Value Microcaps Free-For-All

[jtomm]

Why Would GFCI (or any co.) lie?

What do they have to benefit? Here's a few thoughts. (This is hypothetical, no accusations.)

Firstly, we have no way to verify ANYTHING the company has said. Therefore, it's best not to assume anything. The post stated,

"An empty shell that embarked on an acquisition strategy in the energy services sector would probably trade higher than .34. So why even bother with the phony financials?"

Until proven, I don't accept that it's an empty shell, I don't accept that they've embarked on an acquisition strategy, and I know for a fact that they don't have phony financials. (They don't have ANY financials.) The only thing I accept is that some press releases have been made with their name on it. Other than that, we simply don't know anything. The CEO could say the PR people we hired made a mistake. They were the ones handling the website and PR. They put my name on those things without my authorization. "It's all a big mixup. I never made any statements to the SEC. I never signed anything. I certainly never swore to anything."

I could see a few ways somebody could pull some shady stuff if they wanted to.

1) We have no idea what the float is. It's entirely possible that insiders could control nearly all the stock, release some fraudulent press announcements and just keep selling their shares, which would have been acquired for pennies. The whole shell probably could've been bought for a few hundred thousand dollars. If you bought for a penny and sell for .30, that's a pretty good margin.

2) They could be conning investors to buy debt in the company based on all the great "deals" they've signed. The company could be deeply in debt. We don't know. Insiders could run off with the money, or run it through another company that they own, hiring that company for "consulting" or other services, leasing their own buildings, etc. Maybe some of these companies they plan on purchasing are their own companies. Could be tons of insider dealing, assuming any of the companies are more than paper.

3) They could be issuing new shares on a daily basis and selling them in the market. The only cost is ink. Again, we have no idea what the float is. Officers could get options at .001 that vest immediately. All sorts of screwy stuff could be going on. Maybe the company already had preferreds to insiders that can get converted at a ridiculous rate. If it's a scam, don't expect them to follow the rules. "Oops, forgot to mention the shares outstanding was going up. Sorry."

4) This is the one that I think may be happening quite a bit, even though I have no proof of it. Total speculation on my part. I think a lot of the people running scams on the bulletin board and on the pink sheets are making money on the short side. Think about it. If you're running the company and you know it's fraudulent, you know WITH CERTAINTY that it's going to zero at some point. The short sale is a sure bet. No risk involved. And it's all profit.

From the pinksheets.com site:

"NASD rules do not require that market participants report their short interest in non-Nasdaq OTC securities. This is required only for Nasdaq (and exchange) listed securities, thus short interest information is not available for Pink Sheet securities."

http://www.pinksheets.com/faq.jsp#7b

That means it's wild west days. Be in cahoots with a market maker, or set up some dummy companies offshore to short your own shares. The market maker doesn't have to disclose anything. He could darn near argue he isn't doing anything illegal. Immoral certainly, but illegal is a different story.

Then, to top it all off, you (the CEO) publicly denounce the short sellers. "They're crushing our stock price and hurting our ability to obtain financing. Speculators are ruining our company that we've worked so hard to build."

Because the really good con men are the ones who, even after you've lost everything, still have you convinced that they were fighting FOR you all along. This allows them to not be an outcast in society. It also will gain them some sympathy for the next deal, because investors will believe the con man lost even more than the average investor. "I owned more than 30% of the company's 40 million shares which at one point were trading at $1.00. Therefore, these ruthless short-sellers cost me $12 million dollars. (Of course, he would conveniently forget to mention his offshore accounts with phony business names that had spectacular returns shorting the same stock.)

So that's one of my theories with many of these slimy companies that complain of naked shorting. It's not illegal for market makers to do it. The company can put out all the press releases they want decrying it, and no one will get in trouble. Everybody's covered. Even if someone asked for delivery of the shares, you control the printing press, so just print them up.

It's that same kind of over-compensating you see in a lot of scams. Many of the best scams are by people claiming to be religious. Gain people's confidence and trust. Be of "like mind" to the victim. Tell him what he wants to hear.

Or even think back to when you were 12 years old and your Mom found cigarettes in your dresser drawer: "I swear, Mom, I don't know how those got there!" Or even better, if your sister had given you the lo-down that Mom was looking through your drawer earlier and found something, you'd take some pre-emptive action, right? "Mom, a friend at school has a step-dad who was going to kill him if he found him with cigarettes, so he asked me to hide them for him and bring them back tomorrow. I'm not gonna do it. Smoking's stupid and I don't want him to get started on a bad habit. I was trying to be a loyal friend, and didn't want to be a snitch, but it was wrong."

Come up with the right explanation ahead of time and you can end up looking noble!

"You think I'm shorting my own stock? That's preposterous! Absurd! I've got $12 million of my own money in this company! Only an idiot would think I want to lose my own fortune! You must be one of the short-sellers! I and all my shareholder despise you for ruining our company. I'm going to fight you with everything I've got!"

Seriously, it seems like the perfect cover to me.

Just a theory.