Penny Stock Scams: Public Policy Recommendation

Penny Stock Scams: Public Policy Recommendation
3112014 / Pixabay

Penny Stock Scams: Public Policy Recommendation

I had lunch with Eddy Elfenbein today, and we had a great time together.  After all of the time that we have e-mailed, linked, etc., it was great to make the acquaintance.

Before I start tonight’s post, that makes me want to say this: if you are a blogger that likes me, and you are traveling to the Baltimore/DC area, email me, and let’s get together.  Even if you are marginal on me, try me, and if I accept I will buy lunch.

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Many of us as bloggers do a service for the investment community; I have sometimes said that we are the conscience of Wall Street.  Well, tonight’s post is another post to warn people away from a class of investments that almost always loses money: promoted stocks / penny stocks.

As I looked through my archives, I was surprised at how many promoted penny stock I have written about — there were eleven.  Not what I intended when I started this blog, but I go where I think I am needed.  So, what has the performance been of the promoted penny stocks since I wrote about them?

Ticker Date of Article Price @ Article Price @ 5/30/12 Decline























































Can I say “Ouch?!”  This is almost as bad as the dot-com bubble, except there are no successes to give the illusion that if you pick them right, you will do fine.

But today, after coming home from lunch, I went to the mailbox and found three (THREE!!) penny stock scams in my mail, two from the same promoter.  I could be wrong, but I think the frequency of penny stock scams is increasing, perhaps out of desperation for some people to make money.

One of the promotions was Circle Star, which I have mentioned before, though this was through a different promoter, and you can see the promotion here.  The writer received $75,000 for his efforts.  Enough said.

Then there was Oryon Technologies Inc, (PINK:ORYN). This company that masquerades as a technology and apparel company, was a mining company three months ago.  It has never earned a dollar of revenue.  Enough said.

The last one was Barfresh Food Group, Inc. [BRFH]  Smoothies as a patentable investment idea is ridiculous.  But at least the disclaimer on this one is honest:

Do not invest in this company unless you can afford to possibly lose your entire investment. NBT Equities Research and/or its publisher, ChangeWave, Inc., dba NBT Communications has received thirty five thousand dollars and been pledged seventy-five thousand shares of rule 144 common shares in Barfresh Food Group Inc (PINK:BRFH). to assist in the writing of this advertisement. Primo Strategies LLC paid one million three hundred thousand dollars to marketing vendors to pay for all the costs of creating and distributing this report, including printing and postage, in an effort to build investor awareness.


Primo Strategies LLC was paid by non-affiliate shareholders who fully intend to sell without notice their shares into this advertising/market awareness campaign, including selling into increased volume and share price that may result from this campaign. The non-affiliate shareholders may also purchase shares without notice at any time before, during or after this campaign. A non-affiliate shareholder acted as advisor to Primo Strategies LLC in this market awareness campaign, including providing outside research, materials and information to outside writers to compile written materials as part of this campaign.


Third Party/Agency Disclaimer: Content of this message is published by NBT Equities Research, LLC and/or its publisher, ChangeWave, Inc. and sent to select email lists through various marketing agencies to provide readers with information on selected publicly traded companies. Winning Media is managing a total budget of $250,000 for this and other advertisements in an effort to build industry and investor awareness. The $250,000 budget was provided to Winning Media by MarketByte LLC, a shareholder of Barfresh Food Group, Inc. MarketByte LLC reserves the right to buy and/or sell shares of Barfresh Food Group, Inc. at any time. This should be viewed as a potential conflict of interest.

This company has received revenues, but has not earned profits, and has a negative net worth as well.  It was a company searching to buy movie scripts, and realized that smoothies were a better business.  Go figure.  In general, companies that make big shifts in industrial direction are usually horrible companies.

Think about this Differently

Suppose for a moment you did have a great idea that could revolutionize a given business.  Would you:

  1. Try to grow the business using only your own capital, and that of friends and family, and a limited number of  angel investors, until you realize that institutional capital and knowledge is needed to take this to the next level, i.e., venture capitalists.  Advertise where needed, but don’t give potential competitors too much of an idea that you are out there.
  2. Take over a rotted shell of a public company, and use its broken balance sheet to attempt to grow.  Exchange unpayable loans for increased equity stakes for the lenders, diluting yourself.  When their stakes get big enough they engage some third parties to do a pump-and-dump.  Some bozo writes the copy, another bozo distributes it.

No credible idea would come public via method 2, they would work through venture capitalists.  So I would tell you without hesitation that there is never a reason to buy a promoted penny stock.  The large holders are the only ones with sufficient economic interest to promote a pump & dump, and they are likely the ones behind the bozos doing the promoting.

One Public Policy Recommendation

We need to codify something here, that if a brochure says in 12 point type: “Call your broker today to discuss how large a position in Circle Star Energy Corp (OTC:CRCL) you can comfortably own,”  (This was in the written brochure and not on the web, as far as I have seen.) then any disclaimer in a smaller, or less readable typeface is not valid in court.  This is an implicit form of fraud, and I believe that the writers and distributors of this drivel, as well as those that paid them should be able to be successfully prosecuted for fraud.

One last thing, to the guys who write these “analyses” that display incredible certainty and opportunity in large type, and then say that this is not really an investment analysis in tiny unreadable type — how can you look at yourselves in the mirror when you are such liars and cowards?

By: alephblog

Updated on

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 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.
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