No revenue, no assets, yet worth US$billions: stock regulators pull plug on social networking firm
No revenue, no assets, yet worth US$ billion for no apparent reason - US authorities pull the plug on penny-stock social-networking company
Financial regulators in the US suspended trading in a social-networking company with no assets, no revenues and one employee, whose value on the stock market soared to US$6 billion in a matter of weeks.
Fuelling talk of another dotcom bubble, shares in a previously unknown Belize-based technology firm, Cynk, had risen 25,000 per cent from the middle of June before they were suspended on Friday ahead of the start of trading in New York.
The stock's runaway rise had made the profitless company more valuable than Domino's Pizza, JetBlue or Spotify - even as a chorus of critics cited mounting evidence that there was little substance behind the company.
Listing its business address in Belize but filing out of Nevada, the company said it intended to create a social-network business.
After the company's shares skyrocketed in value for no apparent reason, the US Securities and Exchange Commission and Financial Industry Regulation Authority (Finra) decided to pull the plug. Finra posted a trading suspension in the stock using its "Extraordinary Event Halt" code. The SEC followed with its own suspension shortly afterwards, extending the trading hiatus until July 24.
Identified in regulatory filings as a Nevada corporation, it has a business address in Belize City, Belize. Financial statements with the SEC show no assets, no sales and no positive cash flow. Its last quarterly report, from the third quarter of 2013, shows a net loss of US$11,275 for the period.
An investor named Marlon Sanchez was listed as owning 72 per cent of the 291 million outstanding shares. But he had sold his stake, according to a June 11 letter to OTC Markets Group, operator of the OTC Pink market on which Cynk shares traded.
A letter signed by Las Vegas lawyer Harold Gewerter described Javier Romero, a resident of Belize, as the "sole officer and director" of Cynk.
Sanchez disclosed in an April 2013 filing to the SEC for Introbuzz that he graduated from San Diego State University with a degree in business administration marketing. An alumni official said Sanchez was not in the university's alumni data base.
Valued at 6 cents a share in June, Cynk finished trading on Thursday valued at US$14, having reached as high as US$21.
The rise has made a paper billionaire of Sanchez, the chief financial officer, chief accounting officer, secretary, treasurer and director. Sanchez, a partner in Sanchez Medical Services, is also primary spokesman for the Medical Tourism Industry counsel in Tijuana, Mexico.
Cynk's main business is introbiz.com, a website that markets itself as somewhere to "buy and sell the ability to socially connect to individuals such as celebrities, business owners, and talented IT professionals". The front page features a host of stars, including Angelina Jolie, Channing Tatum and Johnny Depp, although there is no evidence the stars have ties to the business.
"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 is now a securities lawyer 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."
Once OTC Markets "skull and crossbones something", brokerage firms lock it down, said Cromwell Coulson, the company's president and chief executive officer.
The Guardian, Bloomberg, Reuters