Cynk Technology Corp., the supposed social-network operator that caught the attention of the financial world with its skyrocketing stock price, was suspended from trading by the U.S. Securities and Exchange Commission.
The halt is because of “concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in CYNK’s common stock,” the SEC said today on its website. Judith Burns, a spokeswoman for the agency, declined to comment further.
Cynk’s social network appears to have no members, no revenue, no assets and only one employee. The stock-price chart has been the talk of all manner of business blogs and Twitter pundits, from Business Insider to the Wall Street Journal and Zero Hedge, which has called Cynk’s moves “pure madness.”
Cynk climbed as much as 49 percent to $21.95 yesterday in over-the-counter trading on volume of more than 380,000 shares before erasing its gain to close down 5.5 percent to $13.90. After closing at 6 cents on May 15, it began its surge with a 3,650 percent jump to $2.25 on June 17. The stock rose as much as 36,000 percent from May 15 to yesterday’s intraday high.
“The issue of stock manipulation, or perceived stock manipulation, particularly in the penny market, is extremely common, and it’s a challenge to the regulators,” said Jacob Frenkel, a former SEC enforcement official who’s now a securities attorney at Shulman Rogers Gandal Pordy & Ecker PA. “Real companies get hurt when the entire space gets tagged as bad because of really bad incidents such as this.”
Before the SEC said the stock was suspended, it had been halted by the Financial Industry Regulatory Authority. The halt was reflected on the website of OTC Markets Group Inc., which runs venues for trading penny stocks. It marks stocks it deems suspicious, including Cynk, with a skull-and-crossbones icon and a “buyer beware” warning.
Once OTC Markets “skull and crossbones something,” brokerage firms lock it down, said Cromwell Coulson, the company’s president and chief executive officer.
“Ninety-nine percent of investors take a look at a stock like this and say no way,” Coulson said. “One percent says that would be fun to trade.”
The surge in the shares may have occurred because of difficulty in shorting the stock, or borrowing the shares and betting they’ll decline, as well as brokerage compliance systems preventing owners from selling after the suspicious jump in price, Coulson said.
‘Out of Whack’
“The big challenge is how can we get the information out to help Finra halt these and speed up the SEC suspension process to easily stop these heavily promoted securities that trade completely out of whack,” he said. “They’re a waste of time for our capital markets, hurt small-company capital formation and are harmful to investor confidence.”
A message left today for Cynk wasn’t immediately returned.
In Cynk’s last quarterly earnings report, filed with the SEC in November 2013, the company reported a $1.5 million net loss and no revenue for the first nine months of the year. The bulk of that loss came from stock-based compensation, which was listed under operating expenses.
The document was signed by Marlon Sanchez, Cynk’s one employee at the time of the filing. He was listed as president, CEO, chief financial officer and secretary. A June 2013 filing showed Sanchez holding a 72 percent stake in the company.
Cynk said in its most recent filing from April that its headquarters are in Suite 400 of the Matalon, an office building in Belize City, Belize. The Matalon does not have a Suite 400, said Tiffany Techeco, secretary of building. She also said there is no main company with the name Cynk Technology; Introbiz, which is the name of Cynk’s website; or Introbuzz, the company’s former name.
Cynk’s website, Introbiz.com, was created in June 2009 and uses GoDaddy Inc. as its Internet domain registrar and for Web hosting services. A Scottsdale, Arizona-based proxy company, Domains by Proxy, which promises to protect clients’ identities, registered the site.
Introbiz offers services to buy the contact information of various types of people, including celebrities such as Nicole Kidman and Johnny Depp. It is currently possible to create an account on the website, deposit money through PayPal, or purchase information with a credit card or PayPal.
(An earlier version of this story was corrected to show that OTC Markets wasn’t responsible for halting the stock. It was halted by the Financial Industry Regulatory Authority.)