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TOPIC: Pink Sheet Scams... (part 1)

Pink Sheet Scams... (part 1) 12 years 11 months ago #937

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[Pink Sheet Stock Scams (part 3)]
This is exaclty why the ShellStockReview.com does not list non-SEC reporting pink sheet shell stocks:

(this is part 3 of the article)

Don't get carried away by Pink Sheets stock scams
By Matt Krantz, USA TODAY

If you've ever gotten an e-mail or fax tipping you off to "a hot stock that will double tomorrow," thought about buying it but passed, you can probably count your blessings.

More times than not, the unsolicited stock pitches are thinly disguised schemes to pump up the price of a stock that trades for a few cents a share — known as a penny stock — so the people hyping the stock can dump their shares to you and move on.

Many of these scams involve stocks that trade on the Pink Sheets, which is an ideal place for such things because it is a nearly unregulated computer network that matches buyers and sellers. As authorities have clamped down on stocks listed on the New York Stock Exchange and the Nasdaq, it has driven more scammers to the Pink Sheets.

MOVING AROUND
Number of Pink Sheets companies moved to the New York Stock Exchange, Nasdaq or American Stock Exchange:
2000 8
2001 19
2002 11
2003 10
2004 14
2005 8
Sources: Pink Sheets

The Securities and Exchange Commission has moved to make things more difficult for people who want to use the Pink Sheets to take advantage of unsuspecting investors. It is seeking out dormant stocks and delisting them. It also requires a public shell company, when it ceases being a shell company through a reverse merger (in which a shell company adopts an existing trading company's identity), to file with the SEC the same information that would be required if it were becoming a public company.

But that has only made people who promote penny stocks on the Pink Sheets more creative, says Hartley Bernstein, publisher of StockPatrol.com, a financial watchdog website.

Much of the responsibility of avoiding these scams is left up to you, the investor. Here's what you can do:

Know where the stock is traded.

To find this, all you need is a stock symbol or company name. Enter the symbol into most financial websites and you can see where the shares trade. If they're listed on the Pink Sheets, the stock symbol will have a "PK" after it. If it does, your defenses should immediately go up.

Securities lawyers, regulators and accountants are highly suspect of stocks that trade on the Pink Sheets. That's because there aren't many legitimate reasons for a clean company to list on the Pink Sheets, says Mike Starr, partner at accounting firm Grant Thornton. Starr says his firm won't touch them as clients. "We don't get involved with companies listed on the Pink Sheets. Frankly, there's too much risk, because there's a reason they're on the Pink Sheets."

For many companies, that reason is the lack of any disclosure requirements. With rare exceptions, these companies don't have to release earnings or annual reports, or reveal if officers and directors are dumping shares. Many Pink Sheets-listed stocks are "shell companies" that exist only on paper and have no assets, employees or products. This month alone the SEC has moved to shut down 15, StockPatrol.com says.

It's unfair to say all Pink Sheets stocks are shady. But the odds are much higher. Small companies do not have to list on the Pink Sheets. If they're willing to put out financial information they could list on the over-the-counter OTC Bulletin Board system, a quotation system that NASD oversees.

Companies that list on the Pink Sheets rarely move on to bigger and better stock markets. Last year, just 14 of the 4,570 Pink Sheets companies trading graduated to the NYSE, Nasdaq or American Stock Exchange, PinkSheets.com says. Meanwhile, 126 Pink Sheets companies were delisted, filed for bankruptcy-court protection or no longer trade, PinkSheets.com says. This year, 151 Pink Sheets stocks have been delisted or no longer trade.

See if there are financial filings.

If a company doesn't disclose financials, you shouldn't invest in it, Bernstein says. It's easy to find out if the company files financial statements by visiting the SEC's website (www.sec.gov). Click on "search for company filings," then "companies & other filers" and then enter the company's name. All the company's filings with the SEC will pop up on your screen. Look for quarterly filings (10-Qs) and annual filings (10-Ks). If these filings aren't there, don't invest in the stock, Bernstein says.

If they are there, take a close look. You might be surprised how flimsy the company really is. Take Vinoble, a company that was pitched in an e-mail Bernstein received in October and is listed on both the Pink Sheets and OTC Bulletin Board. Vinoble underwent several reverse mergers, conducted a 1-for-500 reverse stock split (reducing shares outstanding and increasing the stock's price) and now calls itself a homeland security company. The company's 10-K filing shows it has $38 in cash. Not $38 million or even $38,000. Just $38. Vinoble did not return calls for comment.

Look for more information.

PinkSheets.com operates the infrastructure many brokers use to get quotes on Pink Sheets stocks. It also maintains a public website that reveals all publicly available data regarding the shares. It's a handy and easy-to-use way to see what information, if any, is available.

Simply type the stock symbol into PinkSheets.com and you get the summary page. Here, you'll find the stock price, the stock high, the percentage change and other basics. The site will also list the company's earnings per share, or EPS. If those pieces of data aren't there, that means the company has not reported any financial information.

An even closer look can reveal other red flags. Under the "Company Notes" item, you can tell if the company has changed names. Typically, a name change means it was formed in a "reverse merger," which is a tactic some companies use to avoid regulatory scrutiny. Using this legal tactic, penny-stock operators keep morphing their "companies" into new entities with mergers so they have a new story to sell their stock.

So next time you think about investing in that sure-fire nanotechnology or alternative energy stock listed on the Pink Sheets, stop and follow the steps above. You might get cooled off fast. "A lot of those companies are hyping what they are and who they are," Starr says. "I refer to them as wannabes."

http://www.usatoday.com/money/perfi/general/2005-11-10-pink-sheets-mym_x.htm
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Pink Sheet Scams... (part 1) 12 years 11 months ago #936

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[Pink Sheet Stock Scams... (part 2)]
This is exaclty why the ShellStockReview.com does not list non-SEC reporting pink sheet shell stocks:

(this is part 2 of the article)

Reverse mergers.

It's easy for anyone to "take their company public," thanks to the fact that there are hundreds of shell companies trading on the Pink Sheets that exist on paper but have no assets.

Consider Wind Farming, created when William Telander bought a Pink Sheets-listed company called Applied Research. Applied had no assets, just a Pink Sheets listing, according to an SEC complaint filed this year. After buying Applied, Telander changed the name to Wind Farming, which allowed him to avoid regulatory scrutiny because he took over another company rather than issuing new stock. Starting as far back as summer 2004, Telander began issuing trumped-up and "false" press releases extolling Applied's success, the SEC complaint says, including fabricated business contracts. Trading volume soared from basically nothing to more than a million shares a day, the SEC says, allowing Telander and a group of partners to make hundreds of thousands selling shares. The attorney representing Wind Farming declined to comment.

Problems don't occur only on the Pink Sheets. Enron traded on the NYSE. WorldCom was on the Nasdaq. But companies on the Pink Sheets get greater freedom because there are no listing requirements and there's no dedicated regulator. Companies don't have to meet any standards to be on the Pink Sheets and don't have to put out financial statements. Even Sarbanes-Oxley rules designed to clamp down on corporate games don't apply to Pink Sheets-listed companies.

The SEC usually gets involved only if scamsters get so greedy that they issue additional shares rather than just pumping and dumping existing shares, says Gidon Caine, securities lawyer at Dechert LLP.

Meanwhile, Pink Sheets stocks have the appearance of being like any other stock. Even mainstream websites, such as USATODAY.com and Yahoo Finance, provide quotes on Pink Sheets stocks that give them the appearance of being regular exchange-traded shares.

Some are hopeful that Pink Sheets scams can be curbed. The SEC has been moving to clean up the Pink Sheets where it can, especially by targeting dormant listings of shell companies. For instance, in July it suspended trading in three Pink Sheets-listed stocks, Asia4Sale.com, Vision Group and Idoleyez, saying they were not providing accurate financial data.

The SEC also tightened rules by forcing shell companies to release regulatory filings after being taken over.

These moves will help clamp down on these companies. But the spate of recent enforcement actions, for one, should serve as a reminder to investors to do their homework. "If you can't get a full picture of what a company is doing, you should stay away from it," says Cromwell Coulson, CEO of PinkSheets.com.

http://www.usatoday.com/money/marke...over-usat_x.htm
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Pink Sheet Scams... (part 1) 12 years 11 months ago #935

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[Pink Sheet Stock Scams... (part 1)]
This is exaclty why the ShellStockReview.com does not list non-SEC reporting pink sheet shell stocks:

(this is part 1 of the article)

Pink Sheets scams may give investors nightmares
By Matt Krantz, USA TODAY

Old scams never die. They just get new names and snare fresh victims.
That vicious cycle is powering a renaissance in pump-and-dump schemes on the Pink Sheets, the Wild West of Wall Street that is a breeding ground for penny-stock scams.

Pink Sheets used to literally be pink sheets of paper that brokers used to trade stocks that didn't meet the listing requirements of an exchange, such as the New York Stock Exchange. Now, it's the label for a computerized network that allows investors and brokers to buy and sell stocks without getting near an actual stock exchange.

The scant regulatory oversight that allowed penny-stock scams to rise in the first place is enabling their comeback. And they're surfacing with a vengeance because of technology that makes it easy to reach millions of investors via e-mail and instant messages on cellphones.

Five years of ho-hum returns from legitimate stocks such as Microsoft and General Electric are adding to the conducive atmosphere. People who want high-octane investments are more receptive to these get-rich-quick schemes pitching trendy investments ranging from fitness centers to alternative energy plays such as wind farms and biodiesel.

Last year, the number of companies listed on the Pink Sheets hit a record 4,570, and trading volume hit 820 billion shares — more than quadruple the level the year before, according to PinkSheets.com. This year is on track for another record, with 4,781 companies listed and a dollar volume of $47.4 billion through Nov. 9, on pace to beat last year's $50.7 billion volume.

Not all Pink Sheets-listed stocks are scams. But amid that flood of activity on the Pink Sheets is an increasing number of scamsters trying to lure fresh prey with promising pitches, say securities lawyers and watchdogs. "I've been seeing more of them," says Hartley Bernstein, of StockPatrol.com. "I get a dozen a day."

A typical pump-and-dump scheme involves somebody making falsely optimistic claims (the pump) via a press release or an e-mail about a shell company whose shares trade for a few cents. Unsuspecting investors buy the "penny stock," causing its price to double, triple or more. Then, scamsters sell shares (the dump) at a profit, leaving other investors holding what turns out to be nearly worthless stock.

Regulators shake their heads at the lengths some go to snare victims. "Some of these bad guys rig the Internet. You can rig the Internet to lure investors into a false sense of security," says Cameron Funkhouser, NASD's senior vice president of market regulation. For instance, some create a fake message board where it appears dozens of investors are gushing about a company's hot prospects.

Technological advances might have made the scams more effective, but many wouldn't work if it weren't for the Pink Sheets. Unlike stock exchanges such as the NYSE, the Pink Sheets system is an informal computerized network that allows brokers to trade stocks and compare quotes. When an investor wants to buy a stock on the Pink Sheets, they contact a broker, who can use a computer to see what the stock is trading for, then contact another broker who facilitates buying and selling in that stock.

Stocks on the Pink Sheets system fall between the cracks of regulation. The NASD regulates brokers, not the stocks they trade. The Securities and Exchange Commission, with few exceptions, regulates only companies with more than $10 million in assets and more than 500 shareholders. Virtually no stocks traded on the Pink Sheets clear that bar.

"As a practical matter, smaller companies tend to fall below the SEC's radar and state regulators'," says John Coffee, securities law professor at Columbia University. "They're too small."

That means a lot of latitude for anyone who wants to abuse the system. Only when a penny-stock scam runs blatantly afoul of the law or violates anti-fraud provisions can the SEC get involved.

The SEC has not released the number of penny-stock scams it has found on the Pink Sheets this year, which makes the boom hard to quantify. But a few of the SEC's recent enforcements show the range of tactics used to lure investors:

Questionable correspondences.

In July, the SEC charged Joshua Yafa, a stock promoter in Florida, with fabricating a fax that appeared to be a private letter from a broker urging a client to buy shares of Pink Sheets-listed stock AVL Global because it was poised to triple in value. The fax was transmitted to thousands in late 2004. The shares jumped 25% on heavy volume after the fax went out, and the SEC's lawsuit alleges that gave Yafa a chance to sell at a $300,000 profit. Yafa's attorney did not return calls for comment.

At the same time, the SEC charged Michael O'Brien Pickens, son of oil tycoon T. Boone Pickens, with using a version of Yafa's tactic to pitch three stocks, two of which traded on the Pink Sheets. The SEC claims the younger Pickens also pocketed $300,000 on the alleged scam. He might never have come to regulators' attention if the fax service he used hadn't unwittingly sent it to one of the SEC's California offices. Pickens' attorney did not return calls for comment.

Multimedia assaults.

In February, the SEC charged Donald Oehmke, Bryan Kos and five partners with putting out false press releases, faxes, e-mails, voice mails, websites and videos to promote two Pink Sheets-listed penny stocks. One claimed to be a Latin American staffing company and the other, a fitness center operator. The SEC said the press releases were false and that the president of the Latin American recruiting firm was in on the scam. The SEC also said the second company didn't own a single fitness center.

Even so, buzz created around the stocks drove them up and allowed the men to profit by more than $27 million, the SEC alleges. Oehmke's attorney declined to comment. Kos' attorney says his client was fooled by the company's management and believed the statements he made about the stock were correct.

Bogus "research reports."

Scamsters often enlist the help of firms that create bogus research reports designed to look like they're from legitimate brokerages. Other times, the fraudsters make the "reports" themselves and disguise that key fact from investors.

That's what the SEC in September charged two people with doing when they promoted what was described as a website construction company. The SEC accused George Bogle and Peter Emmanuel with putting out a report that appeared to be from an independent stock analyst and that said the stock was "our most aggressive stock buy recommendation." But it was based on false information, the SEC says. Nonetheless, the stock jumped 120%, and the two profited nearly $500,000 by selling the shares amid the good buzz, the SEC says.

Emmanuel thought he was just repeating reliable already public information on the stock, his attorney says. Bogle's attorney didn't return calls.

Anyone who isn't confident promoting a Pink Sheets-listed stock can get help. Take Jonathan Lebed, who was fined $285,000 in 2000 by the SEC for buying stocks mainly listed on the NASD's "Bulletin Board" market, spreading false messages to promote the stocks, then dumping them. Lebed paid the fine without admitting or denying guilt. Now, he concentrates his efforts on promoting Pink Sheets-listed stocks. He discloses on his website that he gets paid by companies, often $25,000 a month, for "investor relations" contracts to promote certain Pink Sheets-listed stocks. He often sends e-mails touting events at the company. Several e-mails sent to Lebed were not answered, and no phone number could be found for him or his offices.

http://www.usatoday.com/money/markets/us/2005-11-10-pink-sheet-cover-usat_x.htm
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