Ziyang Ceramics Corp (OTCMKTS:ZYCI), a Zhucheng city, China-based porcelain tiles maker seems to have been a perfect case of pump and dump penny stock. The stock traded at $4.10 exactly one year ago (shortly after we were contacted by an IR firm representing the company), but now it has plunged to $0.12. Let’s see how the whole trick went.
Bullworthy LLC, a Palm Beach, Florida-based digital investor and investor relations firm, promoted Ziyang Ceramics heavily to retail investors in May and June. Bullworthy co-founders Tom Copeland and Michael J. Carr entered an agreement with Ziyang Ceramics to produce and distribute equity research report on the stock.
Suspected a Pump And Dump Case
We received a request from Bullworthy LLC on June 7th 2012 (exactly one year ago) to run an article about a rising penny stock Ziyang Ceramics Corp (OTCMKTS:ZYCI). We did our research and immediately found it suspicious. For one, the Chinese firm had a P/E ratio of one. We have analyzed hundreds of stocks over the years, but never saw a stock wit P/E of 1. Meanwhile, Ziyang’s current P/E ratio is 0.01.
Another suspicious indication was the company’s growth. It posted an 82 percent (or 52.5 percent) revenue increase at a time when the housing market slowed in China. Ceramics companies like Ziyang Ceramics Corp (OTCMKTS:ZYCI) rely heavily on the housing industry.
In June 2012, the stock shot up about 100 percent within a few days after Bullworthy published the report. Then it tumbled from June 21, 2012 peak of $4.10 to $0.07 on February 25, 2013, losing more than 97 percent in value. It’s clear that some individuals (they may or may not be related to the company) have done the pump and dump. Penny stocks are highly vulnerable to manipulation.
Bullworthy Report On Ziyang Ceramics
In a 25-page research report on Ziyang Ceramics Corp (OTCMKTS:ZYCI), Bullworthy LLC showed that the Chinese firm was growing rapidly. They said Ziyang’s revenues grew 82 percent in the first quarter of 2012 to $11.4 million, and profits soared 63 percent to $4.1 million. Within just a few days, the stock moved from $2.10 to $4.10. But no investor noticed the fraudulent discrepancy in their reports. On Seeking Alpha, Bullworthy LLC chief Tom Copeland wrote that Ziyang’s Q1 revenues rose 82 percent to $11.4 million. But in a press release, Bullworthy said that the company’s Q1 revenues grew 52.55 to $11.4 million. How could revenues grow at 82 percent and 52.5 percent in the same period and reach $11.4 million?
Another sign, Bullworthy said on Seeking Alpha that Ziyang’s Q1 net profit increased 63 percent to $4.1 million. But in the press release, they said the net income grew to $3.2 million. Both figures talk about the first quarter 2012 earnings. Bullworthy said in the report that its 12-18 month price target is $9.25 per share. And the stock currently trades at $0.12 a share.
So, what was SEC doing all the while? Well, the agency itself is understaffed. Many times we have contacted SEC in the past about potential frauds, but there was no action. Anyway, it somehow managed to halt trading of 61 microcap stocks temporarily to prevent pump and dump cases.