Your "Speachless"? Huh~
Each decade/year seems to have its own business hoax. The schemes develop in good times and bad and adapt to the special conditions of each era. With the benefit of experience and hindsight, the hoaxes appear obviously as frauds, but in the context of their period, they are seen as believable and beguiling. They inspire hope and excitement and they attract millions of followers. This year is one of those is in GZFX!
Millions (almost a billion shares available for distribution) of shares are issued but only 20% are actually sold to the public. One or more people control the other 80% even though they may have invested little or no money of their own. This ensures massive profits to the insiders, including the company waiting in the wings for the merger, and to prevent any interference from those who actually put up the money.
The stock is sold for one penny a share. Investors believe this is very cheap and they are getting a bargain. Brokers hint that the stock could go to a dollar! They are getting in on the ground floor. This shell will soon merge with a company that has explosive potential for growth. This is a chance of a lifetime!
If the total number of outstanding shares are divided into the total dollars in the shell's new bank account, the true value of a share of stock is revealed to be perhaps 1/20th of one penny. Far from a bargain, at one penny a share the shareholders actually bought stock that is grossly overpriced. Further, the insiders who own 80% of the shares have become instantly wealthy with the initial sale of shares. If $500,000 of stock are sold to 500 shareholders, each buying about $1,000 of stock, then the day after the offering, the insiders gain $400,000 (80% of the net worth of the company).
Some winners are needed to convince many more hopefuls to invest. Evidence must given to entice others, even if the evidence is bogus. The lives of the wealthy upliners are presented as proof that the system works and the opportunity for success is available to all. The system functioned similarly in penny stocks. The first level of investors is offered the chance to sell its shares at 1 1/2 cents a share, a 50% profit in only one or two weeks! The brokerage company that is `making the market' buys back the shares, but unknown to the sellers, the brokerage company has already lined up twice as many people to buy these same shares at 2 cents a share. The brokerage company makes as much as 60% commission plus transaction fees on the `spread' between one and two cents, thus making more profit than the initial shareholders. Additionally, insiders are positioned to buy and resell the stock themselves in the artificially skyrocketing market. The buy/sell transactions are conducted on the same day.
The penny stock system works by getting investors to make relatively small investments, usually $500 to $5000. Each level of shareholders that is sold stock, therefore must grow in numbers of people to account for the higher priced shares. If five hundred were needed to buy the shares at one penny a share, with each investing an average of $1,000, then one thousand more investors are needed to make similar size investments when the stock is at two pennies a share. The base of the pyramid must now continuously expand to keep the entire structure from toppling. The rumored big news is "pending", and the home generated FLUFF kicks into high gear!
An empty shell (Point Holdings-GZFX) was taken public; people invested; shares are bought and sold on the basis of the big future. But, in reality, the current business itself is as worthless to shareholders as the original shell. Its only purpose is/was to excite investors. The real money is to be made in the buying and reselling of the stock, not in any tangible business activity.
As more penny stock investors are solicited, the stock keeps rising. Soon the stock goes to a nickel and then a dime and then eventually to .175! For those on the inside, this is a veritable gold mine. For some shareholders who invested early, the program appears to be a wonderful and fully legitimate investment. Who can argue with making money by buying and selling stock? It's as American as apple pie. It's legal. It's just supply and demand. This is capitalism at its finest. What a system! The brokerage house has been earning huge commission rates on trades with stock rising at 50, 100 and 200% increments. The inside investors associated with the brokerage firm have been reaping massive profits.
But the bonanza does go not forever. The stock is astronomically overpriced relative to the assets of the company. Further, the number of investors needed to keep the stock propped up is becoming impossible to recruit. Some shareholders are beginning to ask questions about the actual business and a point is reached at which the stock cannot be resold at a higher price. The collapse begins. Those holding the stock at this point suffer major losses on their investments. The real value of the stock is now revealed to be what is what it was all along, a small fraction of a penny or perhaps nothing at all.
The penny stock brokerage firm, it should be remembered, is not in any way harmed when the stock collapses. Only the most recent investors lose. The firm can move forward to create yet another similar scheme. It could also repurchase the shares from the losers and begin the entire process again with yet another "story" about the firms great potential.
Finally, it should be noted that taking companies public with very low stock prices and even using a shell is not inherently fraudulent. It can be a valid method of helping a new company grow rapidly. Rather, it was the selling of grossly overpriced stocks (even though the selling price was only one penny a share) and then manipulating the price to entice more shareholders into schemes in which most were destined to lose money that constituted the fraud.
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