Over the last five days, the stock of Global Roaming and Distribution (OTC BB: GRDB) has dropped 70% on no news. To those familiar with pumped penny stocks, this is unsurprising. The pump and dump scheme is quite simple: a company or a large shareholder pays a publisher to print amazingly optimistic advertisements for the company that are sent out to hundreds of thousands if not millions of investors via mail, email, and fax. The information published about the company is either absurdly optimistic or downright false. The SEC never gets involved unless the statements are verifiably false, so the publishers usually stick to insanely optimistic predictions (which are protected speech, no matter how absurd). While the stock soars, shareholders of the company sell their positions at inflated profits.
As usual with pumped up penny stocks, GRDB is way overvalued, even after its recent 70% stock price decline. With 164.7 million shares outstanding as of the filing date of its most recent 10Q, Global Roaming has a $211 million market cap. What do investors get for their $211 million? They get a book value of $3.1 million, no revenues, and a loss of $78,000 in the most recent quarter. Global Roaming has such a small chance of ever selling its product or earning a profit that it is pointless for me to criticize it in any more detail.
In return for publishing the tout sheet, Eric Dany’s Stock Prospector received $32,500 from ILDM Incorporated, which was itself paid with 3.34 million shares of GRDB stock for publicizing the company.
For more information
GRDB on Motley Fool CAPS (verdict: everyone hates the stock)
GRDB March 2008 10Q
Front Page of 15-page tout sheet, Eric Dany’s Stock Prospector
Disclaimer of Eric Dany’s Stock Prospector
Disclosure: I have no position in any company mentioned above, long or short. I have a disclosure policy.
0 thoughts on “Memorial Day pump and dump”
Nice post! I did a recap on KYUS http://www.investorslive.com/blog/2008/05/greed-and-the-plug-gets-pulled-kyus/
Nice bounce so far but I doubt it holds much longer… unless of course they do another $2.3M mailer
Yeah, thanks for tracking KYUS — I may not have found it in time if you hadn’t covered it extensively. I’m staying short on KYUS until the dump is complete — it is just too perfect for me to take a measly 15% profit.
Interesting! I just started my stock market journey and I am learning so much about investing. Is this a common occurrence with stocks that are not considered penny stocks? How is a novice investor, like myself, to protect herself from making buy and sell decisions based on fabricated news?
Thank you in advance for any additional insight.
Well, by avoiding OTC and penny stocks you can avoid most of the scams, but there are plenty of listed companies that were frauds, such as Enron, Worldcom, and Home Solutions of America.
The key is not to invest based on projections, but to make sure that the company is producing real revenues and profits and cash (by looking at the cash flow statement). Also, I would recommend the book Financial Shenanigans.
Also, do not put much faith in what analysts say, because they are generally biased (especially if their banks do ibanking for the companies they cover), and pay attention to what critics of a company say.