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The Penny Stock Epidemic - The Tangled Web They Weave
Investor Information
November 15 2005
Penny stock fraud has become an international epidemic, spreading at a record pace thanks to the efforts of boiler rooms, greedy promoters and unscrupulous company insiders.
These fraudulent schemes generally involve the shares of obscure companies which have few assets, negligible revenues, and dubious operations. Most of these companies trade over-the-counter, on the OTC Bulletin Board, Pink Sheets, or non-U.S. exchanges. As of September 2005, 3,280 companies were listed on the OTC Bulletin Board. Another 4,773 stocks were quoted solely on the Pink Sheets. Over 35.5 billion shares changed hands on the OTC Bulletin Board in September alone – an average daily volume of well over one billion shares a day.
This arena is a crucible for securities schemes, yet the OTC Bulletin Board has few listing requirements and the Pink Sheets have none. In fact, the Pink Sheets are a private enterprise with no regulatory or disciplinary oversight functions.
The term “penny stocks” is something of a misnomer, since it includes stocks that trade for $5 a share or less. Penny stock rules are designed to protect the public since investments in these low priced securities tend to be speculative and risky. When stock brokers recommend these penny stocks they are required to have an existing relationship with their customer or to determine that such investments are suitable for a new customer. Unscrupulous promoters and boiler room operators generally ignore these rules.
Although penny stock schemes are frequently successful, they seldom are subtle. Unlike the elaborate accounting schemes that accompany massive corporate frauds, like those that unfolded at Enron, WorldCom and other major companies of that ilk, penny stock frauds usually rely on the garden variety “pump and dump” scheme. The promoters gain control of the company, often through a reverse-merger with a shell company. They then spread false and misleading information about the company to spark interest in the company, generate volume for the stock, and pump up prices. Once stock prices rise, the promoters dump their shares and stock prices slide back toward oblivion. The game takes on several variations, but the basic framework seldom differs.
Often, these schemes employ one or more of the following tools:
• E-mails touting little known struggling companies with virtually no chance of success. These spam e-mails seldom identify the sender or provide accurate contact information. They do not provide a balanced view or disclose investment risks. E-mails promoting worthless companies have proliferated in recent years, appealing to investors around the world.
• Unrealistic financial reports and research reports that tout a company without presenting a balanced view and occasionally include unsupportable financial projections.
• Press releases that are issued to create a buzz about a company. Upon close examination, these press releases are short on details and long on unrealistic promises. They provide just enough information to whet an investor’s appetite.
• Announcements that an obscure under capitalized company is about to become a player in a cutting edge industry. After a season of brutal hurricanes, promoters seized upon the plight of storm victims to tout tiny companies that claimed to be poised to profit from relief efforts. For the most part, these claims were without substance.
• Internet message boards used to tout or attack a company. Message boards have become a haven for zealots who are prepared to defend worthless companies, even though every available fact indicates that the company has virtually no chance of success. They offer little opportunity for honest debate; just a forum for a company’s fans, where negative messages are labeled as “bashing” and critics of the company are accused of undermining the stock.
As we noted, these schemes are transparent. There are a number of bright red flags that should trigger concern:
• Claims that an obscure company is poised to capitalize in a “hot” sector, like homeland defense, hurricane recovery or AIDS research. In the wake of
September 11th many of these schemes claimed to have developed cures for anthrax and other biological threats.
• Companies claim to have relationships with better known, successful businesses. Usually, these relationships are non-existent or insignificant.
• The company being promoted does not file regular public financial reports with the SEC.
• The company being promoted has negligible assets or revenues
• There has been unusual, excessive trading in a stock.
• There have been sudden dramatic price swings for the stock of a company with no track record, discernible business or demonstrated revenues.
• The Company routinely uses Form S-8 to register shares for insiders, employees or consultants. Form S-8 allows companies and promoters to flood the marketplace instantly, with registered shares that have been issued to anonymous individuals and companies.
• A company with little operating history employs numerous consultants and awards them shares.
• The company sells unregistered stock overseas under Regulation S. Regulation S has created a virtually unregulated environment for offshore sale of U.S. securities. Companies listed on U.S. exchanges may sell unregistered stock to non-U.S. residents. U.S. investors are protected because those shares cannot be resold in the U.S. for at least one year. Overseas investors? They are on their own.
• The company has engaged in one or more reverse-mergers.
• The company has offshore investors whose principals are undisclosed.
• A public company frequently changes its business plan, while maintaining the same management.
• The business is incorporated in Nevada. Nevada corporate law affords the individuals in control of a company to make significant decisions without first notifying or gaining approval from public shareholders.
• Canadian connections. Tiny companies have proliferated with the following in common: they are incorporated in Nevada, have offices in Canada (usually British Columbia), have attorneys in Florida, California or New York, and often use transfer agents housed in Utah. Their goal is to create a jurisdictional blend that allows them to scam investors in the U.S., Canada and around the world. In order to catch these crooks, regulators from these various jurisdictions must cooperate. That takes time and resources – and plays into the hands of promoters who are operating at a far quicker pace.
Where does this leave investors? The red flags are there – and obvious to even the most nearsighted and shortsighted. The bottom line remains, as always – before you invest, investigate.
IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com
As of November 11, 2005 the Company's backlog was approximately $793,000
I would have hoped for a larger # here- but the rest is very good.
Now- let's tie up that Disney deal.
mugs
tom; I need the ASK to go to 004-
my target to replace the 900,000 I sold at 008 last spring-
this is definately a 'long' play-
'long' not meaning to be a 'long' in the traditional sense.
just 'long' enough to flip it a few times-
and 'long' enough to build a nice size holding for the 5-10 cent spike I feel is coming.
mugs
ok,thats it. I'm sellin. I'll take .005 if necessary-
------
----
--
now lets see if the mm's just read the first line an drop it to
screw me. maybe the ask will drop to 006 for a minute or two.
LOLOL
raw; I told you so. same goes for target-
and wal-mart. building up for Christmas. and the new return policy. makes you kinda want more at these prices, huh?
mugs
gator- it seems so logical. what are they thinking?
or--should I say-
what AREN"T they thinking?
They restructure the head-end-
and all we get is more of the same.
or--is it I'm not giving her enough time????
maybe some initiatives have been put in place-
and it will just take some time. I'm tryin to be diplomatic here--
mugs
gator; do you think we can reach $1-
without a R/S if we have a killer Christmas, and subsequent Q report? I think the new CEO wants AMEX exposure. She should shoot for that. With some good news- we could make it without R/S. I dont feel we have enough authorized shares for a R/S effective. comments?
mugs
Raw- last Q flop? I thought it was
pretty OK- pls explain your thoughts.
mugs
raw-no-sorry for the confusion-45 total products.
I didnt count the # of titles-just units
mugs
stopped counting at 45-
+45 Soundprints titles available at local Target store.
As of August 19, 2005 the Company's backlog was approximately $1,600,000. (from latest 10-QSB)
1351 Stores in 47 States (Includes 141 SuperTarget stores)
and thats just Target. This Disney thing is working.
Do the math. Christmas is coming- I'd sure like to see who's ordered 1.6 mil.
mugs
raw; oooftaa! CSI in action. LOL. mugs
has anyone heard from Fell lately?-
I wonder what his current standing with Trudy is?
anyone e-mailed him?
mugs
EMD-ur taking this much too seriously-
its only a penny stock, remember?
most here do it for fun. you may be in too deep. sorry.
if not- see if your analyst has an opening for you.
gator- the ignore button wigglin under your name-
LOLOLOL
mugs
mike_t; thats exactly my point. this company has made huge hurdles, as any savy investor would recognize.
this is the time to hold- or get in to this gem.
only losers would not recognize that.
mikey-mikey. for someone who doesnt give a damn-
you sure use up alot of space here.
how does a negative person like you get into Trudy in the first place? next time you have a spare few hundred bucks- please-
use it to take an on-line investing course--so you'll know how to invest using DD, and savy-
and also what to expect when you put your few hundred bucks out there.
so-gator. you wouldnt want itto drop to .005?
I just love it when people cant make up their minds.
Hahahaha.
mugs
gator-if you want it to drop-
you supposedly have over 4million.
if you sell 3million right now at .01-
I guarantee it will drop to .005.
got balls?
:) mugs
imo-spigs believed in his business until
the finaciers came along and showed him he could make millions much easier selling shares. no brainer. LOL. no overhead- no payables- no R&D. and a huge paycheck.
off shore finacing. why do you think they are off shore?
souz-its all part of the game to lie-
of course he's not gonna say 'sure- we will R/S as soon as we have the billions of shares on the street we need to steal'
EVERY penny that has R/S has emphatically told SH's no reverse split is 'anticipated'. do you really think they are going to let gold diggers load up with tens-millions of shares at .0002, and cash them for a windfall at the CEO's expense?
get real.
mugs
Hey Q- you've been gone quite a while-
the bid is now at .01. I expect the Qduh,s amd Mikeys have their trigger fingers poised.
but then again- what do you bet they see the potential here- and are really wafflers.
hows your golf game?
mugs
gator-at that price-you could buy
100 million shares- for 2.5 cents.
I'll be waiting to load up.
if it spikes back up to .01-
it would then be worth 1 million dollars
mugs
hey, raw-your 'most recent' pr is anything but-
it's from June. Maybe-if you have time-you could update this URL
this board is getting very popular and is pretty much the only outsource of information on Trudy. God knows they won't disseminate any information.
mugs
http://tinyurl.com/c2g4m
new CEO. new strategy's? how long will it take?
I think she was elevated as token for Disney approval. Disney likes femme participation on corporate levels. This move probably is ssen as backrub for Disney- a smart move-saving Trudy a ton of dollars otherwise needed for the contract renewal. Smart-? maybe. Frugal-
you got it.
mugs
boyz-n-girlz: get a grip. only 14,000 traded today-
until someone takes the initiative to either put out some PR blitzes, or start buying millions of shares here- this is going nowhere fast. somebody do something. PLEASEEEEE!
uh-oh: FellHerdig wasnt mentioned in the 10QSB-
former director? interesting.-
and this is the first on-time filing I can remember-
mugs
raw-your R/S examples are apples/oranges here-
We are at .009- not 40 cents. 1/10- LOL. get real.
a typical R/S in a penny at .01 or less is 1/300. that would strip us of our shares here at todays levels. 1million shares would drop to 3300. and a slower gain percentagewise accordingly. typical pennystock scam.
Trudy- for their own interest- and shareholders- need to get their S/P over 3cents before even thinking of a R/S. Remember- most importantly- which most forget- is William Burnham has a ton of money loaned out at 3cents. No R/S can- or will- happen until that benchmark is reached. Rest assured on that.
after that- if the business reasons are right- a R/S in the range of 1/50, to 1/100 could be hugely benificial to S/H's and company alike.
Remember that .03 level. IMO- structure your exit strategy around that number- and stick to it.
mugs
I went to Target to pickup my little blue pocket-rocket pills-
and I went by the childrens book area- they had at least 15 Trudy/Disney titles in stock. Life is good.
mugs
WOW! tq-can you spell DILUSSION? how about
DISAPPEARSION. unbelievable.
mugs
mike-just shows they are dopes. UR right-
cry babies stickin their noses in everyone elses business.
you just proved----THEY need to get a life.
Thanks. I love your insight.
;)
mugs
those JO's could'nt wait to start dumping CD's-
and they stripped the naive who bought today on the hype from the flowerey S/H meeting. Todays buyers fell right into their greedy hands. I wish I could find people to throw $$ at me. LOL.
its for sure you wont see the 0005's here anymore. kiss you dollars goodbye.
another solid week, waiting for weak hands fold-
no takers. Technicals say trend up in S/P.
sorry Raw- I wish I could get more at 005 too.
:(
mugs
tom-dont take it personal-
I, for one- like your posts. you dont discredit anyone- and your sense of humour goes deeper than some can appreciate.
raw is most upfromt here. this is for making dollars. I'm sure you dont mind if he's a flipper. we all have our style, an go with what works. when we die- we shall see whom was right in their strategy. let our fighting relatives determine the final answer as they pick our bones.
LOLOLOL.
mugs
tom;ignore that dope. your day go better-
he's passed gas seeping from raging bull 'cause there's no action over there. Hahaha. only the lonely.
mugs
tom; bid-whacking! now that is funny!-
I personally dont think this will get to .005 with the news we've seen lately. it's only up from here. if 005 DOES get touched- I'm borrowing money on this one.
tom: great minds think alike.eom. ;)
reading RB, I see a new generation of naieve newbies-
a fresh crop of tenders with high hopes that their hard earned dollars will double in a short time. NOT!
the people who have gone thru this before try to tell them their dollars and shares are going to disappear in a R/S soon, but they are blinded by fancy thoughts. and the newbies call them bashers. LOL
they never learn. they are the life blood of Spino right now. ripe for picking by unconcionable swindlers.
ohhhh-wellll
buying pressure is intense-
new management team is working wonders.
GOOOOOOTRUDYYYYYYYYY!
ps: RB is dead because it doesnt work well- see all the duplicate posts?
mugs
NEWSSS! Friday; 9;00am Trudy reports on
FINANCIALS! ------------once again- for the 4th time this week.
Grrrrrr.
un-mugs
spock-the massive dumping prelude to huge R/S-
yes-we are done here. we get our hopes, enthusiasm, and support slammed up our azzes soon.