July 11 (Bloomberg) -- There’s an image of a pirate-like skull-and-crossbones on the OTC Markets Group Inc. website page that gives the price of Cynk Technology Corp. shares, but it’s not there to announce “thar lie the booty, mateys!”
Rather, the jolly roger is meant to signify “caveat emptor,” or “buyer beware,” because the market operator believes there may be some sort of shenanigans involved with the stock, such as pump-and-dump spam promotions or other assorted frauds by people seeking to profit from manipulating the stock price. The shares were halted on OTC this morning after the penny stock of a wannabe social-media company with no assets and no revenue jumped more than 36,000 percent over the past month through its high yesterday, giving it a theoretical market value of more than $6 billion.
Possible explanations for the surge may include difficulty in shorting the stock due to its small float and rules stemming from Regulation SHO that restrict short selling, according to Cromwell Coulson, president and chief executive officer of OTC Markets Group. Also, brokerage compliance systems may have prevented clients from selling because of the suspicious surge, he said.
“There is very little float, very little borrow, so market makers can’t short what they see,” he said in a telephone interview. “Once we skull-and-crossbones something, a lot of brokerage firms lock it down.”
There are so many red flags associated with this stock that it’s hard to pick just one, but here’s one worth asking Coulson about: a filing last year referred to a split in the stock as both a 75-for-1 split and a 1-for-75 reverse split. The reverse split, which would turn 75 shares into one, would obviously make more sense for a penny stock. Is it possible the OTC systems computing the share price somehow got tripped up on the math and are sending out bad numbers?
Coulson doesn’t believe it’s a matter of a data error on OTC’s part related to the stock split.
“There is always imperfect data, so we’ll go back and look at that,” he said.
A message left for Cynk wasn’t immediately returned.
Rather, he said, it’s probably just a matter of a small number of traders catching a fever for Cynk amid posts promoting the stock on Twitter and a flood of blog and media coverage this week. Sudden prices surges and crashes are not uncommon with OTC penny stocks, yet it’s rare for their market value to be pushed up this much.
“It’s people going, ‘This is going up and down let’s trade the news and press stories,’” he said. “A shareholder would be a fool to not try to sell at these valuations.”
Whatever pirate is responsible for the scheme that caused the jolly roger to appear next to Cynk’s stock price will eventually walk the plank, Coulson believes.
“It will be interesting when the facts come out in court a year from now, from the SEC enforcement action that always follows these types of stories,” he said. “This process just takes some time.”
There’s an obvious lesson to be learned from this fiasco, and it probably doesn’t need to be said, but let’s say it anyway:
“Just because you see something promoted on Twitter, you shouldn’t go buy it, you should go do some fundamental research,” Coulson said.
So there you have it. Don’t fall for stock pumpers on Twitter. However, clicking on links to stock-market columns posted on Twitter is highly encouraged.
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