–Four chief executives since 2008. That’s a lot of chiefs for a company that isn’t up and running yet. The 10-K from May 2013 says John Kueber was the CEO from 2008 through October 2011 and then Kenneth Carter took over. A few months later, in the 10-Q, Marlon Luis Sanchez was listed as the CEO, having started in April 2013.
Who is Sanchez? According to a Cynk proxy filing, he is a partner in Sanchez Medical Services, which provides comprehensive medical services to the Southern California market. He is also the “primary spokesperson” for the Medical Tourism Industry council in Tijuana, Mexico. Not exactly a Mark Zuckerberg type.
Reached by phone Thursday, Sanchez said he left the company several months ago. “I worked my magic for a year, my friend, and now you can see the results,” he said, adding that he couldn’t speak further at this time.
The Matalon, a six-story glass building in Belize City, Belize, towers over a lot littered with old refrigerators and washing machines. Jagged rebar sticks out of unfinished cinderblock structures nearby, and the view, across Haulover Creek, is of a cluster of corrugated metal shacks. This is the listed address for Cynk Technology (CYNK), a company with no assets, no revenue, and one employee, that for one hour in July had a market value of more than $6 billion.
Until that inconceivable run, no one had ever heard of Cynk or the social network it claimed to operate—no one, that is, outside the murky, volatile market for penny stocks, where fraud is rampant and regulation scant. Cynk had begun trading in 2013, for a few cents a share. The price stayed there, hugging the bottom, until June 17, 2014, when shares that had last changed hands at 6¢ spiked to $2.25, a gain of 3,650 percent. The stock kept surging, drawing the attention first of penny stock gossips, then the sharper finance blogs, and finally—as Cynk’s gain topped 36,000 percent, giving it a greater worth on paper than companies such as Urban Outfitters (URBN)—all of Wall Street. On CNBC, in the New York Times, and all over Twitter (TWTR), the strangest story of the summer was the mystery listing from Belize.
Calls to Cynk go unreturned. In filings with the Securities and Exchange Commission, Cynk lists its offices as the Matalon’s Suite 400. There is no Suite 400. The building manager says the company has never had an office there. There are no $6 billion companies in all of Belize, a country where workers earn as little as $80 a week. What Belize does have is a reputation as a haven for offshore businesses with difficult-to-trace records and little oversight.
Among the operations that have set up shop are penny stock promoters who blast out e-mails and tweets hyping shell companies. One of the biggest boosters tied to Belize, AwesomePennyStocks, was able to stay anonymous until the Bugatti- and Lamborghini-driving 26-year-old behind it was sued in March by U.S. regulators. He settled on July 7 for $3.6 million without admitting the allegations. Another promoter, Victory Mark, lists an address in the nearby town of Ladyville. A visit there confirms the road exists, but it has no street numbers and is patrolled by stray dogs. Victory Mark didn’t respond to a phone call and an e-mail.
The person identified in filings as Cynk’s chief executive officer until mid-June, Javier Romero, grew up in the island town of San Pedro, where everyone knows everyone. Romero worked as a park ranger at a local marine reserve, says Daniel Guerrero, San Pedro’s mayor. On YouTube, under the name “Young Soldier,” Romero can be seen singing the hook on a reggae music video titled San Pedro (I Love You). His weathered family home, constructed of plywood sheets, stands out as particularly decrepit in a poor settlement a little out of town. An overturned golf cart lies in front amid ferns strewn with buckets and trash. There’s an outhouse off to one side.
Romero’s grandfather, Joe, is sitting outside on a recent afternoon. He says Javier, whose age he gives as 26 or 29, has left for the U.S., where he’s studying to be a pilot. Asked about Cynk, he explodes. “He doesn’t own anything!” he says. “That is crap. All the crap on the Internet—those are crap! He has nothing to do with it.”
Cynk Technology was born on May 1, 2008, when a Seattle man named John Kueber incorporated a company in Nevada under the name Introbuzz, according to state records. Nearly four years passed, with no apparent activity, until January 2012, when Introbuzz filed with the SEC to sell shares to the public. The startup wanted to raise as much as $100,000 to launch a new type of social network competing with the likes of Facebook (FB) and LinkedIn (LNKD). The difference was that Introbuzz users would pay for introductions—to celebrities, business contacts, or even “the right squash player.” The company would make the networking lunch passé: “Instead of paying for a lunch that neither party wants to eat, parties can get down to business knowing that their time has been valued.”
Kueber (pronounced Keeber) sold Introbuzz in late 2011 to a Las Vegas man named Kenneth Carter for $600, the documents say. The risks section of the SEC filing noted, in capital letters, that Carter had zero public-company experience. Carter, who went by the name Kenny Blaque, ran a promotions company called Blaque Technology, which lists life-size stickers called Wall Dawgz and Wall Dolls among its products.
A Belize office building has become the focal point for a set of mysterious firms, including social media stock wonder Cynk.
Some of the market’s most noteworthy recent cases of questionable stock deals seem to be coming from a single floor in a single office building in Belize City, Belize.
Two weeks ago, the Securities and Exchange Commission asserted in a lawsuit that two brothers, Mike and Andrew Affa, conspired with others to manipulate the stock of a company called Amogear, which claimed to produce clothing for mixed martial arts fighters, but the SEC says in reality did nothing.
The Affas, who are from New Jersey and New York, met in Boston to discuss their business plans with a friend and another person who, unbeknownst to them, was an FBI agent. When it came time to place the trades that would get the fraud rolling, though, the SEC says the Affas did it through a tiny offshore brokerage firm called Titan International Securities, which is located on the fourth floor of an office building called the Matalon in Belize City. The Affas have denied the SEC’s allegations. Titan is not a defendant in the suit.
Belize’s most sought-after business address
Who else claims to be located on the fourth floor of the Matalon? None other than Cynk Technology, the no-asset, no-revenue social media company that attracted widespread attention this summer when its shares soared 25,000% to a $6 billion valuation. The SEC has since halted the stock, saying that there were signs of “potentially manipulative transactions.” The halt was scheduled to expire on Friday. Cynk could not be reached for comment.
Regulators have grown increasingly concerned about small company stock manipulation. A year ago, the SEC formed a microcap fraud task force, and it has since brought a number of cases. There is no evidence U.S. regulators are focusing specifically on international fraud or on activities in Belize in particular. At the same time, Belize has long been known as a place where American citizens can easily incorporate businesses to avoid U.S. regulations and taxes, and hide their ownership stakes.
FINRA, an independent securities industry regulator, has also been looking into a number of offshore brokerages that appear to be linked to “timely stock trades during apparent ‘pump and dump schemes,’” according to financial website The Deal. Among the firms FINRA was reportedly looking into was Legacy Global Markets, which, according to the company’s website, is, you guessed it, also located on the fourth floor of the Matalon building. Legacy could not be reached for comment.
Carlo Arguelles, co-owner of International Environments, the firm that developed the Matalon building, says the Belizean commercial real estate market lacks a large supply of high-end office spaces. The Matalon, which opened in 2010, is one of the few commercial buildings in Belize that exceeds three stories and also offers parking space. It is a six-story glass building that rises above neighboring junk-yard lots and one-story metal shacks. The building is located on the northern edge of Belize City, just outside of the downtown area, which, according to Maria Smith, a sales and accounts associate at real estate firm Century21 Belize, is the most desirable area in the city. The building is a five-minute walk from the ocean. Smith estimates that the average rent for a suite in the Matalon would range between $2,000 and $4,000 a month.
Arguelles said he does not believe that his building has become a magnet for stock fraud. In fact, Arguelles told Fortune that neither Cynk nor Legacy are tenants of the Matalon building. According to a receptionist at the Matalon, only three firms occupy space on the building’s fourth floor, including the Arguelles & Co. law firm, which is run by one of Carlo Arguelles’ cousins; IPC Corporate Services, which helps overseas businesses set up corporations in Belize; and Titan.
It’s unclear why Cynk and Legacy would claim to be located in the same office building in Belize or even on a single floor of a building. Despite some ties, Matalon’s fourth floor tenants—both the actual and the claimed—appear to be independent organizations. A spokesperson for Titan told Fortune that it has no connection to Cynk. Meanwhile, a report from Bloomberg Businessweek found that the brokerage firm held millions of shares of Cynk for clients earlier this year.
“We are not a primary shareholder, nor have we done business with them,” said Titan’s spokesperson, referring to Cynk. “Cynk tried to do business with us, but we rejected the deposit from Cynk. They didn’t meet our compliance requirements.”
Legacy: A Matalon building ghost?
According to Belize’s banking regulator, the International Financial Service Commission, Legacy Global Markets is a licensed securities trading firm. Legacy’s website describes itself as a full-service brokerage firm. But according to hotstocked.com, Legacy regularly pays websites and marketing firms to promote the shares of small company stocks. In June 2013, Legacy paid the owners of 123StockAlerts.com $56,000 to promote the shares of small silver mining company Promithian Global Ventures PGVIfor two days, according to a disclaimer in an e-mail sent out by 123StockAlerts.com.
123StockAlerts.com is owned by Global Marketing Media, the same company that the Affa brothers allegedly hired to promote the shares of Amogear. According to the SEC, GMM is owned by Christopher Nix, who was named as a defendant in the SEC’s suit against the Affas.
The IFCS website lists Legacy’s address as suite 404 in the Matalon. According to the building, though, that address currently belongs to IPC Corporate Services, not Legacy. Legacy’s website does not list the firm’s owners or its management team.
A phone number for Legacy listed with IFSC goes to the law office of Marilyn Williams who, up until September, headed Belize’s Financial Intelligence Unit, another local banking regulator. A paralegal at Williams’ office who would only give Fortune her first name, confirmed that Williams’ firm owns a number of offshore businesses, including Legacy. In a follow up conversation, the same paralegal denied that the firms are connected to each other. Williams did not offer comment to Fortune.
An IFSC official, who declined to give her name, said the agency relies on registering agents to provide accurate information. In general, financial regulation in Belize appears to be mostly voluntary. The IFCS website says that the agency relies on self-regulation, “meaning that while government sets overall standards, it expects much of the actual work in terms of monitoring and compliance to be done by the industry itself.”
Cynk’s six degrees of separation
Marilyn Williams’ law practice was previously run by Lionel Welch, a well-known figure in the Belizean financial community who died in February. Williams took over the firm when she stepped down from Belize’s Financial Intelligence Unit last year.
In 2011, Welch made local headlines when the Belize Department of General Sales Tax, in conjunction with local authorities, issued a warrant for Welch’s arrest after he failed to appear in court on charges that he failed to file his tax returns.
Welch also had ties to the world of U.S. penny stocks. According to an SEC filing, Welch was the largest outside investor of Tiger Oil and Energy, a tiny company that brings old oil wells back to life. Tiger hasn’t been very successful. The company has not brought in a dollar of revenue for more than four years. Nonetheless, Las Vegas-based lawyer Harold Gewerter helped the company raise $850,000 in a stock sale in 2012. Gewerter also appears to have played a major role in bringing social media wonder stock Cynk to life.
Gewerter told Fortunethat he no longer works for Cynk. But in June, he sent a letter to the OTC Markets Group, an exchange for small companies, on behalf of Cynk. Gewerter said that he had personally met with Cynk’s then-CEO Javier Romero. He also said that Cynk was located at Suite 400 in the Matalon building. Suite 400, according to the Matalon’s receptionist, does not exist.
According to SEC registration filings, Andrew Godfrey and Robert Bandfield were also once major shareholders of Tiger Oil. Godfrey and Bandfield, unlike Cynk’s executives, do appear to work on the fourth floor of the Matalon building. Bandfield and Godfrey run IPC Corporate Services as chief officer and director, respectively. The company occupies suite 404 in the Matalon, the same address claimed to be occupied by Legacy Global Markets.
There appears to be no connection between Legacy and IPC other than the fact that they are involved in similar charitable efforts. Both IPC and Legacy are listed as donors on the website of LifeLine Foundation, which provides food and medical care to poor Belizean children. Titan is also listed as a donor.
Even though the Matalon is a hot commodity in the Belize business community, Arguelles said he worries that the building has been tarnish by the recent media spotlight on sketchy companies like Cynk.
“We don’t know who owns these companies, but we’re trying to clear our name on the local level.”
The Securities and Exchange Commission is investigating the auditor of Cynk Technology Corp. , the tiny social network that soared to a $6 billion valuation last month and then came crashing back down to earth, say people close to the probe.
Peter Messineo, a 53-year-old accountant from Palm Harbor, Fla., is the auditor being scrutinized. He is one of a number of "repeat players" linked to several stocks that suffered suspicious trading who are being looked at by the SEC, as it shifts its tactics in its battle against penny-stock fraud, the people said.
The SEC is looking at whether some lawyers and accountants are liable for helping to enable penny-stock frauds, either by signing off on phony information or simply not asking the right questions, said people close to the agency.
Auditors, for example, have a duty to try to check basic facts, such as whether people are who they say they are. The SEC also is concerned that auditors who take on too many clients may not have time to do the basic checks needed, said one of the people close to the agency.
Mr. Messineo, who hasn't been accused of any wrongdoing, said he was just a "bystander" at the Cynk stock blowup and there is no reason he should come under scrutiny. "The SEC should look into whatever they want to, that's their job. But I had no connection to any suspicious trading and I stand by my audits," he said.
The Public Company Accounting Oversight Board, which polices auditors, said its routine 2011 inspection of Mr. Messineo showed "deficiencies" in his audits, including a failure to identify errors in financial statements. Mr. Messineo said the PCAOB frequently criticizes audits, including those done by the biggest firms.
As well as Cynk, Mr. Messineo conducted audits or prepared financial statements for a number of other tiny companies that saw their share prices surge despite little evidence of actual business prospects, according to securities filings.
One was a former games company that shifted to fish-farm products, and another was a digital-imaging firm whose 28-year-old chief executive was formerly a manager of a fireworks store.
The SEC's escalating effort to combat penny-stock frauds is increasingly targeting alleged enablers of these schemes—including lawyers, accountants and stock promoters— rather than by chasing every likely stock manipulation, the people said.
In some cases, the people under scrutiny may not have done anything wrong, but their involvement with certain companies could raise a red flag for investigators.
Even in the boom-and-bust universe of penny stocks, Cynk was a supernova—soaring 36,000% before the SEC suspended trading, then losing almost all of the gains after the halt was lifted.
Cynk's eye-popping valuation—given it reported no assets and only one employee—briefly made it the talk of Wall Street. But the affair also highlighted a complex web of people who were connected to Cynk and other microcap companies that have soared and sagged.
Recent cases show the "loose networks" linked to penny-stock manipulations that "tend to use the same lawyers and accountants," said Jacob Frenkel, a partner at law firm Shulman, Rogers, Gandal, Pordy & Ecker.
Of course, not all share spikes stem from fraud. But sudden price jumps in tiny firms can be a red flag for an age-old type of fraud, that has been given a new lease of life by spam emails and social media. These pump and dumps follow an "almost standard pattern," said Thomas Gorman, a partner at law firm Dorsey & Whitney LLP, who defends companies and individuals facing regulatory actions.
The SEC still is investigating what happened with Cynk, said people close to the agency. It isn't clear who, if anybody, made significant profits from the stratospheric stock increase. A representative of Cynk couldn't be reached for comment.
An example of an earlier share pop with echoes of Cynk came in 2011, with Amwest Imaging Inc. Mr. Messineo audited the company and it also has links to Cynk's founder, lawyer and the person who prepared its financial statements.
Amwest was registered in 2010 as a public company by Cynk's lawyer, Harold Gewerter. He didn't respond to requests for comment.
The company, aiming to digitize documents, reported that at end August 2011 its cash and assets totaled $317 and it had no revenue.
Jason Gerteisen of Evansville, Ind., was a 28-year-old manager of a Mark's Fireworks store when he was appointed Amwest's sole director and chief executive in August 2011, according to a LinkedIn account in his name.
Mr. Gerteisen and Mark's Fireworks didn't respond to several requests for comments.
In December 2011, Amwest's share price surged to $1.39, more than seven times its 18 cents price on Nov. 22. The rise pushed the company's market value to more than $600 million.
Amwest last year renamed itself Intertech Solutions Inc. and switched its business focus from technology to gold mines, according to regulatory filings. Neither Intertech's chief financial officer nor its attorney, Thomas Russell of Newport Beach, Calif., responded to several requests for comment.
Another link between Cynk and Amwest (now known as Intertech): Both had their financial reports for last year prepared by Dale Paisley of Newport Beach. He is described in both companies' securities filings as a certified public accountant, though records show his license lapsed in 1995.
In an interview, Mr. Paisley, 73, said he is "actively retired" and working on his golf game but helps companies with their financial statements "as long as I have the time and they have the money."
His only involvement with Cynk was putting together financials showing the company had no assets or revenue, he said. "How anybody would draw anything from that is beyond me."
Another company that Mr. Messineo worked for was PacWest Equities Inc., which was formed in Florida in 2003.
Since then, it has changed its name four times, switching its business from minerals exploration, to games of skill, to household green cleaning products, to a system for co-cultivating plants and fish in which "catfish do well," according to its securities filings, which add the catfish "doesn't taste 'fishy.'"
PacWest's shares shot up after a stock promotion in the fall of 2012, despite the company reporting that it had no revenue or cash and operated from a post-office-box address in San Juan Capistrano, Calif. "940% GAIN!" said one promoter's newsletter, boasting how PacWest produced "incredible gains" after it alerted investors to the stock.
The SEC suspended trading in PacWest's shares in September 2013 because of questions about the "accuracy and adequacy" of information about the company's "business operations and assets."
Intertech's attorney, Mr. Russell, also represents PacWest, according to securities filings. He didn't respond to several requests for comment.
Federal prosecutors are investigating the rise and fall of shares in tiny Cynk Technology Corp. in a criminal probe that includes scrutiny of two Belize-based businessmen accused of money laundering and stock manipulation, according to a person close to the probe.
The criminal investigation into Cynk is running parallel to a civil probe by the Securities and Exchange Commission, said people close to the probes.
Investigators are scrutinizing the stock's climb and subsequent collapse this summer, which briefly gave the social-network operator a $6 billion valuation even though it reported no assets, no revenue and just one employee, the people said. Cynk shares closed Thursday at 20 cents, less than one-hundredth of their $21.95 peak hit in mid-July.
A representative of Cynk, which hasn't been accused of any wrongdoing, couldn't be reached for comment.
The Cynk probe comes amid efforts by U.S. authorities to clean up the penny-stock markets, where thousands of tiny "microcap" companies trade with few controls on their financial reporting and operations. Prosecutors are using an array of undercover operations to tackle what they call rampant fraud.
In a separate case Thursday, the Manhattan district attorney's office charged eight individuals with running a $290 million pump-and-dump scheme. The 85-count indictment alleged that a penny-stock promotion team working together with a handful of small companies used websites such as Monsterstox.com to manipulate the firms' stock prices and defraud investors. The scheme netted more than $30 million in stolen funds, according to prosecutors. Lawyers for two of the defendants didn't immediately respond to requests for comment. Lawyers for five others couldn't be identified.
"[My client's] conduct was at all times legal and proper," said Michael Bachner, an attorney for one of the defendants, Jay Fung.
One arm of the Cynk investigation is focused on Belize, the offshore financial center that the company lists as its base, according to a person close to the probe. Prosecutors are mining evidence from a two-year sting operation in which an undercover agent posed as a crooked penny-stock promoter, the person said.
That sting led to criminal charges disclosed Tuesday against six Belize residents, as well as three offshore brokerage firms and other companies they controlled. Prosecutors detailed how the men allegedly concocted a $500 million scheme using sham offshore companies that allowed investors to hide their stakes in manipulated penny stocks and evade U.S. taxes.
Belizean authorities conducted simultaneous raids on the brokerages on Wednesday, according a person briefed on the matter. Representatives of the Belizian police didn't immediately respond to requests for comment.
The undercover operation included wiretaps on five phones that captured real-time evidence of an alleged pump-and-dump scheme earlier this year. Prosecutors said the scheme sent the share price of Cannabis-Rx Inc. plummeting from $13.77 to 50 cents in less than a month. Llorn Kylo, chief executive of Cannabis-Rx, a real-estate firm based in Scottsdale, Ariz., that specializes in the regulated cannabis industry, said the company "and its law-abiding shareholders are victims of this alleged scheme." Cannabis-Rx hasn't been accused of any wrongdoing.
The indictment detailing the Belize-related charges, unsealed in a federal court in Brooklyn, N.Y., on Tuesday, doesn't refer to Cynk. But at least two of the men charged—Robert Bandfield, 70 years old, and Andrew Godfrey, 51—are being investigated as part of the Cynk criminal probe, said a person close to the probe.
Lawyers for the two men couldn't be identified.
A company founded and controlled by Mr. Bandfield, and where Mr. Godfrey also worked, called IPC Corporate Services, operated out of the same floor of the same office building as Cynk's reported address in Belize City at the time of its share rise.
Two of the brokerage firms charged following the sting— Titan International Securities Inc. and Legacy Global Markets SA—also have offices on the same floor. The third brokerage charged, Unicorn International Securities LLC, is based just down the road at 1 Coney Drive, the address now reported by Cynk in its profile on OTC Markets, the platform where its stock trades.
Jacob Frenkel, a lawyer representing Titan; its president, Kelvin Leach; and head securities trader Rohn Knowles in the criminal case, said, "Titan is confident that its compliance processes and adherence will reflect that any activity in Cynk was consistent with the law and best practices."
Christopher Bruno, an attorney for Unicorn and its president, Jim Can, said, "We're weighing our options as how we're going to respond to this indictment, including issues pertaining to extradition."
Write to Jean Eaglesham at jean.eaglesham@wsj.com and Christopher M. Matthews at christopher.matthews@wsj.com
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