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Pump and Dump a Report Identifying Suspicious Market Activity

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Pump and Dump a Report Identifying Suspicious Market Activity Pump and Dump A Report Identifying Suspicious Market Activity Michael Dortheimer 8/5/2010 Contents Executive Summary ....................................................................................................................................... 3 Introduction .................................................................................................................................................. 4 Lithium Corporation (LTUM) ......................................................................................................................... 5 Background ............................................................................................................................................... 5 Analysis of Lithium Corp’s Market Activity ............................................................................................... 7 Barron Energy Incorporated (BROE) ........................................................................................................... 10 Background ............................................................................................................................................. 10 Analysis of Barron Energy Incorporated’s Market Activity ..................................................................... 11 Pacific Blue Energy Corporation (PBEC) ...................................................................................................... 12 Background ............................................................................................................................................. 12 Analysis of Pacific Blue Energy Corp. Market Activity ............................................................................ 13 Gold American Mining Corporation (SILA) .................................................................................................. 15 Background ............................................................................................................................................. 15 Analysis of Gold American Mining Corp Market Activity ........................................................................ 16 A5 Laboratories Incorporated (AFLB) ......................................................................................................... 19 Background ............................................................................................................................................. 19 Analysis of Trading Activity ..................................................................................................................... 19 Tuffnell Limited (TUFF) ................................................................................................................................ 21 Background ............................................................................................................................................. 21 Analysis of Trading Activity ..................................................................................................................... 22 Brand Neue Corporation (BRNZ) ................................................................................................................. 23 Background ............................................................................................................................................. 23 Analysis of Trading Activity ..................................................................................................................... 23 Guinness Exploration Incorporated (GNXP) ................................................................................................ 25 Background ............................................................................................................................................. 25 Analysis of Trading Activity ..................................................................................................................... 25 Conclusion ................................................................................................................................................... 27 Appendix A: Corporate Officers Associated with Multiple Potential Pump and Dump Schemes .............. 28 Appendix B: List of Common Internet Companies Promoting and Hyping Stocks Associated with Suspicious Trading Activities ....................................................................................................................... 32 2 Executive Summary The Federal Bureau of Investigation’s website lists ten common types of fraud. The list includes well- known fraud types such as telemarketing, prime bank fraud and the, now infamous, Ponzi scheme. There is no reference made to a Pump and Dump. Yet, this form of fraud is ongoing in our financial markets. The companies participating are not billion dollar corporations, such as Apple or Microsoft that trade on the New York Stock Exchange or the NASDAQ. Instead, the companies that engage in Pump and Dump schemes often trade on OTC Bulletin Board (OTCBB), an electronic inter-dealer quotation system. The OTCBB has fewer regulations and thus makes fraud more difficult to detect. The one certain way to detect fraud, however, is by market makers promptly reporting suspicious trading activity to the Financial Industry Regulatory (FINRA), the body that oversees OTCBB and the market makers. This report profiles eight different companies listed on the OTCBB: Lithium Corporation, Barron Energy, Pacific Blue Energy, Gold American Mining, A5 Laboratories, Tuffnell, Brand Neue, and Guiness Exploration. Characteristic of all the companies is the extent of their suspicious market activity. In the case of all of these companies, Suspicious Market Activity Reports should have been promptly filed to FINRA to begin an investigation that would result in perpetrators of Pump and Dump fraud being brought to justice. Despite market makers being obligated to file reports as part of Anti-Money Laundering (AML) requirements, suspicious trading activity – common on the OTCBB – is often not reported. This may be because market makers who submit these reports would ostensibly be sacrificing their own potential revenue. However, there are rules and regulations that are mandatory in the Securities industry to protect investors and keep markets secure. There are many unwitting investors who get caught up in these schemes, buying company shares for numerous speculative reasons, often based on misleading company hype, and suddenly end up with virtually worthless shares. 3 Introduction "Pump and Dump” is a form of stock fraud where the share price of a firm is artificially increased with false and misleading statements, usually in the form of press releases or internet hype. Stock prices become inflated and over-valued stock at the inflated price for a profit. In some cases, the company’s stock may be, essentially, worthless. There are numerous web sites that promote and hype these companies, enhancing the profitability of these schemes. Market makers facilitate the buying and selling of shares on the OTCBB. Market makers are registered and regulated by FINRA as well as the companies listed for trading. Their position on the front line of trading makes their observations of trading activity paramount to the integrity of financial markets. Genova Biotherapeutics (GVBP.OB) – The Classic Pump and Dump The Securities and Exchange Commission temporarily suspended trading of GVBP.OB shares on September 23, 2009. The events leading to the suspension was continuous suspicious trading activity. The average daily number of shares traded from August 25, 2009 until September 3, 2009 was 439,000. Suddenly, September 4 the trading volume exploded to 4.34 million shares. On the next trading day, following the Labor Day Holiday, trading volume grew to 31 million shares. The average daily volume for the following seven trading days was 52 million shares a day. The share price moved from below $0.04 August 25, 2009 to the high sale of $1.18 on September 16, 2009. On that day, the dump was completed when the share price closed at $0.55 with a trading volume of 85 million shares. During this time there were false and misleading news releases. The company was being hyped heavily on the internet. Market makers should have promptly filed a suspicious trading activity report because of the excessive trading volume. However, none was filed. Instead, the excessive trading volume allowed the market makers the opportunity to make a significant amount of money while the average investor almost certainly lost money. 4 Lithium Corporation (LTUM) Background Many companies that engage in a pump and dump are actually shell companies or do no legitimate business. Some can be simply a website and some letterhead made with Microsoft Office. However, they must present themselves as legitimate. Included below is the company statement and history from Lithium Corp.’s website. Also included is an excerpt from an article in Dow Jones Market Watch detailing how hype was created for Lithium Corp. Company Statement (from website) We are an exploration company based in Nevada devoted to discovery and development of new, clean energy sources. We have acquired and continue to explore and develop lithium properties in our home state, as well as other lithium rich areas in the continental United States. Although we acquire and develop our own properties, we are always looking for new ventures and welcome any information on similar projects. We are also interested in entertaining joint ventures
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