More on Penny Stock Schemes

More on Penny Stock Schemes

The main idea is this: if any unpaid third party recommends a stock to you, avoid it.  I am not talking about the media here, but those who are paid to advertise stocks.

My example tonight is Circle Star Energy [CRCL.OB].  This is another company with negative earnings, negative book value, and no revenue.  It has never earned anything.  They started out with nothing; how did they get a market cap of $60-70 million by doing nothing operationally?

I received a flyer in the mail today touting Circle Star.  It featured the research of this entity, which I find weak.

The company originated as a development stage tech company in 2007, Digital Valleys Corp, which never earned a dime.  As drilling for natural gas became hot, it changed its name to Circle Star Energy.

So the company issued equity and assumed debt in exchange for various nonproducing oil & gas interests in Kansas.

After that the company issued convertible debt and equity.  In the process, they acquired more land with rights to drill, but still did not achieve their first dollar of revenue,

They filed with the SEC as if they were a producing energy company, but there were no revenues.  After that they changed their auditor.

The scam here is paying for energy interests in inflated stock.  The sellers dispose of the stock as they can for a profit, maybe they are the ones paying for the worthless research.  I don’t know who is benefiting from the worthless research, because the disclaimers indicate that no one affiliated with the purveyors of the research have an interest in Circle Star.

I don’t care what the assets are, if the company has no revenues.  My experience is that most M&A decisions work against the more motivated of the parties, and that seems of be Circle Star in this case.

This company is an eventual zero, admitting that one of the properties could be a freak that the major oil companies missed, which is not likely.

So again, don’t buy penny stocks.  You will lose.  These are unproductive companies, with management teams that can advertise and deal, bu not produce.

By: http://alephblog.com




About the Author

David Merkel
David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.