Nestor Inc (OTCMKTS:NEST) shares climbed nearly 2,000% after it was revealed that Google Inc (NASDAQ:GOOG) had acquired Nest—the smart thermostat maker started by former Apple executive Tony Fadell. Apparently some investors didn’t do their research and jumped into the penny stock without realizing that Nestor isn’t the company that Google bought.
As it turns out, this sort of mistake happens more often than you might think.
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Twitter or Tweeter?
Shares of bankrupt Tweeter Home Entertainment Group (OTC:THEGQ) soared around the time Twitter Inc (NYSE:TWTR) had its initial public offering because of confused investors who bought shares thinking that Tweeter was Twitter. The confusion was so bad that Tweeter changed its stock ticker symbol. Tweeter’s original symbol was TWTRQ.
In fact, it’s because of things like Nestor Inc (OTCMKTS:NEST) and Nest Labs and Tweeter and Twitter that OTC Markets, the marketplace where quotes on shares of Nestor had been previously listed, created three tiers to help investors make the best decision regarding their investments.
Investors fooled by Nestor
“I think a good portion of it is investors are not doing their research,” OTC Market Data Director Chris Grant told ValueWalk. “They buy more on the hype than they are fundamental information. This is one of the reasons why we, as a company, have started to put all the companies quoted in our market into different marketplaces.”
The three tiers created by OTC Markets are OTCQX, OTCQB and OTC Pink. To create these tiers, OTC has ranked companies according to the quality of exposure or information they have provided to investors. The OTCQX tier is described by OTC as “the best marketplace for qualified companies.” The OTCQB tier is a venture stage marketplace for current reporting companies, and OTC Pink is for “variable reporting companies.”
“If investors were to do the research, type in information into our website [OTCmarkets.com], they could easily tell with that level of information what those companies are, where they’re located, if they have revenue, if they are, Tweeter as opposed to Twitter,” Grant said.
The trouble with Grey Market stocks
One of the things investors would have found if they had done due diligence on Nestor Inc. (OTCMKTS:NEST) over the last week or so is that it’s a Grey Market stock. In addition, they would have found a warning on the stock at OTC Markets.
“Nestor Inc. trades on the Grey Market, which means it is not listed, traded or quoted on any public marketplace, either on a U.S. exchange or on one of our marketplaces,” Grant said. “The SEC suspended trading in NEST on Oct. 31 last year. Trading is no longer suspended, however, OTC Markets Group still has a ‘Caveat Emptor‘ [buyer beware] skull and crossbones label on the stock to indicate it is a public interest concern.”
Here’s the full warning provided by OTC Markets regarding Grey Market stocks:
“There are no broker-dealers quoting this security. It is not listed, traded or quoted on any U.S. stock exchange or on any of the OTCQX, OTCQB or OTC Pink marketplaces. Trades in grey market stocks are reported by broker-dealers to their Self Regulatory Organization (SRO) and the SRO distributes the trade data to market data vendors and financial websites so investors can track price and volume. Since grey market securities are not traded or quoted on an exchange or inter-dealer quotation system, investor’s bids and offers are not collected in a central spot so market transparency is diminished and Best Execution of orders is difficult.”
Nestor mistaken for Nest… again
Interestingly enough, this isn’t the first time Nestor was confused with Nest. The site hot Stocked reported back in October that shares of Nestor Inc (OTCMKTS:NEST) rose 8,438% after former U.S. Vice President Al Gore made a comment about Nest being “a terrific company” and said he had invested in it. It’s unclear whether Gore’s comment and the resulting share price surge had anything to do with the SEC’s decision to halt trading in it, however.
But at the time Gore made his comment, he said the company’s main product was a thermostat and that Tony Fadell had started it. Any investor who had done due diligence on Nestor before investing in it would have realized that it couldn’t be the same company Gore was talking about.