Bob: I am a semi-retired money manager (still play the market - until I quit that, I'll never be fully retired) with about 30 years of successful experience on Wall St. I don't work for Fahnstock, nor have I ever. I do know a few people over there, but I know a few people at dozens of firms.
My whole career I specialized in small cap stocks. Almost all of them are run by honest people doing their best to create real companies that serve their employees, customers, and shareholders well. Some of them have made investors (including me) very wealthy.
But because so many investors are trusting and inexperienced, there are a growing number of thieves and crooks who make their money not by building real companies, but by tricking investors into thinking they have, and then unloading their stock onto the public before the fraud is uncovered. Some examples that come to mind are Systems of Excellence (SEXI), Comparator Systems (IDID), Centennial Technologies, ZZZZ Best, Crazy Eddie, College Bound, Cascade, Future Communications, and Flight Transportation, just off the top of my head.
Eventually the SEC closes them down, but usually not until after investors have lost millions of dollars. In some cases the perpetrators have eventually been jailed, but in most cases they get to keep most of their money, pay some minor fines, and promise not to do it again. Unfortunately, the SEC doesn't have the budget or manpower stop these frauds as fast as they spring up.
While I don't go out of my way to find frauds, if I happen to come across a company that I suspect is one, I consider it a moral obligation both to alert the SEC, and to make some minimal attempts to prevent new people from being victimized. It is no different than what I presume you would do if you were walking by a store and could see through the window that an armed robbery was in progress. You would call the police and also try to stop any new shoppers from going in. That isn't anything special; it is just being a good citizen.
Well, reading some press releases on my Bloomberg machine a year ago, I happened to come across DHMG. I was struck by the blatantly promotional nature of the releases, as well as their poor spelling. (I'm not sure why, but press releases from crooked companies are often filled with misspellings. Perhaps it is the same reason why so many felons get arrested when stopped for minor traffic violations - crooks are often narcissists who don't think rules apply to them.)
A lot of the warning signs one sees in frauds were there in DHMG, and I posted a few times on DHMG pointing out to people those signs, such as heavy insider selling that was going on the very same week that company was sending letters to shareholders urging them to "BUY DHMG!!!!!!". I also found it remarkable that the company was putting out earnings reports for its quarters a few days after the end of the quarter, something honest companies can't do in less than ten days, no matter how good their accounting system is.
But I hadn't bothered to look at the company's 10-K and 10-Qs, and it was only after I looked at the June 10-Q did I become convinced that this is indeed a scam. If you look back at my posts from the middle of August into September, you will see some of my analysis.
There is a zero percent chance that DHMG's numbers this year are honest. Zero, nada, zilch. The numbers in the cash flow statements literally do not add up correctly. Almost all of the company's so called sales this year (and probably more than 100% of all profits) come from self dealing with private entities associated with management. If those transactions were eliminated, one could see that in real life the company does only a tiny fraction of the business it has been claiming, and probably has no earnings whatsoever.
In other words, I believe that with honest accounting this company would be worth virtually nothing. The numbers are phony, and this has allowed insiders to have stock worth many millions, at the ultimate expense of innocent investors who mistakenly believe that if a company reports great sales and earnings, it is telling the truth.
Patrick claims I am a "maggot" for trying to help people I don't even know. Like a lot of victims of scam artists, he identifies with the guy trying to steal his money - he'd rather do that, than look at the evidence and admit to himself that he is being duped. The other possibility, of course, is that he is in on the scam, but I tend to doubt that. He is much more useful as a dupe.
The only reason I started posting here again recently is that there was news, and also, non-news. First, CEO Hagen dumped a slug of stock, so I reported that to the thread.
Next, DHMG neglected to submit a 10-Q for the September quarter, requesting an extension. This is funny, since it released its earnings report for the quarter less than 12 hours after the quarter ended. If its accounting system is so spectacular that it can do that, then surely it can put the income statement into a document, along with the cash flow statement and balance sheet, and submit it to the SEC 45 days later. How could DHMG possibly need an extension?
There are several possible reasons why it requested an extension, none of them good for the stock. I won't go into them all, but suffice it to say that I believe this house of cards is in the process of falling over. I will guess that some other people put 2 and 2 together, and that is why the stock has been so weak lately, coincident with my post on this thread. That is just a guess.
Buy the stock if you want, but consider the risk that if, as I expect, the SEC stops trading, it may never reopen again, or reopen many months later for a few pennies.
So, Bob, am I a maggot with an evil agenda, working with bad people to bring down a great, honest, hard working All-American company? Judge for yourself.
I only intend to post here when there is something new to report. For example, if DHMG submits a 10-Q when the extension expires at the end of November, I will read it and let people know if it is as phony as the last two. |
