ANATOMY OF A STOCK PROMOTER:
Inside Penny Stock Scams
stockhouse.com
We tire of hearing about the much-abused notion: Blame it on the Stock
Promoter! Guiltless speculators, who have no desire to GET RICH
QUICK by speculating in the penny stock marketplace, shift all blame from
their irresponsible decision-making to a lowly, often stupid PR man. If you
want to shoot the messenger, that's fine, but you're missing the whole boat
and end up helplessly lashing at the wrong target. You might want to step
inside the world of penny stocks and discover how it really works.
Stock promoters come in all shapes and sizes, races and religions, and
backgrounds and ages. Stock promoters can work from wherever there is
phone service, fax service or an Internet connection. There are certain
common denominators, of which you should become aware.
The most common denominator of the stock promoter is his or her
enthusiasm for the security. Whether we are talking about the Roaring 20's,
the Dirty 30's, the Scandalous 50's & 80's, or the Depressing 90's, you will
find that ALL stock promoters have an ebullient and exuberant
cheerleading, can't-go-wrong attitude about the issue they are flacking.
The promoted stock is presented as the solution to your specific financial
dilemma. It will absolutely, positively surf you to a new financial
freedom. In a nutshell, all your dreams will come true.
A stock promoter may have a flair for writing glowing statements about a
company's prospects. Those working telephone banks generally have
calming voices. Some sound staccato. Both massage money from your
wallet.
The next common denominator is that the stock promoter will use the
written or spoken word to build your trust in him. He wants to become
your friend. A stock promoter can only fleece you if become his friend. If
you are a very big investor, he may even spring for lunch. Most are polite
and have impeccable manners. But, stock promoters have no real
friendships built upon trust, because they, themselves, trust no one in the
penny stock marketplace. It is amusing to watch the better promoters scam
the less clever promoters who fall for the deal. The most unscrupulous con
fellow churchgoers or at temple. Some will get their closest friends into
the deal and they find a new set of best friends.
Let's look inside the head of the average stock promoter. He has a soothing
voice. Yet, he spends most of his "free" time at sex clubs, getting smashed
into oblivion, doing drugs and wildly spending the money you have lost. It
is a trademark that most wildly swing between feast and famine when it
comes to their personal finances.
Don't blame the stock promoter. Prior to joining this exclusive club, he
failed at his chosen profession. Most are failed stock brokers. The rest can
come from literally any walk of life, although many have some previous
telemarketing experience. A third common denominator is they are failures
in most aspects of their lives.
Stock promoters are just the front for the operation. Whether they are a
phone man or a newsletter writer, they are really as much out of the loop
as you are. The fourth common denominator is that they are inexpert in this
field, whether it is geology, Venezuelan legal affairs or high-tech. They are
just mouthpieces. They say what they are told to say. Their opinions are
carefully crafted by the stock operator. Under the spotlight glare of
someone versed in the subject, they fly apart. Their incompetence becomes
readily apparent to all but the amateurs. During a stock promotion, the
experts scramble from the sinking ship while some shortsell the stock.
Despite their cheeriness and glowing statements about the company's
prospects, stock promoters are usually a sullen bunch. They whine a lot. In
an off moment, you'll find them complaining about one thing or another.
They have no zest for real living. Stock promoters live in an artificial,
superficial, pointless shadow of a caricature that an ordinary investor
would call "a life." Only the insane would consider inhabiting such a
world. Consider that if you were repeatedly beaten down in life to the
point of suicide, had lost all of your friends, your spouse, your livelihood
and your dreams, only then might you be ready to become a stock
promoter.
The next common denominator is greed. Stock promoters are selling their
stock to you. No wonder they are so cheery. You are the customer. It may
not be a meal you can digest, but they will sell it to you anyway. Stock
promoters most often get paid in stock options. The higher the stock moves
above the option price, the greater their profit. If they have an option at 15
cents and the stock is trading around 90 cents, who do you think is doing
the selling? Shortsellers is the frequent lament, but more often it is the
stock promoter hitting your bid. The very deft promoter will sell you the
stock at the offer.
Newsletter writers get paid, one way or another. They may be paid a flat
fee to cover the stock, but those are just promo sheets. A higher class of
newsletter writer gets cheap stock, i.e. a bloc of stock trading at below the
norm, or options. The blue-chip newsletter writer participates in a cheap
private placement (stock + warrant), also known as 2 for the price of 1.
Also below the normal trading price. Those writers will also short the
stock, offshore, to lock in their profits before the share price declines. The
more clever newsletter writers arrange for a fee paid to them by a fund,
for finding the stock; the fund buys the stock and pays a finder's fee to the
newsletter writer. In that way, they can claim they aren't trading the stock.
Others - the honest ones - have another trade the stock while they write
about it; they then split the profits accordingly in offshore accounts.
The stock promoters are just the pipeline or the messenger. Their purpose
is to boost the shares in one way or another. Shoot the messenger, but for
whom do they work?
The REAL brains of the operation is completely hidden. The Brain behind
the entire promotion is the Stock Operator. At first, a handful of
broker-dealers might know or suspect who is running the show.
Sometimes, it is obvious, especially on the Alberta or OTC exchanges
because the "large" shareholder is a financial group or capital group. For
instance, whenever you discover that a company has a large offshore fund
financing the play, that is a red flag that a stock operator is behind it. There
are many other red flags.
Some stock operators are better than others. The clumsy ones struggle to
get stocks above $1. They can't attract the best phone men or newsletter
writers. The sharks can drive a company's shares past $5/share with
amazing trading volume.
The way the penny stock market game works is quite insidious.
There is one stock operator that accumulates most, if not a substantial
bloc, of the stock in the company. Generally, this guy is so hideously
detested that the deal would suffer should his name be immediately
disclosed. These stock operators have such a bad track record at burning
investors that many stock exchanges have banned them. Yet, they still need
to make a living and exchanges can't always stop someone from taking a
position in a company. Stock operators don't need more than one or two
deals every few years to keep them in clover.
You may notice how trading volume in an erstwhile heavily promoted
stock suddenly dries up. After six to 24 months, the stock operator sucks
all of the loose shares, mainly through attrition, from disappointed hands
into his various accounts. One million shares, purchased at five to seven
cents, is cheaper and less troublesome than buying a defunct shell and
reviving it. Some may buy the defunct shell from an even seedier shell
provider; the shell provider will get paid in newly printed certificates and
join in the selling bandwagon when the promotion starts.
Once the accumulation phase has ended, the stock operator vends a story
into the stock. That may be a geological prospect or an intellectual
property (although some of them don't sound very intelligent). We've seen
very powerful stock operators negotiate a private placement with a
company to speed up the accumulation phase
The next phase is the promotion phase. This is the trickiest of stages
because the stock operator frequently combines the promotion with his
dumping of the stock. A seasoned stock operator will wash-trade the stock
up the stock chart, to attract interest. Paid newsletter shills and Internet
commentators will follow. They will be attracted to the trading volume
and prospects for their followers. Your stockbroker will get sucked into
the whirlwind of the promotion. A powerful stock operator will also have
numerous brokers and traders "assisting" him in the stock's runup. They, in
turn, become a chorus of mouthpieces for the operator.
The majority of penny stock operators live in Scottsdale, Palm Desert,
Boca Raton, London, Toronto or Switzerland. For the most part, the less
successful ones live in Vancouver. Many stock operators once interned as
stock promoters and properly learned their dirty tricks. That shows you
how down the evolutionary cycle a stock operator really is.
The penny stock world is not as large as one may imagine. A sustained
runup in any security can only occur when the ascending volume and
number of mouthpieces (fronts, promoters) compels the na‹ve speculator to
"average up" or go on margin to buy more shares.
If the stock operator has properly run his promotion, the same people will
keep buying as the share price rises. That is when investors are not just
burned, but scorched!
The myth of an accumulation/promotion/distribution cycle is just that: a
myth. It is a two-step process. Accumulation through attrition of previously
burned-out plays, buying shells, or taking down a private placement;
followed by a short or extended promotion/distribution phase.
The promotion/distribution phase lasts for as long as the stock operator
still owns shares in the company. When he's sold out, the game is over.
There is a little-known technical indicator that signals when the promotion
is over or has stumbled. As long as that technical indicator rises, the stock
goes higher. When it slumps, the promotion is over. At the point the
indicator quickly sinks, the game is over. Those still holding the stock end
up on stock chat forums grumbling about how they were burned, ripped off
or scorched.
You could hire private investigators, run background checks, hire a
geologist, and so forth to get to the bottom of the snake pit. Commonly,
someone in the business is already one step ahead of you, having already
done that. This also shows up in that key technical indicator. It is the best
kept secret in the penny stock market.
In the next issue, THE CHARIST will disclose that technical indicator. If
YOU want to stop getting burned in the penny stock market, email to Mr.
Cyriuss for our next issue. |
