000 from his law firm account on April 12, 2010. At least $150,000 of that wire came from the illegal sale of Recycle Tech stock.”

 

Many thanks go to Janice Shell for summarizing the steps undertaken by shell companies destined for pump and dump schemes. I have added more detail and more steps and I of course take full responsibility for any errors I have introduced. David Baines often writes about the above steps taken by penny stock pump and dump operators.

Disclaimer: I have no positions in any stocks mentioned and no relationship with any people mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

 

Twin British brothers sued by SEC for doublingstocks / daytrading robot scam

See the SEC’s litigation release and the legal complaint. Quotes below are excerpted from those two sources.

Those who are new to the penny stock world may not be aware of the websites, but from 2007 to 2009 the websites Doublingstocks.com and Daytradingrobot.com were very big in the stock promotion scene. In 2009 they promoted UOMO, and in 2010 they promoted BGBR. While I did not follow those websites prior to 2009 I have heard they did a number or pumps in 2007 and 2008.

In its lawsuit, the SEC alleges that the websites, which purported to offer an algorithmic trading system (a “stock-picking robot”), simply gave as its stock picks the stocks that the owners were compensated to promote.

The SEC alleges that Alexander John Hunter and Thomas Edward Hunter were just 16 years old when they set their fraud in motion beginning in 2007. They disseminated e-mail newsletters through a pair of websites they created to tout stocks selected by the robot – which they described as a highly sophisticated computer trading program that was the product of extensive research and development. Their claims were persuasive as the Hunters received at least $1.2 million from investors primarily in the U.S. who paid $47 apiece for annual newsletter subscriptions. Some investors paid an additional fee for the “home version” of the robot software.

While I try to never underestimate the power of human stupidity, it boggles my mind that tens of thousands of people paid money for the service:

Approximately 75,000 investors, the vast majority of whom lived in the United States, paid at least $1,200,000 for annual subscriptions to the Doubling Stocks newsletter and copies of the robot software.

Even if the ‘stock-picking robot’ was just a simple but ineffective stock-trading algorithm, it would have made its owners money. But, that was not enough, as the SEC alleges:

In reality, the SEC alleges that the Hunters used a third website to offer their services as stock promoters, claiming that they could “rocket” a stock’s price and increase its volume by sending out newsletters. The Hunters were consequently paid at least $1.865 million in fees from known or suspected stock promoters, and they did not disclose to their newsletter followers the conflicting relationship between their two businesses.

Some of the best evidence against the Hunter brothers came from a job request for free-lance programmers to create the home version of the ‘stock-picking robot’ software:

In soliciting bids in 2007 from free-lance coders to create the software, Alexander Hunter wrote that the software should “not actually find stocks at all. It should connect to my database and simply request any new stocks I have put in.” He bluntly explained that the software “is almost a ‘fake’ piece of software and needs to simply appear advanced to the user.” Like the newsletter, the home version of the stock picking robot was no more than a fraudulent delivery vehicle for stock symbols that the Hunters had been compensated to promote.

Outright Lies

Stock promotion itself is not illegal, as long as compensation is properly disclosed. The SEC is suing the Hunter brothers because of the many alleged lies told about the ‘day-trading robot’, such as the following (these quotes are taken from the complaint):

18. On their doublingstocks.com website, the defendants referred to the stock-picking robot as “Marl”, combining the first names of its purported inventors, Michael Cohen (“Cohen”) and Carl Williamson.

19. On doublingstocks.com, the defendants claimed that Cohen “developed the famous ‘Global Alpha’ computer stock trading model” as a contractor for the Goldman Sachs Group, Inc. (“Goldman Sachs”). The Global Alpha program, the defendants claimed, in “most years is responsible for $4,000,000,000+ Annual Trading Profit.”

20. The defendants’ representations about “Michael Cohen” were false. No such employee or contractor worked in that capacity at Goldman Sachs.

21. On doublingstocks.com, the defendants described how Marl arrived at its stock picks. Defendants made the following claims:

• Marl works by analyzing each stock using “technical analysis;”

• Marl analyzes each OTCBB and Pink Sheet stock, predicting future price direction based on past performance;
• Marl looks for companies that are forming bullish trading patterns;

• Marl identifies “in split second timing” distinct trading patterns “from a vast range of 6578, held in Marl’s internal database”;

• Marl can process 1,986,832 mathematical calculations per second; • When Marl identifies a “clean, uncongested chart pattern that is proven to yield a good risk/reward,” Marl adds the stock to its “watch list”;

• Marl is programmed on an “evolutionary framework,” meaning that as Marl is watching hundreds of stock patterns it actually learns the most likely direction of stock prices under thousands of situations – “The longer Marl is allowed to run on a computer … The More Advanced He Becomes!”; and

• “While monitoring hundreds of stocks in the watch list … Marl may notice that a stock has been hitting resistance [at a particular price]. … [I]f the stock breaks that level (meaning there is a good chance it will ‘breakout’ and run much higher) the bot will start analyzing the stock in more detail … looking at its longer term weekly trading pattern and applying its vast range of criteria. Any stocks that reach this stage have been under close scrutiny and passed a variety of complex tests. Marl will then analyze the best entry point (at which to buy the stock) with the lowest risk to potential reward.”

22. The defendants’ characterization of the software led investors to believe that they were receiving stock recommendations based on a complex, statistically-driven analysis.

23. To lend further credence to Marl’s claimed analytical abilities, the defendants on doublingstocks.com provided a list of Marl’s supposed past stock picks, claiming that the prices increased in value by 200-400% after Marl selected them.

24. The defendants’ claims about the Marl newsletter and software were untrue. In truth, the newsletters and software sold by the defendants neither contained nor performed any real analysis of securities or their trading patterns. The stocks “recommended” by the newsletters and software were simply those that promoters had paid the defendants to tout.

Following is a list of the stocks pumped by Doublingstocks.com/Daytradingrobot.com from the SEC complaint

Another, minor allegation is that one of the Hunter brothers ‘scalped’ one of the pumps, buying prior to the promotion to the subscribers and selling into their buying. And hilariously, they videotaped those trades to show how profitable their ‘day-trading robot’ was. That is a comically stupid way to give the SEC more evidence.

F. On at Least One Occasion, Defendant Alexander John Hunter Scalped Shares of an Issuer that he and His Brother Were Promoting.

42. On at least one occasion, defendant Alexander John Hunter purchased shares of an issuer “picked” by Marl prior to sending out a newsletter in order to capitalize on the rise in price caused by the newsletter at the next day’s opening.

43. Defendant Alexander John Hunter, on the morning of December 16, 2008, purchased approximately 22,000 shares of Teletouch Communications, Inc. (OTCQB: TLLE) at a cost of $0.16 per share.

44. At 1:21 p.m. (Eastern) that afternoon, the defendants transmitted a newsletter to their subscribers touting TLLE.

45. Fourteen minutes later, defendant Alexander John Hunter began selling the shares of TLLE he had purchased that morning at prices between $0.30 and $0.40 per – 11 – share.

46. Over the next twenty-four hours, he continued selling his TLLE shares, at prices up to $0.51, for a total profit of $5,757, or 161%.

47. The defendants did not disclose to their subscribers that defendant Alexander John Hunter intended to sell shares of TLLE during their promotion of the issuer. The defendants did, however, videotape Alexander John Hunter’s trading activity and used the video to promote the Doubling Stocks newsletter.

One interesting thing is that the SEC alleges that the Hunt brothers have control over a Panamanian corporation, and that the Panamanian corporation was set up to run the promotions after the British authorities froze the accounts of the British corporation used by the Hunt Brothers.

G. The Defendants Masked Their Activity Through the Use of an Alternate Corporate Name and Offshore Bank Account.

48. From early 2007 until January 2009, the defendants deposited the proceeds from their scheme – stock promoter payments, newsletter subscription fees, and software download fees – into a bank account in the United Kingdom.

49. In January 2009, that account was frozen by British authorities.

50. The defendants then directed their newsletter subscription processing service provider to begin wiring their subscription and download fees to a Panamanian bank account in the name of relief defendant Regency Investment Group, Corp. (“Regency”).

51. Regency was incorporated in Panama and controlled, through powers of attorney, by both defendants.

Another interesting tidbit and likely the main reason why the websites have not done much since 2009 is that their payment processor terminated their account:

In July 2009, the company that processed the defendants’ subscription sales terminated its relationship with the defendants as a result of the high number of complaints and refund requests by Doubling Stocks subscribers.

[Edit – the below was added 4/22/2012]

At least one of the Hunter brothers was fined by the British. According to the BBC:

In November, Newcastle Crown Court ordered Alexander Hunter to pay back nearly $1m after he admitted providing unregulated financial advice. He was given a suspended 12-month prison sentence.

Disclaimer: I have no positions in any stocks mentioned and no relationship with any parties mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

The pump and dump du jour, Sunpeaks Ventures (SNPK)

Sunpeaks Ventures (SNPK), with a share price of $1.96 and 420.5 million shares outstanding, currently has a market capitalization of $820 million. With one overpriced multivitamin product (Clotamin) that has plenty of competition, very little in the way of operating history, and a massive stock promotion campaign, it is certain that this stock will soon fall. I believe that will occur within a week, but it could take a month. I am sure that within two months, SNPK stock will be down over 90%.  A couple different penny stock journalists have done some great investigative research on Sunpeaks already, so I don’t have to. Below are the relevant links:

David Baines of the Vancouver (B.C.) Sun
America’s hottest penny stock has links to controversial Osoyoos family
Sunpeaks stock soars higher still
Sunpeaks Ventures went public with cheap shares in offshore accounts
Sunpeaks Ventures’ share price reaching ignition point

Janice Shell of The Street Sweeper
Sunpeaks (SNPK): Will This Hot Stock Go up in Flames? (Full report, as PDF)

Disclaimer: I have no positions in any stocks mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

SEC sues AutoChina executives for manipulative trading

See the SEC litigation release. Below is an excerpt:

According to the SEC’s complaint filed in the U.S. District Court for the District of Massachusetts, AutoChina senior executive and director Hui Kai Yan, a former AutoChina manager, and others fraudulently traded AutoChina’s stock to boost its daily trading volume. Starting in October 2010, the defendants and others deposited more than $60 million into U.S.-based brokerage accounts and engaged in hundreds of fraudulent trades over the next three months through these accounts and accounts with a Hong Kong-based broker-dealer. The fraudulent trades included matched orders, where one account sold shares to another account at the same time and for the same price, and wash trades, which resulted in no change of beneficial ownership of the shares. According to the complaint, AutoChina and the other defendants engaged in the scheme after lenders offered AutoChina unfavorable terms for a stock-backed loan due to low trading volume in its stock.

It is very rare for executives (or anyone, for that matter) to be sued by the SEC for alleged manipulative trading in a listed stock. But manipulative trading is quite common in the penny stock world and few of the people who engage in it ever get sued by the SEC. So when you see an OTCBB or pinksheet stock with little prior trading start to attract a lot of volume, there are good odds that it is manipulative wash-sale trading rather than real people buying the stock.

Disclaimer: I am not a lawyer or legal expert. I have no positions in any stocks mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Tim Sykes looks to sue stock promoter Stock Psycho for Libel

Tim Sykes is looking to sue the owner of PennyStockAlerts.com for libel; that stock promoter has written several negative articles about Sykes that appear very high in the search results when searching for “Timothy Sykes” and related searches on Google.

http://pennystockalerts.com/timothy-sykes/
http://pennystockalerts.com/penny-stock-millionaire/
http://pennystockalerts.com/stock-psycho-busts-timothy-sykes-promoting-penny-stocks-for-pay/

Sykes wrote a blog post responding to the second of the above posts last June, entitled Refuting 8 Lies About My Being A Penny Stock Promoter & A Scam, Excuse Me For Only Being Up 1,458%.

It was Tim Sykes who alerted me (and his other Pennystocking Silver subscribers) to this matter via a Profiding alert (link for subscribers only) in which he linked to this brief article on Domain Name Wire that describes his lawsuit (PDF) against Domain name registrar Moniker Online Services LLC  in Florida. The case is 0:12-cv-60515-JIC in the Southern Florida district of U.S. District Court, and the complaint was just filed by Sykes and entered into the court docket yesterday. Excerpted from the complaint below is the information pertaining to Sykes’ complaint against PennyStockAlerts.com:

7.   Upon information and belief, the registrant for pennystocksalerts.com uses the alias “Stock Psycho” (“Stock Psycho”).
8.   Stock Psycho has engaged in unlawful activities, including without limitation defamation, trade libel and other related torts, and has caused Plaintiff damage by reason thereof.
9.   After exhaustive investigation, Stock Psycho’s true identity is unknown to Plaintiff.

The weird thing about this is that it is not hard to find Stock Psycho’s true identity. While the domain name is registered privately via Moniker (see whois search or check out my screenshot of a whois search I ran today), the disclaimer page at http://pennystockalerts.com/disclaimer/ (see screenshot taken today) states:

Pennystockalerts.com is owned and operated by IPR Agency LLC, a California company.  For purposes of this disclaimer, IPR Agency LLC and Pennystockalerts.com are to be understood as the same entity.  All references to “we”, “our”, etc, refer to IPR Agency LLC and its wholly owned website PennyStockAlerts.com

California has an online business entity search. A quick search for “IPR Agency LLC” brought up the following info (see full screenshot):

So the website that Sykes alleges has defamed him clearly states that it is owned by a Californian LLC by the name of IPR Agency LLC, for which Ryan Franks is the registered agent. I do not understand why Sykes’ lawyer bothered to sue Moniker when the PennyStockAlerts.com website indicates that it is owned by a Californian LLC that exists and that can thus be served with a lawsuit.

I should add that the same person and LLC that runs PennyStockAlerts.com also runs DailyPennyStocks.com under the alias “Darth Trader”. The indications that DailyPennyStocks.com is run by IPR Agency LLC are less obvious — at the current time that is not mentioned on the disclaimer page but is mentioned in the copyright and in the emails (see these screenshots).

[Edit 12/7/2012] – The lawsuit against Moniker was dismissed without prejudice (pdf). I believe that Sykes is pursuing the matter in another venue though.

A web search yielded the following classified legal ad in the Los Angeles Times:

Legal Notices: NOTICE OF ACTION CONSTRUCTIVE SERVICE IN THE CIRCUIT COURT OF THE ELEVENTH JUDICIAL CIRCUIT OF FLORIDA, IN AND FOR MIAMI-DADE COUNTY. CIVIL ACTION NO. 12-33962 CA 25 IN RE: TIMOTHY SYKES vs. RYAN FRANKS AND IPR AGENCY, LLC, NOTICE BY PUBLICATION TO: RYAN FRANKS AND IPR AGENCY, LLC YOU ARE HEREBY NOTIFIED that an action for legal and equitable relief has been filed against you and you are required to serve a copy of your written defense, if any to it on Karen Cohen, Esq., attorney for Timothy Sykes whose address is Law Offices of Karen Cohen, PLLC, 1041 Ives Dairy Rd., Suite 236, Miami, FL 33179 and file the original with the Clerk of the above styled court on or before January 2, 2013; otherwise a default will be entered against you for the relief prayed for in the complaint or petition. WITNESS my hand and the seal of said court at Miami-Dade, Florida on this 16th day of November. Clerk Name: Harvey Ruvin As clerk, Circuit Court Miami-Dade – County, Florida By Barbara Rodriguez As Deputy Clerk (Circuit Court Seal)

This appears to indicate that Sykes and his lawyer have not been able to locate Ryan Franks or IPR Agency LLC in order to serve them with the lawsuit.

[Edit 3/15/2013]: Stock Psycho / Darth Trader now discloses that the websites are owned by Focus Media.

Disclaimer: I am not a lawyer or legal expert. I have no positions in any stocks mentioned. I have multiple business relationships with Timothy Sykes — please see my terms of use for details. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

FBI / DOJ catch alleged Swiss pump & dumper in sting

See the full article in the New York Post.

An alleged pump-and-dump artist and a cohort were arrested on a Midtown Manhattan street last week in a case that resembled an international cat-and-mouse game that could have been ripped from a spy thriller. An undercover FBI agent, posing as a middleman with access to crooked stock brokers, coaxed the alleged pump-and-dump financier, Jean-Pierre Neuhaus, from his home in Switzerland to the Big Apple to finalize the deal, The Post has learned.

…

Neuhaus’ reluctance to travel to the US appears to be related to a 2000 incident in which he was forced to pay the Securities and Exchange Commission more than $570,000 for an earlier shady stock deal.

 

Disclosure: No positions in any stocks mentioned and no relationships with any people or companies mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

The websites of stock promoter Sherwood Ventures LLC (f/k/a Blue Wave Advisors LLC)

One well-known stock promoter is Sherwood Ventures LLC, formerly known as, or whose websites were formerly owned by, Blue Wave Advisors, LLC (see their website). It is a good stock promoter to analyze because unlike some other promoters, they do not change their address and legal entity every year or two. This makes finding their various websites rather easy. The rest of this post below was written before Bluewave changed to Sherwood. To my knowledge all the websites remain under common ownership.

One of the more common mistakes that new penny stock traders make is that they look on websites like StockPromoters.com or HotStocked.com or StockReads.com and then see that (for example) 20 different newsletters are promoting one stock. What matters is not the number of newsletters but how many separate promoters pump the stock and what the reach of those promoters is. (Of course, the most common mistake new penny stock traders make is believing that buying promoted penny stocks is a good idea — most of the time that leads to losses; there is a reason why I started trading penny stocks solely by short selling them and even now I sell short much more often than I buy.)

Following are excerpts from emails I received today promoting PBIO, first from BeaconEquity.com:

BeaconEquity.com is a wholly-owned subsidiary of BlueWave Advisors, LLC.BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services.

From StockPreacher.com:

StockPreacher.com is a wholly-owned subsidiary of BlueWave Advisor,BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services.

From MicroStockProfit.com:

Microstockprofit.com is a wholly-owned subsidiary of BlueWave Advisors, LLC.BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services

From TheLightningPicks.com:

TheLightningPicks.com is a wholly-owned subsidiary of BlueWave Advisors, LLC.BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services.

From TheHotPennyStocks.com:

TheHotPennyStocks.com is a wholly-owned subsidiary of BlueWave Advisors, LLC.BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services.

From StockRoach.com:

BlueWave Advisors, LLC owns seventy five percent of the outstanding membership interests of StockHideout LLC. Stock_Analyzer owns twenty five percent of the outstanding membership interests of StockHideout, LLC.BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services.

From StockHideout.com:

BlueWave Advisors, LLC owns seventy five percent of the outstanding membership interests of StockHideout LLC. Stock_Analyzer owns twenty five percent of the outstanding membership interests of StockHideout, LLC.BlueWave Advisors has been compensated thirty five thousand dollars from Equities Awareness Group (a non-controlling third party shareholder) for PBIO advertising and promotional services.

From InvestorSoup.com (on 3/15 — I did not see an email from them today promoting PBIO):

Investorsoup.com is a wholly-owned subsidiary of BlueWave Advisors, LLC.Currently BlueWave Advisors has been compensated sixty thousand dollars from Ouisache Advisors (a non-controlling 3rd party) for BARZ advertising and promotion.BlueWave Advisors has been compensated 750,000 Restricted Rule 144 shares from the company for PSID advertising and promotion. BlueWave Advisors has been compensated seventy five thousand dollars from Ouisache Advisors (a non-controlling 3rd party) for VGTL advertising and promotion

From PennyStockCraze.com (on 3/15 — I did not see an email from them today promoting PBIO):

PennyStockCraze.com is a wholly-owned subsidiary of BlueWave Advisors, LLC.Currently BlueWave Advisors has been compensated sixty thousand dollars from Ouisache Advisors (a non-controlling 3rd party) for BARZ advertising and promotion.BlueWave Advisors has been compensated 750,000 Restricted Rule 144 shares from the company for PSID advertising and promotion. BlueWave Advisors has been compensated seventy five thousand dollars from Ouisache Advisors (a non-controlling 3rd party) for VGTL advertising and promotion.

[Edit 4/5/2012 to add the Tech24.org website]

I just learned about another pump website owned by Blue Wave Advisors, LLC —   Tech24.org. See: http://www.tech24.org/disclaimer:

Tech24.org is a wholly-owned by BlueWave Advisors, LLC. BlueWave Advisors, LLC is a financial public relations company that is compensated by many of the companies profiled.

One interesting fact about Blue Wave Advisors, LLC is that the company owns and runs two paid subscription stock alerts services. Those services are TopStockPicks.com / SuperNovaAlerts and JasonBondPicks.

From TopStockPicks.com disclaimer:

TopStockPicks.com is a wholly-owned by BlueWave Advisors, LLC. While BlueWave Advisors, LLC is a compensated investor relations firm, TopStockPicks.com and its newsletter are unbiased.

From JasonBondPicks.com disclaimer:

JasonBondPicks.com is wholly-owned by BlueWave Advisors, LLC (BWA). BWA is a compensated investor relations firm. JasonBondPicks.com (JBP) offers a monthly, paid membership stock alert newsletter. These stock picks are one hundred percent unbiased and JBP is never compensated for them. JBP also runs a free newsletter, which will occasionally send out stock ideas which BWA may receive compensation for.

From a business perspective, it is a great idea for a stock promoter to have separate paid alerts services so that they can earn money in multiple ways (and they have a captive audience of people on their free stock promotion email lists to upsell their paid services to). That being said, I do not like the situation from the perspective of the guru, because the relationship, while it certainly leads to increased sales, can taint the guru, especially in a situation like with JasonBondPicks.com where Blue Wave sends paid stock promotions to people on his free email list.

[Edit 2013-6-10]: Both JasonBondPicks.com and TopStockPicks.com now disclose ownership by “Patriot Publishing.” Perhaps the negative publicity of their ownership by a stock promotion company led to the spinoff. In all likelihood the owners of Patriot Publishing likely remain the same people who own and control Sherwood Ventures.

Disclaimer: No positions in any stocks mentioned. I have multiple business relationships with Timothy Sykes, co-owner of Profit.ly, which currently provides the platform for JasonBondPicks.com and TopStockPicks.com [update 3/20/2012 – Apparently those newsletters are no longer on Profit.ly or at least are not being sold through Profit.ly — see http://profit.ly/sales/gurus] — please see my terms of use for details. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Robert Green on taxes for traders (70 minute video)

This 70-minute video presentation was recorded in December by Robert Green, CPA and founder of the CPA firm that I use to prepare my taxes. He address new developments in tax law over the last year as well as fundamentals of trader tax status. I have written about taxes previously and I recommend Green’s book.

 

 

 

Disclaimer:  I am not a CPA or a tax expert! Please consult your CPA or tax lawyer for tax advice. I use Green’s accounting firm to prepare my taxes.This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well..

On Timothy Sykes becoming a stock promoter and promoting IRYS

In case you missed it, Timothy Sykes promoted IRYS this morning in an email to those who signed up to his free promotional email list for the re-launch of his longer-term penny stock trading newsletter. See the email online here. The disclaimer from his email is as follows (bold added by me):

DISCLAIMER: This newsletter is a paid advertisement and is neither an offer nor recommendation to buy or sell any security. We hold no investment licenses and are thus neither licensed nor qualified to provide investment advice. The content in this report or email is not provided to any individual with a view toward their individual circumstances. Millionaire Media, LLC and Market Authority, LLC, have been compensated one hundred thousand dollars for the distribution of this particular email. Any future email regarding a specific company will be the result of an advertising and promotional campaign for which Millionaire Media, LLC and Market Authority receives compensation. This compensation constitutes a conflict of interest, as to our ability to remain objective in our communication regarding the profiled company. Because of this conflict, individuals are strongly encouraged to not use this newsletter as the basis for any investment decision. Millionaire Media and Market Authority do not hold positions in the covered company.

While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in our newsletter is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between the any predictions and actual results. Always consult a real licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.Market Authority is also not a registered investment adviser. We do not and will not provide personalized investment advice. Market Authority publishes opinionated information about finance and trading that we believe our subscribers may be interested in. Click here to view our entire dilsclaimer.

Past performance is not indicative of future results.

[Update 3/5/2011 – See Tim’s blog post about this]

I have to acknowledge my failure in this situation. Tim asked my opinion on him doing an ‘ethical’ stock promotion some time ago. I was vehemently against the idea of him doing that — I felt that he would take a huge hit to his reputation even in a best-case scenario. If the pump were to bomb and his subscribers lost money the hit to his reputation would be huge, I thought. I feel now that I failed and I should have been more against it — I should have said that I would cease working with/for Tim if he did ever get paid to promote a stock.

The fact of the matter is that it is hard if not impossible to have a successful stock promotion without blatantly lying. The whole point of stock promotion is to get suckers to invest in worthless companies so that insiders or other large shareholders can sell their shares. If mostly day-traders buy a promoted stock, then they will buy from the promoters at first but then their sells later in the day will crowd out the sells of the promoters. Longer-term investors will buy and hold for days or weeks or months or years and thus not compete with the promoters to sell stock.

By promoting a stock while not actually hyping it up, the promoter will get fewer buyers (mostly day-traders) and the promotion will do poorly. I believe we are already seeing this in IRYS, where there was a bunch of buying in the first 15 minutes after the open, sending it up from its .755 open to a brief high of .83, before it started fading. The current price action does not bode well for the stock.

If you look at Tim’s email you will see that he didn’t put absurd price targets in it nor did he hype up the company. That makes his stock promotion less unethical than others. It still leaves a sour taste in my mouth and I know more than a few of his subscribers are unhappy with Tim for engaging in any stock promotion.

As to what I did with IRYS, I bought 21,000 shares at the open and sold almost all those shares in the first 15 minutes (I sold my last shares at $0.801 at 10:54 AM EST) . I have no position remaining and I netted just over $870 in profits. I did not mention my buys in Tim’s chat but said I would not discuss my trading of the stock; as with all pumps, I urged everyone to be careful and not to chase the stock. I did alert when I had sold most of my shares and when I sold the last of my shares so that people in chat would think twice before buying it at the elevated prices it was at (over 80 cents). I no longer have a position in IRYS and I will not buy it again (I may short it in the future). I always strive to maintain the highest levels of ethical behavior and I believe that I acted in such a way as to minimize not just any conflict of interest but even the appearance thereof. That being said, I am a trader first and a blogger and chat moderator second — I was not going to avoid trading IRYS just because Tim Sykes was the one pumping it.

Disclaimer: No positions in any stocks mentioned. I have multiple business relationships with Timothy Sykes — please see my terms of use for details. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.