Category: Fraud

The type of microcap manipulation / fraud I most commonly blog about is the stock promotion, where someone is paid by insiders to promote an essentially worthless stock to naive investors. This is the most obvious kind of scam and perhaps the most prevalent but it is far from the only scam being run on OTC stock investors and traders. There is of course the debt-dilution scam, where insiders in the company conspire with death-spiral financiers that get the stock at a discount and then sell, driving the price inevitably downward. A recent SeekingAlpha article highlighted ten companies with linked insiders and lenders allegedly running this kind of scam. Of course, even if the insiders aren’t conspiring with death spiral lenders, such financing always drives the stock downward. A few months ago Zeke Faux of Bloomberg had a good article on Josh Saison, a major death spiral financier.

A much less common OTC scam is the fake dividend scam, where a penny stock company without significant assets or with assets of questionable value announces a large cash dividend. Normally, the dividend is just a way to pump the stock up so insiders can dump shares. But it appears that Calissio Resources (CRGP) has improved on that scam by finding away to pay itself real money by manipulating the dividend clearing/payment system, or at least that is what is alleged by COR clearing in a lawsuit against the company. Omaha.com has a good synopsis of the lawsuit and what has happened. FINRA ended up halting trading in CRGP on August 27th (without every explaining why) and the stock only just resumed trading today (on the grey market), down 86%.

One well-respected microcap fraud researcher noticed many similarities among CRGP and past dividend scams SRGE and SAEI and he speculated on who was ultimately behind them. The only thing that is completely certain about CRGP is that anyone who bought the stock because of the dividend news lost a lot of money if they didn’t sell prior to the halt. That is the usual outcome in penny stocks. For an in-depth look at the CRGP dividend, see Brenda Hamilton’s blog.

Disclaimer: I have no position in CRGP. I am currently a client of COR Clearing (through Speedtrader) although I am likely to soon close my account there.  I subscribe to PromotionStockSecrets.com, of which nodummy is a part-owner/manager. I have no relationship with any other parties mentioned above. 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 SEC has been cracking down on email stock promoters over the last few years and there are only a couple effective email stock promoters left. Part of the problem is that using email to pump leaves lots of traces — to avoid spam filters the promoters need to use email services (like iContact) that will keep records of their names and payment information. If the SEC or DoJ investigates manipulation in a stock or illegal selling of unregistered shares it is relatively easy to locate the promoters. Spam promotions have worked in the past but it is very hard to beat modern spam filters (and of course spamming is treated as a more serious crime than stock manipulation).

Some intrepid promoters figured that the best way to avoid those problems of email is to just avoid it and instead use a messenger program, in this case WhatsApp. Many people were spammed with messages promoting Avra Inc (AVRA) this morning. What followed was a quick spike and massive dump. Expect more such WhatsApp spam promotions in the future.

Below are some screenshots of the WhatsApp spam messages shared on Twitter:

@jimcramer $AVRN someone is pumping and dumping getting real aggressive in the schemes. pic.twitter.com/Uaxk3TzJlj

— Chuck Quarters (@bcs5099) August 21, 2015

@Ben_Segal are you rich now?! — Alex Byers (@byersalex) August 21, 2015

Buddy of mine got a Whatsapp this morning re: $AVRN pump n dump pic.twitter.com/8NyA9L7hFw

— Dan (@dc_trader1) August 21, 2015

Pump and dump on $AVRN watch out for this one bruhs. They’re pumping strong pic.twitter.com/dMdKXp0XLM — Gray Ghost (@TheKurdishMamba) August 21, 2015

Below is the intraday 1-minute chart of AVRN

Disclaimer: I have no position in AVRN although if it spikes again I will likely short it.  I have no relationship with any parties mentioned above. 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.

Two years ago, Norstra Energy (NORX) was a postal mailer stock promotion. Approximately three months after the start of the promotion, trading in the stock was suspended by the SEC. Since then the stock has slowly but inexorably declined.

Yesterday the SEC sued Glen Landry, the former CEO of the company, and Eric Dany, the promoter of the stock two years ago.

See the complaint (pdf)

A few choice excerpts from the complaint:

1. From March 2013 to the present, Landry, the President and CEO ofNorstra, has made numerous materially false and misleading statements about Norstra’s oil reserves, drilling plans, and business prospects. These statements, for which Landry was solely responsible, appeared in numerous Norstra press releases and on its website, as well as in Commission filings
that Landry signed.

2. From April through June 2013, Dany, a stock-picking newsletter writer, made
materially false and misleading statements of his own about Norstra’s projected business prospects in spam e-mails and hard-copy mailers he was paid to endorse. Those materials touted Dany’s enthusiastic predictions ofNorstra’s business prospects that were both objectively and subjectively false.

Regarding Landry:

22. The Geologist never intended for his Reserve Report to be publicly disseminated or issued to anyone other than trained geologists; he had accepted Landry’s limited assignment to perform what Landry called “some rough calculations” ofOOIP.

23. Landry knew, or was reckless in not knowing, that the Reserve Report’s estimate of OOIP, as well as the amount of oil actually recoverable, depended on the existence of the favorable geological conditions that were unknowable until Landry and Norstra started to drill, but which the Geologist had assumed would be favorable to Norstra in making his estimates.
24. When the Geologist became aware that Landry and Norstra had disseminated his report to the general public, he revised the report to include disclaimers explaining the variables that had not been factored into his estimates and the difference between OOIP and recoverable reserve estimates. He attached the updated report to an email that he sent Landry on August 9,
2013 and asked that Landry replace the earlier report with this revised one. Landry did not respond to the email, and as of July 2, 2014, the original report was still displayed on Norstra’s website.

Regarding Dany:

46. In the Promotional Materials, Dany made three materially false and misleading claims. First, both theE-Mailer and the Mailer proclaim that “Norstra Energy could be sitting on top of as much as 8.5 billion barrels of oil!” That claim was baseless and was not one that Dany actually believed. In describing how he arrived at the 8.5 billion number, Dany has claimed that he used a complicated mathematical formula that relied on two undisclosed assumptions, neither of which had a basis in fact. First, he assumed that Norstra’s own estimated oil reserves per section should be increased by 300 per cent. And second, he assumed that Norstra’s intentions to acquire 10 times the acreage that it currently held would be realized.
47. In any event, neither undisclosed assumption supported Dany’s claim that
Norstra’s currently-owned “10,097 acres could hold as much a [sic] 8.5 billion barrels of original oil in place.” Because, by his own admission, Dany’s 8.5 billion estimate relied on Norstra’s acquisition of additional acreage it did not yet own, Dany could not have believed that its current acreage held that much.

Disclaimer: I have no position in NORX. I have no relationship with any parties mentioned above. 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.

Yesterday the SEC suspended trading in Force Energy (FNRG), which is the first time I have ever seen a listed stock receive an SEC trading suspension. Listed stocks often get halted, delisted, and then suspended, but I have never seen one get suspended prior to the stock being delisted. The executive chairman of the board of directors, Richard St. Julien, was arrested over the weekend so perhaps that led to the extra quick action. The stock was halted by the Nasdaq on Monday, July 20th at 10:21:37 AM with a T12 halt code (additional information requested by Nasdaq). The SEC suspended trading in premarket the next day.

SEC Suspension notice (PDF)
SEC Suspension order (PDF)

The reason given for the suspension was:

due to concerns about the adequacy and accuracy of information available to investors concerning the funding of recent articles and promotions touting FNRG, including for example in articles published on December 9, 2014 and February 26, 2015. Questions have also arisen concerning potential manipulative activity of FNRG’s stock, including transactions between February 25 and April 2, 2015 and the funding of those transactions.

The press release by the Department of Justice contains more information about why St. Julien was arrested:

Through his scheme, St. Julien and his co-conspirators deceived the investing public by creating the appearance of genuine trading volume and interest in ForceField’s stock, and as a result, from approximately January 2014 to April 2015, the price of the stock rose from a low of $4.55 per share to a high of $7.82 per share.

FNRG’s stock price had dropped precipitously in the days prior to the halt thanks to a negative report by Mox Reports released on April 15th. That was an excellent (and timely) look at the comopany and it may even have caused the Feds to arrest St. Julien sooner than they had planned.

The promoter that was paid to promote FNRG has been identified as Big Investment Group LLC. See some screenshots of them promoting FNRG.

Disclaimer: I have no position in any stock mentioned. I have no relationship with any parties mentioned above. 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.