fyi: Many Pinksheets are created to be destroyed:
Maybe it's just disilusionment setting in, given recent events, but with each passing day I become more and more convinced that many pinksheet companies are created with the singular intention of being destroyed at a later, pre-determined date, by the very individuals and groups involved in their creation. This is a reality most penny players are not even aware of, but which nonetheless greatly diminishes their odds of profiting on most penny plays should they hold for any length of time.
It is my conclusion that in a number of recent well-known cases, company insiders and founders were actively participating in the shorting of their own company's stock, along with the PIPE financing hedge funds who helped them create the vehicle.
These sham companies and their stock, were merely an instrument to make quick profits through the sale of worthless shares. There was never any intention of establishing a real business that would grow, or investing the raised funds back into the company for the future benefit of shareholders. Unfortunately, these are not isolated incidents. The fact that some of the worst offenders have been halted or exposed does not mean investors are now safe. New sham companies being created daily.
Use of PIPE toxic financing for a business is like buying a house with an interest-only, adjustable rate mortgage in a high appreciation environment. Most people would only resort to this type of high-risk financing if they had no intention of remaining in the property for any length of time. These are not strategies for a long term investment. Given the inexorable debt burden created by toxic financing and death spiral convertibles, almost no legitimate businesses with genuine hopes for the future would choose this method of financing, unless they truly had no other choice.
The same way that the LBO mania was largely a vehicle for creating revenues from fees, PIPE financed pinks are a vehicle for making millions by printing worthless paper. The same individuals who create the company, and who are initially involved in the pump, then also make money by shorting the stock into oblivion. In such a case, an SEC halt is actually welcomed by the company's founders and shorters, since it provides them with a convenient exit for the 'story', and they need never cover their short positions. The poor gullible sheep couldn't begin to conceive of this kind of trading strategy, and get hit coming and going.
A quick study of many classic grifts similarly ends with a raid by the police, staged or otherwise.
The more complex the "story", the more "drama" surrounding the stock, the more certain I now am of manipulative and fraudulent intentions.
Be wary of any stock that needs to be sold with a complicated storyline, featuring many mysterious participants in a highly charged, emotional environment. Taking a page from an ancient grifter's ploy, these characters may even appear to be at odds, getting into seemingly vicious fights which serve to distract investor attention from other crucial matters. An incorporation in Nevada, given the reasons discussed in many posts, raises the odds of the stock being a money laundering scam.
The scope of this game runs so contrary to the way most average investors think, I'm not surprised that otherwise stockmarket savvy and intelligent people fall for the trap.
I now wonder how many pinksheet CEOs are actively shorting their own stock? Quite a few, I suspect. That's the real kick in the pants.
I also don't expect anything to change anytime soon. Money creates it's own rules. It's up to investors to be fully aware of the entire range of possibilities, and take evasive action to protect their capital. "Caveat Emptor" applies more than ever to this end of the market
Follow these links to learn more about the ancient art of the grift and the con. http://www.answers.com/topic/confidence-trick http://www.blongerbros.com/gang/rag.asp