Breathless Pitches for Penny Stocks, Now in Newspapers
By LYNNLEY BROWNING
September 5, 2007
[snip]
The ad for BioStem, for example, said that the firm was “capitalizing on the new cord blood stem cell industry with its potentially life-saving medical applications.”
Those are high ambitions for a company formerly known as National Parking Systems, and whose main business today is still running parking lots and “vehicle immobilization services” in Atlanta, where it is based. None of that information is disclosed in the ad.
Neither is BioStem's previous incarnations as the Web Views Corporation (an Internet company) and the Cascade Mountain Mining Corporation.
Neither does the ad give any indication of BioStem's shaky financial position, including accumulated losses of more than $15.5 million, according to S.E.C. filings.
The ad says that BioStem will be acquired by Cryobanks International Inc., a private, untraded company based in Altamonte Springs, Fla., that is “a leader in the collection, processing and banking of stem cells.”
But the USA Today ad omits mention of the suspected role of Cryobanks in a Ghana-based money-laundering scheme.
That role is described in an amended lawsuit filed by federal prosecutors in Federal District Court in Brooklyn in August 2004 against Shankar's Emporium and various related participants and bank accounts.
The civil complaint contends that in early 2004, at least $59,800 obtained in connection with the scheme was placed in Cryobanks International by Kazi Management VI Inc., a firm incorporated in the United States Virgin Islands.
Kazi Management and its related entities are owned or controlled by Zubair Kazi, who is the chairman of Cryobanks International and, through a Kazi Management entity, a major investor in Cryobanks. Mr. Kazi is also the second-largest KFC franchisee in the United States, according to the Cryobanks Web site. Calls to Mr. Kazi in Studio City, Calif., were not returned.
In November 2005, the Shankar entities settled the case for $1.3 million without admitting wrongdoing. Alan Burger, a lawyer for Cryobanks in the case, declined to comment.
When asked about the BioStem ad, a spokeswoman for USA Today said: “Advertisers are responsible for the content of their ads, as well as for complying with any legal obligations associated with those ads. USA Today does occasionally review ads on an as-needed basis.”
To be sure, the fine print in the newspaper ads reveals more than the typical Internet-based solicitation.
For example, in its USA Today ad, BioStem discloses that a firm called ATN Enterprises L.L.C. prepared the ad and paid a second firm, Discovery Stocks, $37,500 to place it. The ad also discloses that ATN “has been hired by third-party consultants and is contracted to receive” one million “free-trading shares” of BTEM, and thus has an inherent conflict of interest in promoting BioStem. It also says that Discovery Stocks can trade in the shares. Calls to ATN's head, Roy Campbell, in Miami Springs, Fla., were not returned.
Steve Clark, the head of Discovery Stocks, said: “I'm not promoting the stock. It's essentially a direct-response advertisement. We're seeing a lot more of it now.” He said he had recently placed similar ads in newspapers in Seattle and Tampa, among other cities.
