Cynk Technology Corp., the supposed social-network operator with no revenue, plunged as trading resumed after a 10-day suspension by U.S. regulators and the stock’s 36,000 percent advance.
Cynk lost 85 percent to $2.10 with about 460,000 shares changing hands. Earlier this month, the stock traded as high as $21.95 and the company’s market value reached more than $6 billion in a frenzy that caught the attention of Twitter pundits and business blogs, such as Zero Hedge, which called the move “pure madness.”
The Securities and Exchange Commission stopped trading in Cynk two weeks ago citing “concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions.” Individual brokers who are governed by the SEC will be able to exchange the stock over the phone in the so-called grey market, according to Cromwell Coulson, chief executive officer of OTC Markets Group Inc.
“There was probably a lot of money made and lost in this,” said Michael Block, chief strategist at New York-based Rhino Trading Partners LLC, in a July 23 phone interview. “It’s going to be a cautionary tale of people manipulating stocks and participating in run-ups.”
Cynk won’t be traded on venues run by OTC Markets, Coulson said in a phone interview on July 23.
For market makers to quote bids and offers for Cynk shares, they would have to submit a filing with the Financial Industry Regulatory Authority. Brokers are unlikely to do that given the suspension and widespread scrutiny surrounding this company, Coulson said.
A broker would need current and accurate information about the company to make a market in the stock, Jacob Frenkel, a securities attorney at Shulman Rogers Gandal Pordy & Ecker PA and former SEC enforcement official, said by phone from Potomac, Maryland yesterday.
In filings with the SEC, Cynk lists its offices as Suite 400 in the Matalon building in Belize City, Belize. There is no Suite 400, and the building manager has said the company has never had an office there.
Brokers may add their own restrictions for trading the stock and limit it to investors liquidating holdings or covering short positions, Coulson said. Cynk will still be branded on OTC’s website with the skull-and-crossbones icon denoting a “buyer beware” warning.
“The trading will be opaque and inefficient,” Coulson said. “What happens usually with these is there’s a little bit of trading to cover short positions, and they slowly make their way toward zero.”
Cynk appears to have one employee and no revenue, no assets, and no members on its social network. 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.
“It’s all investor beware,” Timothy Ghriskey, chief investment officer at New York-based Solaris Asset Management LLC, said in a phone interview on July 23. “If you don’t get in or out at the right point, you’re going to lose. Why even try to play that game?”