Toxic Funders

[nodummy]

It's the terms of the financing that makes it toxic ...

The fact that:

1) Most of these Issuer have no ability or means of paying back the Notes, and the lender knows this before providing the funding.

2) The Notes come with interest rates that often increase through multiple instances of default that represent abusive lending practices and in some cases violations of usury laws.

3) These Note often include fees disguised as services fees though no services are provided. (For instance, the lender gets a $100,000 Note but only provides $75,000 in actual funding).

4) The Notes often contain clauses that dictate how the Issuer must conduct their business, which result in further penalties if not followed, arguably making the lender an insider.

5) The Notes often include default penalties if not repaid before the default date, even though the Issuer and lender both know the Issuer has no real means of paying back the loan in cash.

6) The Notes all contain toxic-dilutive terms for conversion of the Note into discounted free trading stock, often 50% - 60% or more below the market price.

In the end a company borrowing $70,000 can result in a balance owed to the lender many times higher than the original Note ($150,000 - $350,000 or more) because of interest and fees, which, after being converted at a huge discount to the market price, ends up resulting in losses of $400,000 - $750,000 or more to retail shareholders.


That is what makes them Toxic - doesn't matter if they are registered brokers or not. The financing is what is toxic.

Toxic funders have been wreaking havoc on penny stocks for many, many years now. It's obviously nothing new.


The registered broker issue is a whole separate issue. It's the high level of trading activity and their level of participation with public securities that arguably causes them to have to be a registered broker per SEC regulations.

The reason it is brought up on this forum is because it has obviously become the SEC's new approach for dealing with these toxic funders, and I suspect we'll be seeing more SEC actions against toxic funders in the future, making it worth noting and keeping a close eye on.