CYBERFAST!! DUM DEE DUM DUM. Wonder if the SEC halts this one? Breaking news!!
observer.com search under byron, press 1st article and you get:
"Fancy Promotion Job Sends a Penny Stock
on a Sudden Surge
by Christopher Byron
A most extraordinary series of press releases crossed my
desk recently. They revealed that a Highland Beach, Fla.,
telecommunications startup company bearing the name
Cyberfast Systems Inc. expects to be drowning in riches any
minute now.
The company's product? So-called voice-over-the-Internet
telecommunications services. This is the technology that is
supposed to enable people to place long distance telephone
calls over the Internet, thereby cutting out the phone
company and saving greatly on costs.
Those press releases, plus some aggressive promotional
efforts on the part of the company's paid stock promoter,
have lifted Cyberfast, which trades on National Association
of Securities Dealers' over-the-counter bulletin board
market, from a 5-cents-per-share penny stock last October
to a recent high of nearly $18 per share on June 9.
And that in turn has made a rich man indeed of one Edward
Stackpole, who turns out to own approximately 85 percent of Cyberfast's
5,820,000 total shares outstanding. At the stock's recent high of $18, Cyberfast
itself was being valued at $104 million, with Mr. Stackpole's stake at just under
$90 million.
Now there are many things one may observe about all this, beginning with the
fact that $104 million just ain't what it once was, on Wall Street or anywhere
else. But this simply leads to the more basic question of whether, financial
inflation notwithstanding, Cyberfast Systems Inc. is in fact worth much of
anything at all.
We will get into the particulars in a minute, but first some observations on a
theme that has been addressed more than once here at Back of the Envelope in
the last year—the enormous risks that any investor takes when he puts a dollar
into almost any company traded on the N.a.s.d.'s rob-you-blind over-the-counter
bulletin board.
More than 6,500 stocks are currently traded on the bulletin board, which makes it
by far the largest equities market on Wall Street, at least in terms of the number
of companies traded there. Though the value of those companies is dwarfed by
the companies on the larger, so-called "listed" exchanges like the Nasdaq National
Market and the New York Stock Exchange, the over-the-counter bulletin board is
by far the most rapidly growing equities market on Wall Street, with trading
volume that has more than doubled in the last year, to 432 million shares per day.
That would be great except for just one thing: Almost none of these companies
are required to file audited financial reports to their shareholders or the Securities
and Exchange Commission, so few do. As a result, the only way for most
investors to learn about the health and business prospects of a bulletin board
stock is to read the company's own self-serving press releases—the production of
which has become a growth industry all its own on Wall Street.
Every day, hundreds of these press releases pour forth via two distribution
services—the New York-based PR Newswire and San Francisco-based Business
Wire—all of them geared to catch the attention of naïve investors looking for the
next hot new stock likely to triple by noon.
The whole game of hyping these stocks begins with what is known on Wall Street
as a "reverse merger into a penny stock shell"—the facilitating of which has also
become a booming business in the darker alleyways of downtown Manhattan.
To merge a company into a penny stock shell, all you need to do is find
one—which isn't hard, since there are currently more than 3,000 actively traded
bulletin board stocks selling for between 1 cent and 50 cents per share. These
might be companies created as penny stocks from scratch under Section 504 of
Regulation D of the 1933 Securities Act (we won't go into any of that), or
companies that started out as real businesses, then basically went bust.
In any case, a company with, say, 5 million shares at 5 cents per share can be
bought lock, stock and barrel for $250,000. Then all you do is merge your own
private company into the penny stock shell you've just bought and you've in
effect gone public via a cheapo initial public offering, without having to file a
single audited financial statement with anyone.
What you do next is hire a stock promoter (they go these days by the hoity-toity
name of "investor relations consultants") to start cranking out press releases to get
your stock price rising. In this way, a pump-priming investment of only a few
hundred thousand dollars, spread out among a half-dozen or so investors, can
easily be transformed into millions via bulletin-board stock hype, which is why
the game has become so popular.
And it is also why those who get suckered into playing it in the aftermarket are
playing with fire: There is simply no way to know whether a promoter's
breathless claims about a bulletin board stock are accurate or not—and thus
whether the shares themselves will blow up in an investor's face the minute he
buys them.
Thus, on May 5, questions began to circulate in the press regarding the accuracy
of certain claims made via press releases for an over-the-counter company calling
itself Net Command Tech Inc., whose stock price had recently climbed from
pennies to more than $30 per share even though the company was nearly three
years behind in its S.E.C. filings. Too bad more investors didn't heed those
warnings, for on June 11 the S.E.C. abruptly suspended trading in Net
Command's shares, leaving thousands of gullible "stuckholders" holding the bag
at $15 per share.
Whether that fate now awaits holders in Cyberfast is hard to say. For all the
world knows, every claim in every press release the company has issued since it
reverse-merged itself into a defunct penny-stock shell back in November 1998
may be the very quintessence of purest truth. But they may also be nothing more
than a skein of lies, distortions and half-truths. Evidence on the matter isn't
encouraging.
For starters, there are the company's press release projections concerning
revenues. On Nov. 12, 1998, with the company's stock trading at $3.50,
Cyberfast issued a press release claiming to be in possession of audited financials
showing that the company had collected $6.04 million in revenues for the first six
months of 1998, with earnings of $1.41 million. Sound trivial? Then read on, for
within weeks the company would be claiming looming revenues 20 times as large.
The company's hired-gun promoter, Doug Blackwell, of somewhere in Florida,
now says he personally had nothing to do with that first release and that it had
been a mistake to call the financials "audited" because, well, they weren't.
In any case, a few weeks later, on Dec. 10, the company issued another press
release—this one claiming that Cyberfast had now signed agreements to install
high-speed fiber optic systems in 22 different European cities, and was projecting
$100 million in revenue from the business per year. The release did not identify
which cities, or even which countries, were involved, and Mr. Blackwell, from
his place in Florida, now says he can't supply the names because, well, he
doesn't know them.
This Jan. 4, the printing press rolled again, and out came a release claiming that
Cyberfast was in the process of installing telecommunications circuitry in a "large
Eastern European city." Mr. Blackwell now says, yep, you guessed it, he can't
divulge the name because he doesn't know it. (Let us hope it was not Belgrade or
Pristina.)
On Feb. 8, the company issued yet another press release—this one claiming it
had obtained a line of credit from Cisco Systems Inc. to finance construction of
the aforementioned fiber optic systems in the aforementioned 22 European cities.
In an interview, Mr. Blackwell expanded on that to say that Cisco had in fact
extended a "virtually unlimited line of credit" to Cyberfast. But according to a
Cisco spokesman, Cisco never extends unlimited lines of credit to anyone and,
moreover, the name Cyberfast does not even appear in Cisco's database of
customers.
Be that as it may, on May 5, Cyberfast issued a press release claiming that the
first three of its European systems were up and running and were generating net,
pretax income of $283,510 per month. Extrapolating from the financials provided
in the release, the statement implied that Cyberfast would be netting close to $25
million annually from its European operations alone. (Mr. Blackwell says it will
actually be closer to $30 million.) On June 3, the company issued a follow-up
release claiming that it had signed agreements to install systems in five more
(unnamed) cities—this time in Asia—that would add a total of $9 million more to
net pretax income.
All together, the claims add up to close to $40 million in net income annually,
which is to say, more net income than that of any publicly traded phone company
in the country except the major long-distance carriers and the Baby Bells.
So how is Cyberfast going to manage that explosive growth? When I asked Mr.
Blackwell how substantial an operation Cyberfast really is, he answered that the
company has 50 employees around the world. But when I told him that a Dun &
Bradstreet Business Report on Cyberfast reveals the company to have no credit
rating and exactly two employees (Mr. Stackpole and his wife), Mr. Blackwell
said, Oops, I didn't know that.
When I asked Mr. Blackwell what Mr. Stackpole's experience in the
telecommunications field was, he said that Mr. Stackpole had run the biggest
AT&T distributorship in Turkey, and had sold it back to AT&T for "millions"
before returning to the United States to set up Cyberfast. But when I phoned
back a day or two later to inform him that Federal court records in New York
show that Mr. Stackpole had been arrested by Turkish customs officials and
charged with illegally smuggling AT&T phones into Turkey in 1991, Mr.
Blackwell said, oops, he didn't know that, either. And when Mr. Stackpole
himself finally told me that he didn't sell his distributorship business to AT&T
because there was nothing much left to sell, Mr. Blackwell said, well, you know
what he said.
As for Mr. Stackpole, he claimed the whole thing was caused by negligence on
the part of AT&T shippers, and wound up suing the company. Court papers
show that AT&T eventually admitted its error, and the charges against Mr.
Stackpole in Turkey appear to have been dropped.
The interview with Fast Eddie himself—who phoned in from an undisclosed
location in the Caribbean at press time to "clear up any doubts"—only added to
those doubts. When I asked Eddie who Cyberfast's main competition was, and
which rival watched his company most closely, he named the Net 2 Phone
operation at New Jersey-based I.D.T. Corporation. But a check with sources at
I.D.T. revealed that the company knew nothing of Edward Stackpole or
Cyberfast. Nor did AT&T know of him, or his company. Nor had Cyberfast
signed up as an exhibitor at the Supercomm '99 show in Atlanta on June 7—a
leading trade show on the voice-over-the-Internet industry, with 800 exhibitors.
Finally, when I asked Mr. Stackpole to name even one single customer who was
now using his service, or identify even one single city—in Europe or anywhere
else—to which one could make a call using his equipment, he said, "I'll get back
to you on that." He never did.
In spite of all that—the whole mountainous collection of doubts that surround the
company thanks to its status as a nonfiling bulletin board company—it is still
possible that Cyberfast may emerge as precisely what its press releases claim it to
be: one of the fastest zero-to-hero companies in the history of Wall Street.
But it is equally possible that in the fullness of time the whole business will be
revealed to have amounted to nothing more than the latest in the over-the-counter
bulletin board's endless parade of phony-baloney stock hustles—in which case,
having read this far, you at least will not be able to say, "Oops, I didn't know
that." |
