Hot penny stocks are something that every stock trader wants to get there hands on. Finding the stock picks on penny stocks that are ready to explode and give back abnormal returns is always a major accomplishment. Unfortunately the search for the next “Apple” sometimes comes at a price which is not worth the cost involved.
The share price of SNPK, a Nevada-registered company with links to a controversial Osoyoos family, has rocketed to gravity-defying heights on the OTC Bulletin Board in the United States.
On March 8, when Sunpeaks Ventures Inc. (SNPK) made its debut on the bulletin board, it traded nearly 160 million shares worth $61.2-million US. Since then, it has ranked among the top three traders by dollar value every day except one. Total trading value now exceeds $400 million US.
SNPKs stock price, meanwhile, has jumped from its opening day closing price of 43 cents US to Wednesday’s close of $1.54 US. With 420.5 million shares outstanding (fully diluted), Sunpeaks Ventures’ total stock market value is now more than $600 million US.
What makes this valuation so mind-boggling is that the company has no operating history and as of Dec. 31 (its last reporting date) its total assets were only $9,916.
The ostensible reason for the investor excitement is the company’s acquisition in February of Healthcare Distributions Specialists LLC, which the company describes as a “value-added distributor of hard-to-find and specialty drugs.”
Why this business would stimulate investor interest is not clear. Its total revenues for the nine months ending Sept. 30, 2011 (its last reporting date) were only $3,562 and its total assets were just $249,884.
But like all good stock promotions, this company has a story to tell, and the story is that it owns the rights to an over-the-counter multivitamin for people who are on blood thinners such as Warfarin.
The company says people on blood thinners usually have restricted diets and need vitamin supplements. However, they have to be careful about their vitamin K (potassium) intake. Too much can cause excessive bleeding; too little can cause clotting.
The company’s product, called Clotamin, contains no vitamin K and reduced amounts of vitamin A, D and E, which is also a concern for people on blood thinners.
“If Sunpeaks is able to penetrate just five per cent of the Warfarin market in just the U.S., sales for Clotamin could potentially surpass $25 million dollars annually,” the company’s president, Mackie Barch, said in a release on March 7.
On March 8, the day trading commenced, the company announced that U.S. pharmacy chain Walgreens would make Clotamin available to consumers on its website. It also announced it was in the final stages of negotiations with a former NBA all-star player and coach to act as Clotamin’s spokesman.
These announcements were accompanied by heavy Internet promotion: “Our huge new pick is SNPK Sunpeaks Ventures Inc!” declared a stock tout service called Penny Stock Pillager. “Investors who get in today could ride SNPK to a historic run.”
The disclaimer revealed that a private company called Caropath Ventures Ltd. paid Capital Financial Media LLC – a well-used penny stock promotion firm based in Delray Beach, Fla. — $500,000 to promote Sunpeaks stock. CFM, in turn, paid Penny Stock Pillager $1,000 for its services.
The beneficial owners of Caropath were not revealed, but they are clearly people who have a vested interest in getting the stock price as high as possible.
Another penny stock tout service, PennyPic.com, — owned by Bright Tech Media Ltd. of Hong Kong — issued an email alert saying Sunpeaks “could be our next multi-bagger.”
This time, the disclaimer revealed that PennyPic.com was paid $50,000 by Bahadur Investments Inc. for its services.
Once again, the beneficial owners of this company were not named.
All of this trading action and hype was apparently too much for the Financial Industry Regulatory Authority (FINRA), which regulates brokerage firms in the United States.
On March 16, Sunpeaks issued a release disclosing that FINRA had commenced an inquiry into the high volume of trading and the rapid rise in share price.
“Sunpeaks also has become aware that Internet newsletters have been making unsupportable claims, inappropriate comparisons and unjustifiable common stock performance projections about the company,” the release stated.
However, I have found an interesting link between at least one of these promotional services and several of the company’s seed shareholders.
Bahadur Investments, which paid PennyPics.com for its enthusiastic endorsement, is a Panamanian-registered company whose address is the same as four other Panamanian companies that acquired stock at remarkably cheap prices while the company was still in its formative stages.
These four companies, as listed in the registration statement that Sunpeaks filed with the U.S. Securities and Exchange Commission, are Tribeca International, Capstar Management Ltd., Soho Investment Group and Tustin Properties. Each acquired 350,000 shares at one half cent each.
Since then, Sunpeaks has split its shares on the basis of 45 new shares for one old share. So the effective cost of each of these shares is now about one one-hundredth of a cent. With the stock trading at $1.54 on massive share volumes, the potential profit margins are astronomical.
Who are the beneficiaries of this happy state of affairs? We don’t know: All the Panamanian companies are fronted by Panamanian lawyers and trustees.
Another seed shareholder listed in the registration statement is a company called Oil Search. It acquired 350,000 shares at one cent each. Post split, those shares have blossomed into 15,750,000 shares at an effective cost of about one-fiftieth of a cent each.
According to the registration statement, Patricia Shull had control of these shares. Then in subsequent amendments, her name was replaced by that of Tyronne Fitzgerald, a Bahamian lawyer. No explanation was provided.
There may, however, be good reason for this peekaboo appearance. Patricia Shull is the wife of Robert Shull, an Osoyoos-based promoter who has achieved considerable notoriety for his penny stock exploits.
In 1998, a U.S. federal grand jury indicted Robert Shull and his brother, Terry, for allegedly manipulating the share price of Fairmont Resources Inc., which traded on the Alberta Stock Exchange.
As summarized by Canada Stockwatch, U.S. prosecutors alleged that the brothers manipulated Fairmont from 30 cents to $3.10 in early 1993. They also alleged that Robert paid secret commissions to U.S. brokers to induce their clients to buy the stock. The brothers then dumped their shares for combined profits of $560,000.
The U.S. Department of Justice sought their extradition from Canada to the United States. A marathon court battle ensued, with the brothers finally surrendering to U.S. custody in October 2010.
That same month, Terry Shull pleaded guilty in a Boston court to two counts of securities fraud. As per his plea agreement, the judge ordered him to pay a $5,000 fine with no jail time.
In December 2010, Robert pleaded guilty and was sentenced to 168 days in a Boston halfway house and ordered to pay a $75,000 fine.
The SEC, meanwhile, filed a parallel civil suit against Robert, which he settled in 1996 by agreeing to disgorge $667,000 in ill-gotten gains and prejudgment interest.
These troubles have not dampened Robert Shull’s enthusiasm for penny stock promotions, but it has forced him and his family members — who include sons Matt and Jason — to keep a low profile. This may explain why Patricia Shull’s name disappeared from Sunpeaks’ registration statement.
Link to the original article can be found here.
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