The following is from a veteran investor, a friend of mine. It's about AKER, BIOC, CLRX, CVSL, SGNL. More importantly it's about Aegis. I would add the following to his thoughts below: Aegis is in a business where firms can get away with shady dealings. Is that what's going on with Aegis? Difficult to know for sure. Being apprised of Aegis' history however is, in my view, important to any investor focused on stocks Aegis promotes.
Kind regards,
Minding
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Problems at Aegis? Years ago underwriters would get into trouble supporting their offerings by loading up stock in "inventory" accounts. Often firms like this were run by "high risk" traders that thought they could support stocks and just keep retailing them, selling them to their customers. Sometimes they would get caught---their inventories would become bloated with their underwritings as they borrowed money to buy stock as their underwritings declined. The problem was that the more they borrowed and the more the stock dropped their capital became not sufficient to operate the firm. Banks loaning them money did not want to become the owner of a company because their customer, the brokerage firm, decided to commit to the underwriting by attempting to support the stock as it dropped. Also when small brokerage firms underwritings came under fire, other brokerage firms would short the underwriting. Brokerage firms can get away with shorting stocks far easier than a trader or investor that is a customer of a brokerage firm. Thus brokerage firms would get margin calls from their banks, the SEC would let them know they needed more cash for capital or they would be shut down. I have not seen a brokerage firm closed for these reasons in a long time---but neither have I been paying attention.
My guess is that most small brokerage firms that specialize in underwriting small unknown companies are now smart enough to not and try and inventory stock of their underwritings. They know that they risk their capital and without outside demand for a small companies stock ---- its not going to go up to help relieve them of their problem.
I have been following Aegis underwritings since buying one of their broken offerings AKER about a year ago. AKER was offered around $5.50 and went straight down. I started buying a little at $4, on down to $3.25. With stocks like this the ability of Aegis to support and promote its underwritings is critical, at least in the early stages, of a company's stock performance.
Late last year, as you know if you have been reading these emails, I started buying another one of their broken underwritings, BIOC. Both AKER and BIOC have very interesting technology---the issue is can they create a market for their technology before they run out of money? Its still an open question for both. BIOC fell from $10 to $2 after their IPO. Obviously Aegis did not buy stock into their inventory account---if they did along with other failed IPO's they should no longer be in business. (Just a guess) BIOC was running out of money so Aegis did a secondary at $1.25. I bought a fairly large amount around that price. The stock than jumped as high as $4.50 and I sold about 95% of my position from $2 to $4.25. I have no idea if the company will be successful, but I do like their technology and decided to keep a small amount just in case they succeed. If they do the sky is the limit for the stock.
AKER is a similar story. They are seeing dramatic improvement in revenue. However they need to expand their product offerings and improve margins. It will be another year or two before the story is fully known.
I believe based on the success of the BIOC secondary Aegis decided to do more secondary's in CLRX (two in a few days, that is bizarre and if I were a client I would never talk to them again), CVSL, and SGNL. SGNL looks like BIOC. They first did an IPO in their stock at $10 and it dropped all the way down to $1.75. They did a secondary raising $9m at $2.80. The stock is currently trading around $2.20 down 21%. CVSL is now down 27% from the secondary price. CVSL has totally collapsed, and has the least compelling story of the group. CLRX is down about 15% from its last offering. Would you take AEGIS's advice with this track record?
All 3 companies have interesting "stories" and I'm sure that is how the stock was presented to possible investors. But a story only remains good if the stock goes up. If it does not, no one believes the "story" any longer. Sooner or latter the pressure will be on to try and move these stocks higher. AKER is finally picking up a bid after languishing.
