SEC Charges Eleven in Stock Manipulation Ring

[CSykes]

Tiki, actually that is a slightly incorrect statement. Quite a few of the companies that have been promoted were in fact real companies legitimately trying to grow their business by going public. The problem is the companies were misguided by crooked, or greedy professionals taking advantage of the naivety of the CEO's.

I'm not going to give specific details on the companies I have been involved with as a consultant (I have done more than just IR/Promo) but I will give you a general example of what takes place the majority of the time.

The CEO of company XYZ has a vision and dream, he reads somewhere that going public is a good way to raise capital to make his dream a reality. He begins looking into how to go public. Here is where the majority of small company CEO's screw up. If you google "go public" you will see a number of companies touting services to go public. There are two ways to go public, R/M or registering with the SEC. Registering with the SEC has some upfront costs that many small companies simply can't afford. This opens up a huge market for the shell brokers. Many of the R/M deals can be done with little money down. These consultants use this "no money down" approach to snag these naive CEO's. What ends up happening is the companies agree to something they don't fully understand. They have built a level of trust up with the consultant so they don't feel they will be misled.

Now when company XYZ goes public reality sinks in. The shell broker, who provided the financing for the "no money down" merger calls his note. Since penny stocks are by nature thinly traded, and since most shell brokers financing agreements are toxic, the company gets diluted driving the price down. Now the company can't get decent financing. Furthermore, prior to going public these consultants tell these CEO's how easy it is to obtain fiancing once your public. What they fail to mention is the price tag associated with it. So now, with a deflated share price and an inability to obtain attractive financing, the company is forced into the dirty world of the OTC they never imagined existed. They are at the mercy of 504 lenders who lend them money and immediately dump the stock into the market further driving their price down. Now they are forced to hire stock promoters, who also in most cases leave the company worse off then it was. By now the company has diluted its shareholders to nothing, the company was only able to raise a portion of the funds needed and the business plan fails.

I could go on and on.. but you'll have to wait, I'm writing a lengthy article on the subject and plan to publish a white paper as well.

The problem in the OTC is not the companies themselves, it is the professionals who provide the consulting, financing and marketing that make the OTC the quagmire it is.