Promoted Stocks: The Latest Penny Stock Scam Analyzed

Promoted Stocks: The Latest Penny Stock Scam Analyzed

Time for the promoted penny stock scoreboard:

Ticker Date of Article Price @ Article Price @ 6/3/13 Decline Annualized Splits
GTXO

5/27/2008

2.45

0.013

-99.5%

-64.7%

BONZ

10/22/2009

0.35

0.003

-99.1%

-72.7%

BONU

10/22/2009

0.89

0.012

-98.7%

-70.0%

UTOG

3/30/2011

1.55

0.005

-99.7%

-92.8%

OBJE

4/29/2011

116.00

0.630

-99.5%

-91.7%

1:40

LSTG

10/5/2011

1.12

0.033

-97.1%

-88.1%

AERN

10/5/2011

0.0770

0.0002

-99.7%

-97.2%

IRYS

3/15/2012

0.261

0.003

-98.9%

-97.4%

NVMN

3/22/2012

1.47

0.090

-93.9%

-90.3%

STVF

3/28/2012

3.24

0.380

-88.3%

-83.7%

CRCL

5/1/2012

2.22

0.072

-96.8%

-95.7%

ORYN

5/30/2012

0.93

0.150

-83.9%

-83.6%

BRFH

5/30/2012

1.16

0.300

-74.1%

-73.8%

LUXR

6/12/2012

1.59

0.023

-98.6%

-98.7%

IMSC

7/9/2012

1.5

0.990

-34.0%

-37.0%

DIDG

7/18/2012

0.65

0.073

-88.8%

-91.8%

GRPH

11/30/2012

0.8715

0.200

-77.0%

-94.5%

IMNG

12/4/2012

0.76

0.195

-74.3%

-93.6%

ECAU

1/24/2013

1.42

0.440

-69.0%

-96.3%

6/3/2013

Median

-96.8%

-91.7%

Tonight’s loser-in-waiting is Dephasium Corp (OTCMKTS:DPHS), which surged to a high of 59 cents today, probably off of the promotion of the stock, and the completion of an acquisition.  Here are my bullet points on why this company will fail:

  • No earnings
  • No revenues
  • Negative tangible book value
  • Acquires an asset of dubious value.
  • Formerly known as Expertelligence, Inc, Pay Mobile, Inc, & Allied Ventures Holding Corp.  What do you want to be when you grow up?  Sorry, *if* you grow up.
  • Auditor doubts the the company will continue its existence.
  • Company has consistently lost money through all of its existence.  Has survived through continual dilution of its stock.
  • To do the acquisition, they sold stock at six cents a share.  They bought back stock at three cents per share.  Now it trades at nearly 60 cents per share.  That makes no sense at all.

As for the acquisition, let me quote from the article linked above:

Since 2006, Dephasium Ltd. has launched a program of research and development to become the leader in the field of people protection against electromagnetic waves emitted by mobile phones. Dephasium Ltd. has succeeded in developing an Ancilia product that it believes protects up to 98% of electromagnetic waves issued by cell phones. This conclusion is based upon the results of technology tests administered by Cetecom ICT Services and included in its written report dated August 10, 2009.

Let me get this straight: you have a product that can reduce electromagnetic waves from cell phones, and you are willing to sell it for a piddling 70M shares of this crud company?  Why didn’t you do deals with Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930), Apple Inc. (NASDAQ:AAPL), LG?  If the test is four years old, why don’t you have a big business by now?

The promoter paid $2.7M to advertise Dephasium.  When I googled the promoter and the one paying, I came up with nothing.  The amount paid is more than the value of the company acquired.  The whole thing stinks.

So avoid promoted stocks.  Don’t buy what someone is trying to sell you; buy what you have researched and discovered on your own.

By David Merkel, CFA of alephblog



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.