• OTC Markets flags ‘buyer beware’ companies with Jolly Roger
  • Regulators play ‘Whac-A-Mole’ trying to root out fraud

Neuromama Ltd., the $35 billion company that was run by an ex-convict, is now a zombie. 

The U.S. Securities and Exchange Commission suspended Neuromama Aug. 15 over “potentially manipulative transactions” and concerns about the “identity of the persons in control.” On Monday, trading was allowed to resume. But the day came and went and the Tijuana-based “neural” search engine -- with financials that are unknown to the public -- saw zero shares change hands.

That will be Neuromama’s gloomy future, even with the trading ban lifted, experts say. Companies rarely recover from such regulatory interventions. Neuromama has been pushed to a dark corner -- the so-called grey market -- where companies struggle to trade.

“Typically it’s the death knell,” said Tom Sporkin, a former SEC enforcement lawyer who is now a partner at BuckleySandler LLP. “The SEC doesn’t do this unless there’s good reason.”

Due Diligence

Market makers cannot publicly quote grey-market stocks such as Neuromama without first vouching for the company in regulatory filings. A broker must submit paperwork to the Financial Industry Regulatory Authority demonstrating it’s done due diligence on the company and its financials. Though possible, that seems unlikely, given Neuromama’s past.

The saga marks just another day on OTC Markets Group Inc.’s trading venue, home to 2,500 companies with a combined market value of more than $80 billion that have provided “no information” to investors. OTC Markets deems another 200, including Neuromama, so dicey that it stamps them online with a skull and crossbones as a “buyer beware” warning.

“These companies are dead, but still walking around,” said Richard Johnson, a trading and regulation analyst at market-research firm Greenwich Associates. “They should be cleaned out.”

Zombie Stocks

The SEC has gone after auditors, lawyers and broker-dealers that enable zombie companies to trade, yet the agency has struggled to keep them out of the hands of fraudsters, who often manipulate their shares to make illegal profits through so-called pump-and-dump schemes. The agency has removed more than 800 dormant shell companies from trading since 2012. Judy Burns, an SEC spokeswoman, declined to comment.

Neuromama was able to trade above $3 billion in market value for almost three years. According to the company, its businesses include a search engine, oceanfront real estate, developing ion fusion energy, producing inflatable ads and Cirque-du-Soleil-style performances in Mexico. 

To amass a $3 billion market value, a company can issue 1 billion shares and sell one for any amount. Then the company can buy the share back for $3. There are no indications that’s how Neuromama established its value.

Neuromama’s regulatory halt was a positive sign, said Cromwell Coulson, CEO of OTC Markets Group.

“We looked at it as a success of working with brokerage firms to lock these securities down pro-actively,” Coulson said. “Over time, working with the industry, we want to make sure there’s restrictions so that plain vanilla investors don’t buy them mistakenly.”

Steven Zubkis

Vladislav “Steven” Zubkis, the man behind Neuromama, has been in the cross hairs of law enforcement for more than two decades. Also known as Steven Schwartzbard, Zubkis was sentenced in 2007 to five years in prison for defrauding investors in a $1.8 million scheme tied to the renovation of a Las Vegas casino. The Ukrainian immigrant was sued by the SEC in the 1990s for orchestrating a $12 million penny stock scam. He was ordered to pay more than $21.6 million in disgorgement and penalties. Zubkis is taking an open-ended leave of absence, the company said in a filing last week with the SEC.

In an e-mail, he vowed to spend his time finding whoever was behind the 2015 death of his daughter Victoria.

“Since losing Victoria I’ve redoubled, I’ve tripled my efforts to make Neuromama the biggest, brightest, most glittering ... the shiniest star in the technology, hospitality and entertainment world,” Zubkis said in the e-mail.


Although Neuromama’s market value soared into the billions, it was based on volume of about 450 trades a day over the last six months. Compare that to Tesla Motors Inc., which trades an average of about 4 million shares daily and has a market value of about $32 billion. The difference is that Neuromama has 630 million shares outstanding compared with the electric-car company’s 150 million.

Zubkis’s case typifies a recurring problem for regulators. Like a regulatory version of “Whac-A-Mole,” government officials close down one scam only to have the same individuals set up a new one under a different name, Andrew Ceresney, the SEC’s head of enforcement, said in a March speech.

“It’s less professional investors dabbling in these securities,” said Andrew Upward, head of market structure at Weeden & Co. “It’s where the dicier stuff trades.”

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