Interesting Article on Pump and Dump in Canada
Burned investor’s ‘pump and dump’ experience raises questions about IIROC
NIALL MCGEE MINING REPORTER PUBLISHED APRIL 22, 2021 UPDATED 9 HOURS AGO
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About three weeks ago, Robert Edington saw a post on the internet about Graycliff Exploration Ltd. GRAY-CN (/investing/markets/stocks/GRAY-CN/) +15.38% ? and thought
it sounded promising. The Financial News website claimed the small mining exploration company was sitting on $500-million in gold reserves and that its shares were set to jump by 500 per cent. After watching the price of Graycliff shares run from 80 cents to $2.50 over about 10 trading sessions, Mr. Edington jumped in. “I decided to make a play on April 12,” he said. “It dropped like a rock only hours later.”
Mr. Edington, a semi-retired physician who lives in Peterborough, Ont., now realizes he was likely the victim of a “pump and dump.” In such schemes, con artists acquire shares in a thinly traded stock, and then spread false information that “pumps” up the price and volume. Taking advantage of artificially high stock prices, scammers then “dump” their stocks, leaving honest investors holding near-worthless securities.
Over the past few months, apparent pump and dumps originating from The Financial News have caused huge volatility in the shares of four small mining companies, three of which trade on the Canadian Securities Exchange (CSE).
Last week, Graycliff Exploration in one session raced up by 50 per cent, and then plummeted by 29 per cent. The same day, the shares of another Canadian exploration company, Valorem Resources Inc. VALU-CN (/investing/markets/stocks/VALU-CN/) +2.27% ? , which was promoted in The Financial News in a near-identically misleading fashion, jumped by 48 per cent. Three days later, the company lost a quarter of its value. All of the companies targeted this year by The Financial News, which include Chilean Metals Inc.
CMX-X (/investing/markets/stocks/CMX-X/) -5.88% ? , and Crestview Exploration Inc. CRS-CN (/investing/markets/stocks/CRS-CN/) +8.54% ? , said there was nothing to explain
the sizable swings in the price of their shares, and that company insiders had nothing to do with the promotions.
The Globe and Mail was unable to reach anyone at The Financial News. The news and financial advice website is registered to an individual called Carl Smith, who has a street address in London with a Ukrainian postal code. A listed phone number was not in service.
While Mr. Edington said he takes full responsibility for his “gaffe” in getting caught up in an apparent pump and dump, he wonders why Canadian regulators didn’t spot the problematic promotion on The Financial News weeks earlier – as he did, and act sooner before the damage was done.
The Investment Industry Regulatory Organization of Canada (IIROC), is the regulator in Canada that is the first line of defence against chicanery. It monitors in real time the trading of thousands of Canadian stocks. Part of its mandate is to scan the internet for sketchy promotions, such as the ones on The Financial News, that cause wild swings in share prices. The regulator also looks for any unusual moves in volume or prices of stocks that aren’t due to material news, and is supposed to contact the company promptly to seek an explanation.
But as the recent apparent stock scams have been playing out, IIROC has been slow to react, issuing temporary trading halts on affected stocks days or even weeks after the promotions began – far too late to prevent investors like Mr. Edington from getting burned.
When asked why its surveillance efforts around Valorem and Graycliff appear to be so sluggish, IIROC spokesperson Sean Hamilton wrote in an e-mail to The Globe and Mail that the regulator can’t comment on individual stocks or any investigations that may be going on.
IIROC’s efforts to contain the recent escalation in apparent pump and dumps comes not long after it cut loose one of its most senior experts at detecting mining stock scams.
Eight months ago, the regulator dismissed Darcy Krohman. He had been employed at IIROC for six and a half years as a surveillance expert and geologist, and had four decades of experience, including stints in enforcement at the British Columbia Securities Commission. Mr. Krohman, who was terminated without cause, is suing IIROC for breach of contract. Employees are generally dismissed “without cause” as a cost-cutting exercise, as opposed to “for cause” when an employer alleges misconduct.
Mr. Krohman declined to comment for this story.
When asked about Mr. Krohman’s departure, Mr. Hamilton said IIROC doesn’t comment on HR matters, but denied his departure led to an “expertise gap” at the regulator. IIROC’s surveillance team is fully staffed, and it employs a full-time geologist, he added.
Reactions have been swifter in the United States to recent damaging promotions on small companies in The Financial News, and investors there have been largely spared as a result.
On Friday, the Financial News started trumpeting shares in Charlestowne Premium Beverages Inc., claiming the stock, which is listed on OTC Markets, a U.S. trading platform, was poised to explode more than 700 per cent.
Cromwell Coulson, the chief executive officer of OTC Markets, said that hours after the promotion was live on the internet, his staff took action, tagging the ticker symbol of Charlestowne with a red megaphone to inform investors a problematic promotion was under way. On Monday, OTC went one step further, tagging the stock with a black skull and crossbones “caveat emptor” warning.
In Canada, junior exchanges, such as The TSX Venture and the CSE, don’t flag stocks for problematic promotions. While IIROC can ask companies targeted by scammers to put out clarifying statements about suspect promotions, management of the companies sometimes wait days before acting. All of this can leave investors with little or no information after their investment has blow up.
Graycliff issued a release three days after the worst of its stock gyrations had occurred, saying it was unaware of any material change that explained what was going on. It didn’t address the Financial News promotion, and the main focus of the release was the closing of a $2.4-million financing.
James MacIntosh, the chief executive officer of Graycliff, declined to comment for this story.
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