Aug 21

The End is near for Crumbs Bakeshop $CRMBQ $CRMUQ

The deadline for competing bids for Crumbs Bakeshop (CRMBQ and CRMUQ) has come and gone with no offers besides the stalking horse bid (see my previous post on that).

Per Dow Jones Newswires yesterday:

DJ CNBC’s Lemonis Will Likely Sweep Up Crumbs — Market Talk
13:29 EDT – A possible revival of Crumbs Bake Shop at the hands of CNBC personality Marcus Lemonis and Dippin’ Dots owner Fischer Enterprises is closer to reality after a Tuesday deadline to submit competing offers for the shuttered company came and went with little fanfare. A Crumbs spokeswoman says no bidders emerged to challenge a $6.5M debt-forgiveness offer from Lemonis and Fischer, so the cupcake chain will ask a bankruptcy judge to cancel a scheduled auction. If approved by the court, the sale will likely lead to a new kind of Crumbs store which incorporates the buyers’ other dessert brands. (sara.randazzo@wsj.com; @sara_randazzo)
(END) Dow Jones Newswires

I have started averaging into a final short position in both Crumbs stock (CRMBQ) and Crumbs units (stock plus warrants) as the company should emerge from bankruptcy in a month (and the stock should drop precipitously before then) with shareholders getting completely wiped out and most debt holders suffering large losses.

Disclosure: I am short CRMBQ and CRMUQ and I am a day-trader. I may close my short position or short more at any time. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Aug 06

Stock promoters criminally charged for manipulative trading of marijuana stocks including $HEMP and $PHOT

Yesterday the SEC sued four promoters for manipulative trading in marijuana stocks and the Department of Justice joined the fun with a criminal case against three of the four. First I address the more serious criminal charges (see DoJ press release). The criminal charges relate to only one stock: ISM International (ISML).

 Three men who allegedly manipulated penny stocks, and then laundered the proceeds by purchasing precious metals, were charged today in U.S. District Court in Tacoma with conspiracy to commit securities fraud and conspiracy to launder monetary instruments, announced U.S. Attorney Jenny A. Durkan.  MIKHAIL GALAS, 24, of Vancouver, Washington was arrested in Long Beach, California after he arrived on a flight from Portland, Oregon.  He will make his initial appearance in U.S. District Court in Los Angeles.  CHRISTOPHER MROWCA, 24, was arrested in Bradenton, Florida and will make his initial appearance in Tampa.  ALEXANDER HAWATMEH, 23, of Salem, Oregon is incarcerated in Oregon on an unrelated charge and will appear in federal court at a later date.  In addition to the arrests, searches were conducted in Vancouver, Washington, Bradenton, Florida, Salem, Oregon and Boulder, Colorado.

 

Below is the criminal complaint against those three individuals:

USA v. Mrowca Et Al Doc 1 Filed 01 Aug 14 by Shannon Coleman

Of note: Christopher Mrowca controls Money Runners Group LLC, a scummy and generally ineffective stock promoter. Money Runners has their own InvestorsHub messageboard and website. Alexander Hawatmeh is a former member of Worthmore Investments LLC, the company that runs the StockHaven stock promotion and stock chat website (at least according to statements on the Stockhaven website). The current owner of Worthmore Investments LLC is Kevin Kleinman, who has stated that Hawatmeh has not been a member of Worthmore since late 2012.

The SEC complaint includes five stocks, including PHOT and HEMP from early this year. It also includes a fourth individual, Tovy Pustovit:

Defendant Pustovit, age 20, is a resident of Vancouver, Washington. Pustovit was
5 the registered owner of a stock promotion website called “Explosive Alerts” from August 2012,
6 when the site was created, until August 2013.

 

Excerpt from SEC press release:

The SEC’s complaint filed in federal court in Tacoma, Wash., charges the following individuals:

  • Mikhail Galas, a stock promoter who lives in Vancouver, Wash.
  • Alexander Hawatmeh, a member of Worthmore Investments LLC, which owns a stock promotion website called stockhaven.com.  He formerly lived in Vancouver and currently resides in Lincoln City, Oregon.
  • Christopher Mrowca, a stock promoter who operates Money Runners Group LLC, which has an affiliated stock promotion website called MoneyRunnersGroup.com.  He lives in Bradenton, Fla.
  • Tovy Pustovit, who owns a stock promotion website called Explosive Alerts.  He also lives in Vancouver.

 

See the SEC complaint (PDF).  The most profitable of all the stocks mentioned in the suits is RVDO:

142. On March 5, 2014, there was a promotion of RVDO over the Internet claiming
6 that RVDO would trade at $2 per share. The closing price of RVDO on March 4, 2014 was $.06
7 per share. This claim was misleading because there was no business development at RVDO that
8 would justify such a rise in price.
9 143. A. Hawatmeh had prior knowledge of the RVDO promotion and its timing.
10 144. Between 9:30 AM and 09:52 AM Eastern Time on March 5, 2014, A. Hawatmeh
11 sold approximately 3.23 million shares of RVDO common stock at prices ranging from $.28 per
12 share to $.90 per share.
13 145. A. Hawatmeh’s average selling price per share on March 5, 2014 was
14 approximately $.4375 per share, almost an eightfold increase over his average purchase price per
15 share.
16 146. A. Hawatmeh’s gross profits from trading RVDO between February 7, 2014 and
17 March 5, 2014 were over $1.23 million.

rvdo

Perhaps the most interesting of all the promotions though are HEMP and PHOT, because they were very liquid during the period the accused were actively trading the stock. First, the details of PHOT:

Trading in PHOT
90. From January 9 to January 14, 2014, there was an Internet promotion of PHOT as part of a broader promotion of several marijuana-related stocks.
91. During that promotion, Mrowca and Galas traded approximately 6.4 million shares of PHOT common stock, and during and leading up to the promotion engaged in manipulative trading designed to increase the price and volume of PHOT common stock.
92. From January 2, 2014 through January 14, 2014, Mrowca engaged in wash trades of PHOT common stock and also engaged in matched orders of PHOT common stock with Galas

phot

It is important to note that the defendants bought HEMP after it had already had its first run up to a high of just over $0.08 from under $0.02 at the beginning of 2014 — they started buying on January 23rd when the price was about $0.05. Even if they had not allegedly engaged in manipulative trading they likely would have made a lot of money.

Trading in HEMP
117. A. Hawatmeh, Galas and Mrowca began accumulating HEMP common stock
through market purchases on January 23, 2014. Between January 23, 2014 and February 12,
2014, A. Hawatmeh, Galas, and Mrowca bought and sold approximately 41.7 million shares of
HEMP common stock.
118. During the period from January 24 through February 12, 2014, HEMP was actively promoted on the Internet.
119. For example, on February 6, 2014, one Internet tout claimed that HEMP could reach “a REAL Possible Gain of OVER 2900%.”
120. During the promotion, A. Hawatmeh, Mrowca and Galas engaged in manipulative wash trades and matched orders of HEMP common stock.
121. The total trading volume for HEMP common stock in the A. Hawatmeh, Mrowca,and Galas accounts during this period was approximately 83 million shares.

hemp

 

 

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Aug 06

AJ Discala and four others charged criminally for stock fraud

Again this is a late post. This happened on July 14th. This story received a lot of attention because one of the men charged criminally, AJ Discala, is famous. See the Dealbook article about the case.

SEC press release
SEC complaint
Department of Justice press release

A ten-count indictment was unsealed this morning in federal court in Brooklyn, New York, against seven defendants, Abraxas J. Discala, also known as “AJ Discala,” the Chief Executive Officer of OmniView Capital Advisors LLC (“OmniView”); Marc Wexler, the Managing Director of OmniView; Ira Shapiro, the Chief Executive Officer of CodeSmart Holdings, Inc. (“CodeSmart”), a publicly traded company; Matthew Bell, a registered broker and investment adviser representative; Craig Josephberg, a registered broker; Kyleen Cane, an attorney; and Victor Azrak, the Vice President and Director of Excel Corp., a publicly traded company. The charges include securities fraud, wire fraud and conspiracy to commit securities fraud, mail fraud and wire fraud in connection with the fraudulent market manipulation of four publicly traded companies—CodeSmart, trading under the ticker symbol ITEN; Cubed, Inc. (“Cubed”), trading under the ticker symbol CRPT; StarStream Entertainment Inc. (“StarStream”), trading under the ticker symbol SSET; and The Staffing Group, Ltd. (“Staffing Group”), trading under the ticker symbol TSGL. In addition, the government restrained Discala’s residence in Norwalk, Connecticut, worth over $1 million, and seized a dozen bank and brokerage accounts containing criminal proceeds.

As alleged in the indictment and other court filings, between October 2012 and July 2014, the defendants, together with others, agreed to defraud investors and potential investors in four public companies: CodeSmart, Cubed, StarStream and Staffing Group (collectively, the “Manipulated Public Companies”) by artificially controlling the price and volume of traded shares in the Manipulated Public Companies through, among other things: (a) false and misleading press releases; (b) false and misleading SEC filings; (c) fraudulent concealment of the defendants’ and their co-conspirators’ ownership interests; (d) engineering price movements and trading volume in the stocks; and (e) unauthorized purchases of stock in accounts of unwitting investors.

Here is the chart of one of the allegedly manipulated stocks, Codesmart:

iten

See the criminal complaint:

USA v. Discala Et Al Doc 1 Filed 15 Jul 14 by Shannon Coleman

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Aug 06

Criminal charges filed against Christopher Nix, Andrew Affa, and three others for conspiracy to manipulate Amogear $AMOG stock

2014 continues to be a banner year not just for the SEC but for criminal prosecutions of stock promoters for market manipulation. This case was filed almost a month ago so I apologize for the delay but wanted to make sure I posted it on this blog. See the SEC’s press release about its lawsuit and as well as the Department of Justice’s press release about the arrests.

Excerpt from DOJ PR:

The criminal cases charged the following individuals with conspiracy to commit securities fraud: Andrew J. Affa, 30, of Huntington Station, N.Y.; Michael A. Affa, 34, of Toms River, N.J.; Mitchell H. Brown, 48, of Long Branch, N.J.; Christopher R. Putnam, 37, of Charleston, S.C.; and Christopher G. Nix, 34, of Charleston, S.C. Andrew Affa, Michael Affa and Brown were also charged with conspiracy to commit wire fraud. The SEC suit, likewise, charges all five individuals with securities fraud.

Andrew Affa, Michael Affa, and Brown are scheduled to appear in federal court in Boston on July 15 and Putnam and Nix are scheduled to appear on July 31.

It is alleged that in January and February 2014, the defendants attempted manipulation of Amogear’s stock was caught in real-time by a federal undercover operation. The SEC suspended trading in the securities of Amogear on Feb. 10, 2014, as the attempted manipulation of its stock was underway. According to the criminal and SEC charges, prior to the suspension of trading in the stock, the defendants planned and implemented a scheme to create a false appearance of an active market in the stock, followed by a false media campaign designed to increase the price of the stock, knowing that Amogear was a shell company without any real operations. The defendants allegedly planned to sell the stock into the market at artificially inflated prices from which they would profit. What the parties did not know was that Amogear was controlled by the FBI and used by the FBI as a vehicle to obtain evidence of their attempt to manipulate the market.

One of the most interesting things about this case is that the FBI’s confidential informant (CI) controlled the stock that was the subject of the alleged conspiracy. From the SEC complaint:

2. Amogear is a Nevada corporation based in Boston, Massachusetts. Amogear’s
stock is quoted under the ticker symbol “AMOG.” Amogear was listed and could trade
nationally on the over-the-counter (“OTC”) securities markets. Amogear was acquired and
controlled by the CI, who then worked in conjunction with the FBI in the undercover
investigation. Amogear only existed as a shell company, which is a company that can serve as a
vehicle for business transactions by other related companies or entities without itself having any
real assets or operations.

Christopher “Gabe” Nix’s Global Marketing Media LLC ran a number of websites and they generally one-day promotions so their pumps were always good to short. See the Promotion Stock Secrets article on Global Marketing Media. Some of the websites of Global Marketing Media LLC:

Pennystockpros.net
Pennystockplayers.net
TheStockScout.com
PennyStockClub.net
PennyStockCircle.com
123StockAlerts.com

Andrew Affa owned Pennypickalerts.com (it has since been sold to another promoter).

amog

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

 

Aug 05

Apptigo International $APPG pump and dump

[Edit 18 August 2014: I was forwarded scans of a hard mailer by StockRealist. I have updated the information on the budget with info from the hard mailer. See the full mailer (13-page 13MB PDF). See also the negative reports on APPG by Stockrealist and by Geoinvesting.]

Yesterday Promotion Stock Secrets made public their report on Apptigo International (APPG), including the information that there was a landing page pump at http://mobileappbreakthrough.com/. I had not previously seen promotion of APPG but it is obvious that it has started to be promoted because of the volume. I am a paying subscriber to Promotion Stock Secrets. Yesterday was the first big volume day on APPG so it looks like the promotion is in full swing. I will look to short it soon.

Disclosed budget: $948,363
Promoter:  Flying Under the Radar Stocks
Paying party: Micro Cap Media Ltd.
Shares outstanding: 28,875,000
Previous closing price: $1.61
Market capitalization: $46 million

First page of hard mailer:appg_firstpage

appg_buyprice

Excerpt from disclaimer:

Flying Under the Radar Stocks received an editorial fee of twenty-five thousand dollars from Micro Cap Media Ltd. APPG was chosen to be profiled after Flying Under the Radar Stockscompleted due diligence on APPG. Flying Under the Radar Stocks expects to generate new subscriber revenue, the amount of which is unknown at this time, resulting from the distribution of this online report. Micro Cap Media Ltd. paid twenty-three thousand eight hundred dollars to advertising agencies for the cost of creating and distributing this report online, in an effort to build investor awareness. 

Full disclaimer:

Important Notice and Disclaimer: Flying Under the Radar Stocks is an independent paid circulation newsletter. This online report is a solicitation for subscriptions and a paid promotional advertisement of Apptigo, Inc. (APPG). Flying Under the Radar Stocks received an editorial fee of twenty-five thousand dollars from Micro Cap Media Ltd. APPG was chosen to be profiled after Flying Under the Radar Stockscompleted due diligence on APPG. Flying Under the Radar Stocks expects to generate new subscriber revenue, the amount of which is unknown at this time, resulting from the distribution of this online report. Micro Cap Media Ltd. paid twenty-three thousand eight hundred dollars to advertising agencies for the cost of creating and distributing this report online, in an effort to build investor awareness. This report does not provide an analysis of a company’s financial position, operations or prospects and this is not to be construed as a recommendation by Micro Cap Media Ltd. or an offer to buy or sell any security or investment advice. An offer to buy or sell can only be made with accompanying disclosure documents and only in states and provinces for which they are approved. Do not base any investment decision based solely on information in this report. Although the information contained in this advertisement is believed to be reliable, Micro Cap Media Ltd. makes no warranties as to the accuracy of any of the contents herein and accepts no liability for how readers may choose to utilize the content. Readers should perform their own due diligence, including consulting with a licensed, qualified investment professional. Further, readers are strongly urged to independently verify all statements made in this report. APPG’s financial position and all other information regarding APPG should be verified directly with APPG. Audited financial statements and other relevant information about APPG can be found at the Security and Exchange Commission’s website at www.sec.gov. It is recommended that any investment in any security should be made only after consulting with your investment advisor and only after reviewing all publicly available information, including the financial statements of the company. The information contained herein contains forward-looking information within the meaning of section 27a of the Securities Act of 1933, as amended, and section 21e of the Securities Act of 1934, as amended, including statements regarding growth of APPG. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act, statements contained herein that look forward in time, which include everything other than historical information, involve risks and uncertainties. All forward-looking statements are based upon current assumptions that are believed to be reasonable. In the event any such assumptions turn out to be incorrect, forward-looking statements based upon those assumptions will not be accurate. Flying Under the Radar Stocks presents information in this online report believed to be reliable, but its accuracy cannot be guaranteed. More information can be found at APPG’s website www.apptigo.com.

appg_chart

PDF copy of pump page

Hard mailer disclaimer:
appg_disclaimer

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Aug 05

Green and Hill Industries $GHIL trading suspended by SEC

Trading in Green and Hill Industries (GHIL) was suspended by the SEC this morning prior to the market open. This is the twelfth suspension of a marijuana-related stock this year. Here is a list of marijuana stocks that have been suspended by the SEC this year: GHIL,SKTOAEGYWBXU,FRTDFSPMPHOT,  CDFTPTOGAVNECBGI, and CANN. This suspension comes just four days after a cease trade order by the British Columbia Securities Commission

I blogged about the promotion of Green and Hill Industries back on June 4th. Trading will resume on GHIL at the market open on Tuesday, August 19th.

 

SEC trading suspension press release (PDF)

SEC trading suspension order (PDF)

The reasoning for the suspension was the standard boilerplate:

The Commission temporarily suspended trading in the securities of GHIL because of questions that have been raised about the accuracy and adequacy of publicly disseminated information concerning, among other things, the company’s operations.

The Commission acknowledges FINRA’s assistance in this matter.

 

ghil

Disclaimer: I have no position in any stock mentioned. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Jul 31

Stock promoter Randy Hamdan sues SeekingAlpha author Matt Finston for Libel in response to negative article on Creative Edge Nutrition $FITX

Randy Hamdan, a stock promoter currently being sued by the SEC, has sued SeekingAlpha author Matt Finston for libel. See the article on SeekingAlpha that led to this. The case was filed in the Eastern District of Michigan; the case number is 2:14-cv-12949-GAD-MKM. I saved a copy of the complaint and all exhibits (PDF). Finston is asking for support in defending against this suit. Below is an excerpt from the complaint:

8. Just a few examples of Defendant’s false and defamatory statements regarding Plaintiff are as follows: a. That Plaintiff has a “fraudulent past”. (See Exhibit A).
b. That Plaintiff and HH Group, LLC were issued 420 Million shares of stock in Creative Edge Nutrition Inc. (ticker symbol FITX) for $0.001 per share. (See Exhibit B).
c. That “Vgpr didn’t survive Hamden”, implying that Plaintiff caused Vega Biofuels Inc. to fail or go out of business. (See Exhibit C).
d. That “DNAX is another”, implying that Plaintiff caused DNA Brands, Inc. to fail or go out of business. (See Exhibit D).
e. That Plaintiff “dumped” FITX stock “into the promotion three years ago”. (See Exhibit E).
f. That Plaintiff is “a serial pump and dump and he’s been charged by the SEC for it.” (See Exhibit F).
g. That Plaintiff is “a known pump and dump”. (See Exhibit G).
h. That Plaintiff is “an investor relations ponzi”. (See Exhibit H).

j. That Plaintiff is “using more profiles to harass and intimidate and pump”. (See Exhibit J).

Below I examine each of these claims. Do note that I am not a lawyer so my opinion may not be the most informed on whether Hamdan has a good case or not.

a. “That Plaintiff has a “fraudulent past”.

While my lawyers would not like me to use these words if there has not been a criminal fraud conviction, the actions that Randy Hamdan is alleged to have engaged in by the SEC clearly fit the common definition of fraud even if he was not criminally charged with fraud (highlighting mine; excerpted from SEC legal complaint against Hamdan):

Randy A. Hamdan (“Hamdan”) began the scheme by creating a market with manipulative purchases and sales of the securities of CompuSonics in September 2009 through his wholly owned entity, Oracle Consultants, LLC (“Oracle Consultants”), and continued it with a marketing campaign that began in early October 2009 and culminated on October 19, 2009 with the issuance, by an international news distribution service, of a false press release regarding the company’s purported positive business developments

If Finston had used the modifier “allegedly” (because Hamdan has not settled or lost the case yet), his statement would be substantially true. If Hamdan does settle the SEC suit or loses it then he would have no cause for action on the basis of that statement.

b. That Plaintiff and HH Group, LLC were issued 420 Million shares of stock in Creative Edge Nutrition Inc. (ticker symbol FITX) for $0.001 per share. (See Exhibit B).

This is a true fact. Below are excerpts from the 2013 FITX annual report list of share issuances:

Shareholder | Number of shares issued | price
HH Group LLC. 3/4/2013 32,000,000 0.001 conversion Restricted
HH Group LLC. 3/4/2013 28,000,000 0.001 conversion Restricted
HH Group 5/5/2013 36,500,000 0.001 Paid debt Restricted
HH Group 5/8/2013 10,000,000 0.001 services Restricted
HH Group 5/15/2013 72,000,000 0.001 Paid line of credit off Restricted
HH Group LLC. 7/9/2013 52000000 0.001 Paid debt Restricted
HH Group LLC. 7/9/2013 10000000 0.001 Paid debt Restricted
HH Group LLC. 7/9/2013 5000000 0.001 Paid debt Restricted
HH Group LLC. 7/9/2013 20000000 0.001 Paid debt Restricted
Rhamdan 8/21/2013 10204081 0.001 Paid debt Restricted
Rhamdan 8/21/2013 10204081 0.001 Paid debt Restricted
Rhamdan 8/21/2013 20408163 0.001 Paid debt Restricted
Rhamdan 9/6/2013 50000000 0.001 Paid debt Restricted
HH Group, LLC 9/6/2013 10204081 0.001 Paid debt Restricted
HH Group, LLC 9/6/2013 10204081 0.001 Paid debt Restricted
HH Group, LLC 9/6/2013 40816326 0.001 Paid debt Restricted

c. That “Vgpr didn’t survive Hamden”, implying that Plaintiff caused Vega Biofuels Inc. to fail or go out of business. (See Exhibit C).

Vega Biofuels (VGPR) is still in business. However, if Finston meant that the stock price declined as a result of Hamdan, then his statement is correct. Selling by shareholders into paid promotions causes stocks to fall. Hamdan’s company paid for some promotion of VGPR. Example below:

StockRockandRollLLC® has been compensated three thousand cash for one-day coverage on VGPR by HH Group LLC. [excerpt from email received from stockloackandload.com.com on 4/20/2011]

d. That “DNAX is another”, implying that Plaintiff caused DNA Brands, Inc. to fail or go out of business. (See Exhibit D).

As with Vegas Biofuels, it is clear that while the company didn’t go out of business, the stock price dropped substantially, at least partially as a result of shareholders selling into the stock promotion that was at least partly paid for by Hamdan’s company HH Group LLC. See excerpt from a promotional email below:

Market Wrap Media, Inc. accepts compensation from companies for advertising services.
  Market Wrap Media, Inc. has been contracted to receive $2,500 by a third party (HH Group LLC) for 1 day of advertising service for DNAX. [excerpt from email received from pennystocknewspaper.com on 11/30/2011]

e. That Plaintiff “dumped” FITX stock “into the promotion three years ago”. (See Exhibit E).

This is the point of a stock promotion: to enable large shareholders to sell shares. It is a true fact that Hamdan owned (and continues to own) millions of shares and that his company HH Group LLC paid for numerous promotional emails promoting FITX back in 2012. Unless Hamdan and his companies did not sell any shares during the promotions this is a substantially true statement. While 2012 is only two years ago and not three, it is close enough for the statement to be substantially true and thus not libelous. Below is an excerpt from just one of many promotional emails on FITX I received in 2012, paid for by Hamdan’s HH Group LLC:

We expect to be compensated fifteen thousand dollars by a non-affiliate third party, HH Group, LLC, for a one week advertisement of Creative Edge Nutrition, Inc. [excerpt from email received from ExplosiveOTC.com on 110/1/2012]

f. That Plaintiff is “a serial pump and dump and he’s been charged by the SEC for it.” (See Exhibit F).

This is a true fact: Hamdan and his companies have paid for stock promotion on many companies (more than just the three that Finston mentioned). Paying for stock promotion and then selling shares is the very definition of a pump and dump. The SEC sued Hamdan for his role in the pump and dump of Compusonics in 2009:

FACTS Fraudulent Stock Marketing Campaign 8. From September 27, 2009 through October 19, 2009, Hamdan carried out a fraudulent marketing campaign designed to increase the trading price of CompuSonics’ stock. In substance, the fraudulent marketing campaign was to the effect that CompuSonics would soon release information concerning a settlement of a patent infringement matter that would “reward” shareholders. Hamdan caused the dissemination of materially false information concerning CompuSonics by means of stock newsletters, a website, a message board, and a press release. To facilitate the dissemination of the false information and conceal his role in the scheme, Hamdan employed an anonymous email service, a proxy server, and fictitious contact information.

g. That Plaintiff is “a known pump and dump”. (See Exhibit G).

This is a true fact (if you ignore Finston’s abuse of the English language): Hamdan’s companies have paid for multiple stock promotions.

h. That Plaintiff is “an investor relations ponzi”. (See Exhibit H).

This statement is meaningless hyperbole but even if it was libelous it was not made by Finston — he simply linked to a publicly accessible accusation by another individual.

[i. I have removed this complaint from this blog post and have removed my analysis of it. I believe that Finston made this comment to Hamdan and no one else saw it and it is thus not actionable. There is no need for me to further publicize it.]

j. That Plaintiff is “using more profiles to harass and intimidate and pump”. (See Exhibit J).

At least according to one message board poster I trust, Randy Hamdan has sent some nasty private messages to people and it would be reasonable to believe that the purpose of those messages was to intimidate. Oh, and meet “Michael Cheeseman” who appears to be Randy Hamdan.

So after looking at all the claims made by Randy Hamdan I conclude that his case is very weak. I may be wrong about that as I am not an expert.

Disclaimer: I have no position in any stock mentioned although I have traded FITX in the past. I have donated $400 to support Finston’s defense and I am in talks with him to further support his defense. This disclaimer will not be updated unless I update the blog post. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Jul 21

John Babikian update: SEC settles with him, his assets sold off by Revenue Quebec

The SEC settled its lawsuit with John Babikian two weeks ago. This lawsuit, for the promotion and scalping of the stock of America West Resources (defunct now, traded as AWSR then). To the untrained eye, this looks like a tiny slap on the wrist considering all the stock promotions Babikian has run. But the suit against Babikian for AWSR was likely brought in a hurry because of his attempts to liquidate his American assets. As FINRA and the SEC already had investigated AWSR in connection with John Thomas Financial, it was easy to put together a quick lawsuit against Babikian showing that he scalped his promotion. Only the one stock was covered in that SEC lawsuit so the SEC is free to bring more suits against Babikian. Also there is the possibility of criminal charges against Babikian, as pointed out in this Oregon Live article that discusses his investment in an Oregon vineyard:

There remains the possibility the SEC opted to settle to make way for federal prosecutors. If the Department of Justice opts to bring a criminal case against Babikian then Martin’s situation could get more complicated, not less.

Below is from the press release by the SEC:

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23039 / July 8, 2014

Securities and Exchange Commission v. John Babikian, Civil Action No. 14-CV-1740 (S.D.N.Y.)

Court Enters Final Judgment Against Promoter in Settlement of Microcap Stock Scalping Case and Orders $3.73 Million in Sanctions

The Securities and Exchange Commission announced today that the Honorable Paul A. Crotty of the United States District Court for the Southern District of New York entered a final judgment on July 8, 2014, against defendant John Babikian in the Commission action styled, SEC v. John Babikian, Civil Action No. 14-CV-1740 (S.D.N.Y.). The Court entered the final judgment, to which Babikian consented without admitting or denying the allegations in the Commission’s Complaint. The final judgment orders Babikian to pay a total of $3,730,000, comprised of $1,915,670 in disgorgement, together with prejudgment interest in the amount of $128,073, and a civil penalty in the amount of $1,686,257. The final judgment also imposes a bar from participating in any offering of penny stock and enjoins Babikian from recommending, directly or indirectly, the purchase of any U.S. publicly traded or quoted stock without simultaneously disclosing any plans or intentions to sell such stock within 14 days of the recommendation. Finally, the final judgment permanently enjoins Babikian from violating Section 17(a) of the Securities Act of 1933 (15 U.S.C. § 77q(a)), Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)) and Rule 10b-5 promulgated thereunder (17 C.F.R. § 240.10b-5).

The Commission’s complaint, filed on March 13, 2014, alleged that Babikian used AwesomePennyStocks.com and its related site PennyStocksUniverse.com, collectively “APS,” to commit a brand of securities fraud known as “scalping.” The APS websites disseminated e-mails to approximately 700,000 people shortly after 2:30 p.m. Eastern time on the afternoon of Feb. 23, 2012, and recommended the penny stock America West Resources Inc. (AWSRQ). What the e-mails failed to disclose among other things was that Babikian held more than 1.4 million shares of America West stock, which he had already positioned and intended to sell immediately through a Swiss bank. The APS emails immediately triggered massive increases in America West’s share price and trading volume, which Babikian exploited by unloading shares of America West’s stock over the remaining 90 minutes of the trading day for ill-gotten gains of more than $1.9 million.

The Commission wishes to acknowledge the assistance of the Quebec Autorité des Marchés Financiers and the Financial Industry Regulatory Authority.

Disclaimer: I have no position in any stock mentioned. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Jul 21

SEC seeks $12.2 million penalty against Jean-Francois Amyot in Spencer Pharma case

The SEC has filed a proposed default judgement in their lawsuit against Jean Francois Amyot.

See the Stockwatch article for a good synopsis, excerpted below:

The U.S. Securities and Exchange Commission has filed a motion for a default judgment of up to $12.2-million against Quebec’s Jean-Francois Amyot, citing his “especially egregious” conduct in a 2010 pump-and-dump. (All figures are in U.S. dollars.) The SEC says he sold 22 million unregistered shares of a pink sheets company called Spencer Pharmaceuticals Inc. while orchestrating a bogus takeover. The scheme involved several false and misleading news releases, and resulted in profits to Mr. Amyot of $5.8-million, according to the SEC.

 

See the original SEC litigation release and the SEC’s legal complaint from 2012.

Excerpt from the litigation release:

The Commission’s complaint, filed in the U.S. District Court for the District of Massachusetts, alleges that beginning in November 2010, Spencer, a purported pharmaceutical company with addresses in Boston, Massachusetts, and Canada, disseminated false and misleading press releases claiming that it had received an unsolicited buyout offer from a Mideast company for $245 million when, in fact, the purported buyout offer was not real. The complaint further alleges that Arella and Morrice worked with Amyot to create and disseminate the fraudulent press releases. According to the complaint, while Spencer was issuing the press releases, the defendants were conducting a promotional campaign using Internet websites and newsletters to tout Spencer’s stock and the bogus buyout offer, and the false press releases and promotional campaign were successful in pumping up the price of Spencer’s stock. For example, after Spencer publically announced that the Mideast company proposed to pay $245 million for Spencer, the price of Spencer stock more than doubled in two days – opening at $0.25 per share on November 10, 2010 and closing at $0.60 per share on November 12 – and the daily trading volume for Spencer’s stock reached almost six million shares on November 11, compared to a daily average trading volume of less than 50,000 shares during the previous three months. During the time the buyout offer was being promoted, Amyot sold approximately 36 million Spencer shares for gross proceeds of approximately $5.8 million. Each of the defendants are charged by the Commission with violating various antifraud provisions of the federal securities laws. The complaint further charges Spencer, Amyot, and Arella with violating securities registration provisions of the securities laws. According to the complaint, Amyot and Arella were involved in a series of transfers involving 12 million Spencer shares that were done to evade the securities registration requirements and move the shares into an account controlled by Amyot.

 

Disclaimer: I have no position in any stock mentioned. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Jul 15

Crumbs Bake Shop $CRMBQ bankruptcy update: Stalking horse bid details

Disclosure: I am short CRMBQ and I am a day-trader. I may close my short position or go long at any time. I am not a bankruptcy expert. This post is for informational purposes only.

 

Below is a copy of the docket in the Crumbs Bake Shop Inc (CRMBQ):

 

14-24287-MBK Crumbs Bake Shop, Inc.
Case type: bk Chapter: 11 Asset: Yes Vol: Judge: Michael B. Kaplan
Date filed: 07/11/2014 Date of last filing: 07/14/2014 
 

 

Doc.
No.
Dates Description
Filed & Entered: 07/11/2014
Docket Text Case Assigned
Filed & Entered: 07/11/2014
Docket Text Credit Card/Debit Card Payment
1
Filed & Entered: 07/11/2014
Docket Text Voluntary Petition (Chapter 11)
2
Filed & Entered: 07/11/2014
Docket Text Motion to Extend Time
3
Filed & Entered: 07/11/2014
Docket Text Motion for Joint Administration
4
Filed & Entered: 07/11/2014
Docket Text Motion (Generic)
5
Filed & Entered: 07/11/2014
Docket Text Motion (Generic)
6
Filed & Entered: 07/11/2014
Docket Text Motion (Generic)
7
Filed & Entered: 07/11/2014
Docket Text Motion to Retain Claims and Noticing Agent
8
Filed & Entered: 07/11/2014
Docket Text Motion (Generic)
9
Filed & Entered: 07/11/2014
Docket Text Motion to Reject
10
Filed & Entered: 07/11/2014
Docket Text Motion (Generic)
11
Filed & Entered: 07/11/2014
Docket Text Support
12
Filed & Entered: 07/11/2014
Docket Text Application for Designation as Complex Chapter 11 Case
13
Filed & Entered: 07/11/2014
Docket Text Application for Expedited Consideration of First Day Matters
15
Filed: 07/11/2014
Entered: 07/14/2014
Docket Text Notice of Missing Documents
14
Filed & Entered: 07/13/2014
Docket Text Notice of Appearance and Request
Filed & Entered: 07/14/2014
Docket Text Remark
16
Filed & Entered: 07/14/2014
Docket Text Shorten Time
17
Filed & Entered: 07/14/2014
Docket Text Amended Order (Generic)
18
Filed & Entered: 07/14/2014
Docket Text Notice of Appearance and Request
19
Filed & Entered: 07/14/2014
Docket Text Notice of Appearance and Request
20
Filed & Entered: 07/14/2014
Docket Text Notice of Appearance and Request
21
Filed & Entered: 07/14/2014
Docket Text Application to Appear Pro Hac Vice
22
Filed & Entered: 07/14/2014
Docket Text Motion (Generic)
23
Filed & Entered: 07/14/2014
Docket Text Application to Shorten Time
24
Filed & Entered: 07/14/2014
Docket Text Application to Appear Pro Hac Vice

Document #22 from yesterday includes the details of the Stalking Horse bid for Crumbs Bakeshop. Below are copies of all the documents related to that motion (all files are PDFs)

22
22-1
22-2
22-3
22-4

The actual stalking horse bid is in #22-2. Below are some of the relevant details:

ARTICLE III
CONSIDERATION; ADJUSTMENT
3.1 Consideration.
(a) The aggregate consideration for the Purchased Assets (the
“Purchase Price”) will consist of (i) an amount equal to and payable in the form of a credit bid of
the full amount of the obligations then outstanding under the DIP Credit Agreement and the Pre-
Petition Senior Secured Loan (such amount as may be increased pursuant to Section 3.1(b), the
“Credit Bid Amount”); and (ii) the assumption by Purchaser of the Assumed Liabilities.
(b) For the avoidance of doubt, at any time, and from time to time,
during the Auction, Purchaser may increase the Purchase Price by paying additional cash
consideration.

Note that the consideration does not include any payment to common shareholders of Crumbs Bake Shop.

Okay, so what liabilities are being assumed?

2.3 Assumption of Liabilities. On the terms and subject to the conditions set
forth in this Agreement, at the Closing, or in connection with the Designation Rights, at such later
date as Purchaser assumes any Assumed Contract (the “Assumption Date”) Purchaser will assume,
effective as of the Closing or the Assumption Date, and will timely perform and discharge in
accordance with their respective terms, the following Liabilities of Sellers existing as of the Closing
Date or the Assumption Date (collectively, the “Assumed Liabilities”):
(a) All Liabilities of Sellers under the Assumed Contracts and the
other Purchased Assets that arise on or after the Closing Date or the Assumption Date, as the case
may be;
(b) Any Cure Costs that Purchaser is required to pay pursuant to
(c) Unpaid Administrative Expenses (other than those Administrative
Expenses associated with Sellers’ Professionals) in an aggregate amount up to $150,000, but only
to the extent such unpaid Administrative Expenses (other than those Administrative Expenses
associated with Sellers’ Professionals) exceed the amount of available cash and cash equivalents
on the Sellers’ balance sheet; and
(d) Any Transfer Taxes as provided in Section 10.1.

2.4 Excluded Liabilities. Notwithstanding anything to the contrary set forth
herein, Purchaser will not assume and will be deemed not to have assumed, and Sellers will remain
liable with respect to, any and all Liabilities of Sellers arising out of, relating to or otherwise in
respect of the Business, the Employees, or the Purchased Assets prior to the Closing Date, and all
other Liabilities of Sellers, at any time existing or asserted, whether or not accrued, fixed, contingent
or otherwise, whether known or unknown, and whether or not recorded on the books and records of
Sellers or any of their Affiliates other than the Assumed Liabilities, (collectively, the “Excluded
Liabilities”). Purchaser will not be obligated to assume, and does not assume, and hereby disclaims
all of the Excluded Liabilities.

Also note that the purchaser is not assuming all the liabilities — some liabilities are excluded and will be retained by the empty shell of Crumbs Bake Shop (what shareholders own), leaving it with liabilities and no assets.

Now keep in mind that the stalking horse bid is an initial bid and the lowest price the assets can fetch. It is quite possible that another bidder could come in and bid enough for the assets that there would be some recovery for commmon shareholders. However, keep in mind that even this bid was a last-ditch, last-minute bid. The company was looking to liquidate in Chapter 7 after having engaged a firm to seek strategic buyers and being rebuffed by all of them — and this was a search not for buyers of the equity but for debtor-in-possession financing of a prepackaged bankruptcy (quote below from item 10-1).

14. Prior to the Filing Date, the Debtors retained GlassRatner Advisory & Capital
Group (“GlassRatner”) to, among other things, critically examine the Debtors’ business
operations and funding requirements. GlassRatner initiated a broad pre-petition marketing
process to solicit interest from potential investors. That dual track process targeted potential
investors that would (a) seek to acquire the Debtors’ business and/or (b) provide the Debtors
with capital to fund the ongoing operations. In consultation with the Debtors, GlassRatner
determined that only strategic investors or financial sponsors with an investment platform in the
specialty food sector could provide a viable solution given the critical state of the Debtors’
business. As such, only those parties that met that specific criteria were contacted.
15. Together with the Debtors, GlassRatner approached a total of 127 distinct parties
through 149 individual telephone calls. Of those parties contacted, 58 parties chose to receive
the “Investment Teaser” and/or requested additional information in order to evaluate a potential
transaction. All of the prospective investors contacted by GlassRatner, however, elected to pass
on the financing opportunity given: (a) concerns about the Debtors’ business operations; (b) the
Debtors’ financial condition; (c) recent results of operation and limited unencumbered assets;
and (d) the uncertainty around ultimate repayment. As of the Filing Date, GlassRatner’s
marketing effort did not result in a formal DIP loan proposal from any other third party.

Given the lack of interest then and the fact that Fischer/Lemonis entitites are already owed approximately $5 million by Crumbs Bake Shop and thus can afford to bid far more than other potential buyers (because $5 million of the purchase price is paying themselves). Couple that with the due diligence fee / breakup fee.

(b) If (i) this Agreement is terminated pursuant to Section 4.4(c) by
Purchaser or pursuant to Section 4.4(f), and (ii) a Competing Transaction is consummated, then
Sellers will pay to Purchaser in cash (A) an amount (the “Break-Up Fee”) equal to 3% of the
Purchase Price and (B) the Expense Reimbursement.

Assuming a $20 million purchase price, the breakup fee would be $700,000. And such a price is about equal to the company’s total liabilities so would result in little or no money being paid to holders of common equity in CRMBQ. Also, keep in mind that Crumbs continues to hemorrhage money: the net loss attributable to common stockholders in the first quarter of 2014 was $3,795,970.

The bottom line is that I think there is a very, very high probability that the common equity is worthless and shareholders get nothing. I expect the stock to fade slowly over the next few days to weeks.

[Edit 2014-7-17]: I completely misread the bid: the stalking horse bid is only for the amount of money owed to Lemonis Fischer Acquisition including the $1m in DIP financing they are offering, for a total bid of about $6.5 million. This would leave all other parties owed by Crumbs with little hope for recovery. Consequently equity holders are almost guaranteed to get nothing.

The roughly $6.5 million on the table is a “credit bid,” or a pledge of about $5.5 million in money already owed to Fischer as part of a loan it made to Crumbs this year, as well as money it will be owed as part of the bankruptcy loan, Crumbs’ lawyer Michael Sirota said in an interview.

Mr. Sirota said in court that the sale is on a tight timeline because the company will run out of money if the transaction doesn’t close around the end of next month.

Mr. Sirota, of Cole, Schotz, Meisel, Forman & Leonard, P.A., said after the hearing that a competing bidder would probably have to offer about $7 million to top what already is on the table. That price takes into account a 3% breakup fee that would have to be paid to Fischer and Mr. Lemonis.

Above quote from yesterday’s WSJ article.

Disclosure: [Update 2014-7-17: I am no longer short CRMBQ but would reshort if I could find the shares] I am short CRMBQ and I am a day-trader. I may close my short position, short more, or go long at any time. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Older posts «