Over the last year, I’ve noticed a pretty big increase in the amount of stock spam that shows up in my inbox. It’s easy enough for me to delete these and move on, but there are a lot of people who take the bait and get burned on these types of promotions. Normally, I wouldn’t find a piece of stock spam interesting enough to write about it, but today a piece of spam show up in my physical mailbox, instead of my inbox.
This was the first time I’ve gotten stock spam via regular mail, but I have a sinking feeling that this will not be the last. Technically, I can stop people from emailing me, but because they pay the cost to send the letter, I can’t opt out of mailings. What is interesting about this particular piece of spam, is that unlike most spam, it was actually targeted directly at me. They probably pulled my name off a list of people who work in finance and are hoping that I will pass on snail mail stock tips, to people I work with. This is shady on so many levels, but it does demonstrate how sophisticated stock promoters have become, in their attempts to influence the market. The article that they sent me contained the customary, this is not a solicitation language, but the big print screams “strong buy” and “short term potential”. The piece is more than a little biased and includes numbers that I can’t seem to find in the SEC filings.
The newsletter is published by a company called growthstockguru.com, they are touting a penny stock named Guangzhou Global Telecom (GZGT.ob) In exchange for promoting the company, they received $25,000 in cash. If you take a closer look at GZGT, you’ll see that it shares many of the same characteristics, that you find in typical pump and dump operations. The company was only recently formed through a reverse merger. After the merger, over 75% of the company is still controlled by insiders. The company also has the right to issue another 15 million shares in order to raise capital.
There has been an aggressive ad campaign in business magazines and websites, promoting the company. Last week, Thomas Anderson wrote a scathing article, warning investors that this bubble is being driven by advertising and stock promoters. Despite his admonishment, not everyone has listened, the stock traded another 4.5 million shares today or about a third of it’s float.
All it takes is one quick look at their SEC documents and you can tell that they are in trouble. The company has already had it’s first run-in with the SEC and was forced to go back and amend an 8k filing, after they failed to report that they had fired their auditors, over a disagreement on a going concern letter.
In the newsletter, it touts the potential for 200% – 500% upside growth (in months, if not days no less 
), yet at their current valuation, they are already worth $107 million, which is pretty expensive considering that they only brought in $15,000 of net income over the last quarter (yes 15 THOUSAND, not millions.) At these prices, I’m not sure what will drive the stock to a half a billion dollar valuation, but something smells fishy about this one.
If investors want to speculate on penny stocks, that is up to them, but to do it without even considering the risks involved is just plain stupid. This company raises so many question marks, it’s crazy and yet they’ve still been able to create a market cap of $100 million with party tricks and cheap promotions. It’s a mystery to me, why someone would invest in a company while someone is going through this much trouble trying to sellout, but it’s clear that this stock spam must work, otherwise we wouldn’t keep seeing more of it.
#1 by snarkolepsy on June 5, 2007 - 9:39 am
Greed and instant gratification are powerful tools. I can’t tell you how many friends I have who aren’t willing to do even the most basic amounts of money management. Even to stick their savings into a high yield account like ING. (no I don’t get kickbacks)
If people are still willing to fall for those Nigerian scams.. people will fall for the solicitation you received.
It used to bother me….but if you can’t even convince people into a higher interest on their savings, you aren’t going to be able to convince them stock tips from snail mail are bad.
#2 by davis on June 5, 2007 - 3:52 pm
I would much rather do my own homework, than to rely on someone else’s hot tip. I’ll never understand the money market racket. The mainstream banks have just stopped trying. They pass less then 1% on and then clip 5% on the money. ING was smart to capitalize on this weakness, but there is an even better solution, than ING. It’s a dirty little secret on Wall St, but your local credit union will almost always have higher interest rates and even more importantly, lower loan rates compared to anything in the for profit market. They can also offer tax free money market accounts, which can be even better for some people.
#3 by jerry on June 5, 2007 - 7:25 pm
Can’t you short this stock since it is really a junk?
#4 by davis on June 5, 2007 - 7:40 pm
For most bulletin board stocks, it is very difficult to short the company because you have to locate enough shares to borrow, in order to execute the trade. This is harder to do on penny stocks. According to the OTCBB database, there were no reported short shares, as of May 15th. Even if you wanted to bet against the company, it wouldn’t necessarily be a guarantee. They could keep promoting the stock and it could double again from investors who either don’t know better or who are just gambling. Either way, it’s not the sort of bet I would want to make. I’d rather focus on fundamentals and stick with companies that I think are being misjudged by the market. Sooner or later the ad money will run out and when that happens, people will panic and the exits will get very tight.
#5 by Tate on June 7, 2007 - 12:31 pm
Hi Davis, I wrote about this a few days ago as well..
http://selfinvestors.com/tradingstocks/news/stock-spam-promotion-in-major-financial-publications-guangzhou-global-gzgt/
#6 by George Francis on June 16, 2007 - 1:35 pm
I am glad to see that there are people dedicated to ferreting out the bad guys. The Barclay Davis’, Herman Epstein’s, Peter Berney’s, Max Tanner’s and many others need to be exposed. I do however believe that you have a responsibility to provide accurate information and not selectively what you feel is important. RE the GZGT atricle. You state that you believe it onerous that attorney Diane J. Harrison has so many registration statements. I did a full beta search on the SEC website and I notice that you have chosen not to list all the companies she has been counsel on. These include trading and non-trading companies. And, by the way, MCFTY National never was a trading company. Further, Harrison and her husband Daniels put in over $150,000 of their own money in the company as evidenced by the financials. This was in addition to the $204.00 she paid for the stock. Even more interesting is the fact you left out that Harrison and Drake are not listed as stockholders in any of the companies. On one company Harrison’s husband appears as a small stockholder holding less than 1%. This is hardly indicative of “pump and dump” activity.
It is important for those of us who try to make a little money on penny stocks to have accurate information. This includes information from people like you to be accurate and not besmirch the reputations of people who do not appear to have any involvement in illicit activity. A call to the law firm of Harrison advised me that they specialize in registration statements, however they will not take any stock for remuneration, cash only. Further, they will not act as investor relations for the company, they will not promote the company or the stock once the registration is complete. A check with the Florida bar and the Florida agency for accountants finds no actions or complaints against either of these people.
Keep up the good work trying to uncover bad guys but be honest and forthright with all information you find and write it up as it appears, not as you want to shade it.
#7 by davis on June 16, 2007 - 5:11 pm
Thanks for the comments George. I have no interest in slamming GZGT or anyone connected with the company, only in making sure that people who are seeing the ads, have as much info. as possible about the people involved in taking Avalon public. If I’ve gotten any of my facts wrong, then I certainly do want to know and would happily make corrections to my article. Your comment brings up issues that I may have failed to raise, but it doesn’t dispute some of the points brought up . A lot of my research was gathered by trying to piece together four years worth of documents. I did my best at trying to present a fair picture of what was going on, to the best that I could understand them, but it by no means does this represent a complete picture of what has gone on in bringing GZGT public.
I guess what raised so many questions about Ms. Harrison was her relationship to Mr. Daniels and the consistent pattern found in the filings that she was involved with. Even in the filings that haven’t gone public, the money being raised seems to go to the owners of companies and not the companies themselves. If this publicity was creating a bubble that went to the company, instead of current shareholders, I wouldn’t have thought that is was worth writing about.
I’m not trying to say that Ms. Harrison has done anything wrong, but when I wasn’t able to get details about her husband’s arrest and when I saw the number of filings that were related to the Godels in some way, I felt it was important to point this out.
As far as Ms. Harrison not being an equity holder, I think that’s fair to point out, but I also think it’s fair to point out that there could still be a conflict of interest when she is having the Godels do the accounting on her own company and then turns around and does the legal work on the Godels’ underwritings. This isn’t to suggest that something improper is going on, but it’s another question, on top of the many questions behind this company.
I didn’t see the filing where Ms. Harrison put in $150K into the company and that does count for something. If you could post a link to the filing, I’d be interested in checking it out.
I’m sorry if you felt that I left important details out of the story, but MCFTY was never supposed to be the focus of my article. It just happened to be a piece of the puzzle that was mentioned. If the Godels’ put in $150K into GZGT, than I would be even more interested in that.
My article wasn’t written to suggest that anyone was doing anything illegal, only that there seemed to be a pattern of serious losses associated with the companies that did go public. I don’t want to see anyone buy or sell anything based upon what they read here, I just want them to do their own homework, so that there aren’t surprises when these sorts of details come out. It was bold to advertise in major business publications and while it attracted attention to the stock, it also put the company in front of serious investors who know how to read these reports. While my article has certainly missed many details about this story, overall I felt it was more balanced than the ads that GrowthStockGuru is running. I’m sorry if you feel that I’ve left things out, please feel free to point out the pieces I’m missing and I’ll check it out. I’m always willing to listen to the other side of the story and would be happy to make a correction, if you feel anything that I put in (not left out) isn’t accurate for penny stock investors. At the end of the day, it’s up to everyone to make their own determination about what the facts are here. If there are pieces missing, than I apologize for that, but do appreciate you pointing out details that aren’t as easy to get at.
#8 by George Francis on July 22, 2007 - 5:26 am
Davis: Again, I think the work you are doing is good. Uncovering the bad guys is what it is all about. If you place a phone call to Harrison Law, P.A. you will find that Diane J. Harrison, Esq. does no more business with Charles Godels or any of his clients. This may be a direct result of your suspicions about Godels et al. I did find that Ms. Harrison is working with many clients not related to Godels. These include clients from Utah, Nevada, China (not GZGT) and Arkansas and Florida. I suspect that Ms. Harrison is distancing herself from Godels due to the possibility that there may be behavior going on that she does not agree with. I did learn that her firm never takes stock in any registration statement that she files. They do this to avoid a conflict of interest. Also, and very interestingly, I cannot find where her company MCFTY National ever sold any shares to anyone. If you read the financials closely you will find loans from her and her husband as well as paid in capital that financed the operation. Also, if you go to the USPTO website you will find that they trademarked the names “Post Express” and “Post Express Fly Girls”. These were names they used in their operation in Las Vegas. It does not seem to me that someone who would go the trouble of trademarking two names for use in commerce is setting up a company to take money from investors. I mention all of this because one of my clients has retained her firm to do work and they are extremely happy with her performance. Both in terms of substance and quality. As a result of my clients contact with Harrison Law, P.A. I have had the chance to speak directly with Ms. Harrison regarding her work for my client. This woman does not come across as anyone who is out to take advantage of the “little guys”. In fact she specifically states that she will not work with a client who will not completely register their company for full disclosure and she will not be involved in promoting the company, the sales of any stock in the company, nor providing any information to investors about her opinion of the company and whether investors should invest in the company.
Regarding Godels et al, there seems to be a shroud regarding this group that may indicative of someone trying to take advantage of the system. I cannot get anyone from his firm or him to talk to me. This varies greatly from Harrison’s willingness to talk.
I think you are dead on balls accurate with GZGT in that there was great risk by whomever did the deal sometime in April or May. From what I can ascertain it appears that Charles p. Godels did his own deal. Right or wrong, if they did not stay by the book he has only himself to blame.