To Google’s credit, they have been pretty aggressive about fighting spammy search results from content farmers, but when it comes to your digits, they still haven’t found a way to filter out the spammers from the legitimate information. Take for example, a Google search for my own phone number
As you can see from the screenshot, Google is really good at finding any and all search results with this number in it, but most of the links presented are directing users to pages and pages of meaningless phone numbers. If you click on Google’s #1 search result for my phone number, it leads to a company named AllCallerDirectory.com. While this site does provide “reverse lookup” services, it will cost you $15 if you want to buy a report letting you know that it was Davis Freeberg who called. While my blog’s contact page does show up as the 2nd search result for Google, the remaining 467 results are all similar search spam of some sort.
By comparison, the same search on Blekko (who tends to use more aggressive spam filters) yields only 2 results, both of which are high quality hits.
It would be easy to blame AT&T for this problem, because I imagine that there are all kinds of data silos that surround our phone numbers, but when you consider the my number is actually a Google Voice number, there really isn’t any excuse for Google to be directing traffic to these paid services instead of my Google profile.
While I’ve never spent money on any of these reverse lookup services, I imagine that there are lots of people who have paid for information that they could have gotten for free. In an ideal world, I’d like to see Google partner with some of the telephone directories to improve these types of searches for consumers, but in the meantime simply nuking the “directories” that are gaming the system would be a positive step in the right direction.]]>
After having spent a great deal of time researching Vois, I had a lot of questions with no answers, so I reached out to Herbert Tabin asking for an interview. Unfortunately, Mr. Tabin wasn’t interested, but Vois Co-founder Craig Agranoff was happy to chat in public.
To be fair to Mr. Agranoff, he came into the podcast expecting a cupcake interview on web 2.0 topics. Unfortunately, businesses don’t tend to like talking with critics, so I asked them to come on the air and then ambushed him with questions that I knew would be difficult to answer. Once Mr. Agranoff realized that I knew a little bit too much about their arrangements he cut the conversation short. While I can understand his reluctance to finish the conversation, I do believe that their are still many questions that haven’t been answered. As a public company, Vois should be more transparent. If Mr. Agranoff, Tabin or Schultheis want to come back on the show and tell their side of the story, I’d still love to have you on to finish the podcast.
A couple of things that might help in better understanding the questions and answers. When it comes to the market cap, Agranoff was correct. It closed today just shy of $13 million. I had assumed that the split had already taken place because there were two days where you would not have been entitled to the split if you would have purchased shares.
The other piece of information that might help is a little bit of background on Joel San Antonio. Before Vois went public, the shell that they used was named Medstrong International Corp. Mr. San Antonio was a Director for Medstrong and would have played a crucial role in negotiating the merger.
He is also the co-founder of Jicka.com, a Craigslist competitor that Agranoff, Schultheis and Tabin are also involved in. Jicka is a separate entity and isn’t publicly traded, but one of the trends that I noticed with some of Tabin and Schultheis’ former companies is that they liked to buy a lot of businesses and later respin them onto the public. Since San Antonio would have had to give up equity when he gave up Medstrong, this sort of arrangement looks suspicious.
Here is a bit more on San Antonio’s background,
San Antonio was the CEO of Warrantech, a rebate firm that was sued by AIG for their role in a $500 million toxic bet. According to USAToday,
“AIG paid its partners — the third-party administrators such as MBA and Warrantech, as well as credit unions and car dealers who sold the warranties and serviced the vehicles — based on how many contracts they processed rather than how the warranties performed. As a result, AIG suspected, some dealers packaged warranties with auto “lemons,” so customers could rehabilitate the cars at its expense.”
AIG wasn’t the only one upset, certain underwriters at Lloyds of London went so far as to sue Warrantech, alleging that they had been paying out phantom warranties without documentation.
“Underwriters asserts causes of action against Warrantech for fraud and negligent misrepresentation, alleging that they are subrogated to all rights Houston General may have to seek damages from defendants concerning claims wrongfully submitted and paid under the insurance policies. Underwriters also seeks to recover for spoilation, alleging that Warrantech destroyed certain evidence during the course of the arbitration proceeding.”
In 2004, the company was forced to restate earnings after an investigation by the SEC
SearchHelp Inc. is another dodgy publicly traded company that San Antonio has served as a Director for. Jeffrey Supinsky, the “head of business and development” is a former trader who was barred by the NASD.
I could go on and on, but don’t want to lose focus on Vois. For now, I’ll just have to be content with keeping an eye on this Craigslist killer.]]>
For the most part, high profile bloggers have viewed these fly by night companies with the appropriate degree of skepticism, but over the last year and a half, one questionable company has managed to infiltrate the tech elite.
Vois.com’s first big splash on the innerweb occurred in November 2007, after TechCrunch highlighted the company as a publicly traded social networking site. In a quick post on the company they wrote,
“I can’t see VOIS winning any awards for its service, but those with a stock market fetish looking to play around with some investments in this space, VOIS gives you that option.”
Ironically, a mere month and a half later, Vois actually won Mashable’s Open Web Awards contest for best photo sharing site and finished at a strong 2nd to Facebook in the best large social network category. The win was so surprising that Mashable labled them a dark horse candidate.
In February of 2008, Mashable interviewed Vois Co-Founder Craig Agranoff and published another glowing review highlighting Vois’ efforts at raising $1 million. In the article, they wrote,
“Vois has gone in a new direction, giving its own users a piece of the pie, and it seems to be working out very well for the company so far.”
Maybe for the founders, but not so much for the other Vois shareholders. Mashable may have interpreted the $1 million in financing as a sign of Vois’ success, but the reality was much darker. Of the $950,325 that they raised, $95,033 went to the broker who did the placement. After they got their 10% commission, another $328,000 went to two former Directors and unnamed “consultants” that needed to be repaid because like today, Vois was in default on their debt.
If you had listened to the hype, you would have thought that Vois was the next Facebook, but behind the curtain, you’ll find plenty of skeletons waiting in their closet. Vois may envision their site as the new voice of social sourcing, but all I’m hearing is static.
Back To The Future
In order to understand the secrets locked inside of Vois, you must take a critical look at the footprints of its founders. While they may try to cast themselves as successful entrepreneurs, a closer inspection will reveal that they play the role of the villain in this tragedy.
To fully understand the events that led up to the creation of Vois, we’ll need to jump into the machine to 1985.
Gary Schultheis – President and CEO
After one year at the State University of New York at Farmingdale, a young Gary Schultheis left school and took a job with Airport Express International. He would continue working there until 1992.
During the 1980′s, Air Express International was a microcap shipping company. Their one claim to fame is that they tangled with the Lucchese crime family during the late 80′s. According to a 1986 RICO indictment against members of the family, Air Express management was being squeezed by the mob, in exchange for peace with their labor unions.
The crime family was interested enough in the corporate comings and goings, that they even went as far as to try and block a merger between Air Express and another air freight company that was also being shaken down. While it’s hard to blame Air Express for being a victim, one does have to wonder how they found themselves in this predicament to begin with. What did they owe the mob to make them think that they could try and get away with extortion? I don’t have the answers, but I suspect that the story goes much deeper than this.
After Schultheis left Air Express in 92′, it’s not exactly clear what happened to him for the next two years. Despite my best efforts, I wasn’t able to ascertain his whereabouts during this period. Not only are these details noticeably absent from Vois’ regulatory filings, but they also seem to have been suspiciously left out of other filings as well. There could be a simple explanation for this black hole, but I believe that investors deserve a full and complete bio from publicly traded CEOs.
In March 1994, Schultheis would show up on the radar again, this time as the President of a financial relations firm named Wall Street Enterprises (aka Wall St. Associates.) We don’t know much about Schultheis’ early years at the firm, but over the next two years, he would lay the groundwork for what would later become a lynchpin for future stock promotions.
Herbert Tabin – Secretary, Senior Vice President, Corporate Development and Director
In 1989, Vois Co-founder Herbert Tabin graduated from The State University of New York at Oneonta. In Vois’ SEC filings, Tabin doesn’t reveal much in the way of details, about where he began his career. Fortunately, he does tell investors that he worked for the American Stock Exchange and “three New York-based stock brokerage firms”, over a span of three years.
By doing a bit of digging, I was able to identify the three brokerage firms as Stratton Oakmont, Continental Broker-Dealer and Kensington Wells.
Stratton may not be well known outside of the finance community, but is a legend on Wall St. Before it was shut down by regulators, the company was the poster child for how boiler rooms operate. In fact, Martin Scorsese is currently making a big budget film about what happened at the firm, during the time that Tabin worked there.
Even if you can look past the wild tales of “shaving female sales assistants’ heads, tossing midgets and Ethiopian hookers, one cannot ignore this culture of deceit where Mr. Tabin received his formal Wall St. training.
The SEC consent judgment against Stratton describes exactly what this culture was like from 1989 – 1991,
“It is undisputed that, during that time, Stratton was operating a classic boiler room. The brokers sat “cheek by jowl” in a room the size of a basketball court. All of their desks were lined up side by side in rows. The firm held mandatory sales meetings every morning at 8:30 a.m. at which time sales techniques were demonstrated and scripts for the firms’s “house stocks” (i.e., those in which the firm made a market) were distributed. Brokers were expected to follow the scripts and only give customers the information they contained. Brokers were discouraged from doing any outside research, and told to rely on the firm’s research and representations. Aside from training in high pressure sales techniques, brokers received no instruction from Stratton management.
After the morning sales meeting, brokers were expected to spend the entire day (except for a lunch break) on the telephone.
The firm expected a high volume of sales, and if brokers did not stay on the phone, they were fired. Stratton was run like a “boot-camp”, with all of the brokers’ activities closely monitored and scripted by the firm’s principals. At the end of the day, a second sales meeting as held at which time each broker was required to report his production for the day.”
In case you were hoping that Continental Broker-Dealer or Kensington Wells might have a better reputation, I wouldn’t hold your breath. During the time that Tabin would have been at Continental, the firm was helping to financially engineer the fraud that inspired the hit movie Boiler Room.
In the case of Kensington Wells, things are just as bleak. After the company shut down, the NASD stepped in and charged 12 of their former brokers “with a wide range of sales practice abuses. The complaint alleges that the 12 brokers, who were based at Kensington Wells’ Mineola, NY headquarters, participated in or facilitated a boiler room operation through a series of fraudulent sales practices and other misconduct”
From September 1993 to March 1995, Tabin served as the vice president of HBL & Associates, a financial relations firm in New York city. There isn’t a lot known about HBL, but the rumor on the street is that it was being run by none then Larry Erber.
Erber is a recidivist stock felon who has had multiple run-ins with the SEC. In 1991, he pled guilty to securities manipulation and wire fraud. Despite being barred from the industry, Erber is rumored to have secretly purchased a stake in Paramount securities.
HBL & Associates didn’t have a lot of clients, but they did have one very important one. Between 1991 – 1994, Erber (and HBL & Associates), would tout a small company named Teletek. This is significant because the promotion would have been going on the entire time that Tabin was with the firm. As the scheme was unraveling, a short seller even went as far as to try and extort Erber into giving away free shares of Teletek.
“Carlson’s alleged misconduct occurred during a June 9, 1994 telephone call, in response to Carlson’s earlier call. Carlson initially “congratulated” Erber on the GLAD situation, because he felt that “there were strong similarities between the GLAD situation and Teletek,“and he wanted to let [Erber] know that I knew what he was up to, that he was up to another one of these stock manipulations, and that he wasn’t pulling the wool over my eyes.” Carlson then requested a block of Teletek stock at a discounted price in exchange for Carlson’s keeping silent about Erber’s alleged promotion and manipulation of Teletek stock:
‘Let me tell ya, we were intimately involved in getting GLAD delisted. OK? I am going to do the same thing to Teletek — unless I get some stock from you on a favorable basis. I am gonna do what’s called a magic trick – that’s where I take your money and I turn it into my money.’
Carlson repeated this quid pro quo later in their conversation: “so, on Teletek-either I get a block of cheap stock or I am going to play a magic trick on you-OK-I am going to get that stock delisted next.” Carlson then accused Erber of being an undisclosed owner of Paramount Securities, an act that would violate a federal court order restricting Erber’s participation in the securities industry. Carlson continued:
‘Ya, if you want me to serve you up and wrap your F***ing nuts around your head I will. So you decide what you want Larry, we either play hard ball or . . . I get some of this cheap stock that keeps on printing in this pig.’ Carlson concluded the conversations as follows: ‘[s]ave your breath-OK-buy me some stock or I’m gonna F***ing-I’m going to go after Teletek. Those are my terms-please get back to me-thank you.’”
Unfortunately for Carlson, Erber was recording the phone call and while Erber would ultimately face charges for manipulating Teletek, Carlson would end up being suspended from the industry as a result of his conduct.
After leaving HBL & Associates in 1994, Tabin would join a “merchant banking and venture capital firm” named LBI group. From April 1994 – Dec. 1996 he served as their vice president of marketing. While Tabin was working there, LBI provided consulting services to a fast food restaurant named Tasty Fries Inc.
Tasty Fries first hired LBL on May 23rd, 1996. You may not be able to buy a burger for a nickel anymore, but LBL learned an even better trick. In exchange for “certain business consulting services, including marketing for a 12 month period”, LBI was given an option on 4 million pre-split shares at .05 cents a share.
A little over a month after entering into the contract, employees at LBI paid $200,000 to exercise these options (despite only being 2 months into a 12 month commitment.) While we don’t know whether or not LBI was dumping their shares while they were performing their “marketing” duties, we do know that they were only able to return 1 million shares once the contract was rescinded.
Later, the SEC would deep fry the fast food restaurant and in 2004, CEO Edward Kelly would be forced to settle charges “for fraud, unregistered sales of securities, and reporting, record keeping and internal control violations.”
After Tabin left the company, LBI was accused of sending unsolicited pump and dump faxes to prospective investors.
Millennium Holding Group – Their Own Personal Death Star
Millennium Holding Group was created on February 27, 1996. Shortly after forming the group, Millennium would acquire Wall Street Associates, the firm that Schultheis had spent the last two years creating. This is the first known partnership between Schultheis and Tabin. In the 10-k Vois describes Millennium Holdings as a “financial consulting firm specializing in mergers and acquisitions.” On the surface, this sounds impressive, but take another look at the types of companies that they worked with and you can’t help but be aghast at the client list.
In April of 1997, American International Petroleum Corp. (AIPC) hired Wall Street Associates to “implement a five-part investor relations program, including stockbroker relations, media relations, shareholder/investor communications and Interent [SIC] coverage.” AIPC was a Kazakstan oil exploration company with refining facilities in Louisiana. In July 97′, Wall St. Associates/Millennium Holding Co. issued a press release letting investors know that “revised estimates of potential recoverable reserves in Kazakstan exceed one billion barrels.”
Of course those barrels of oil were never recovered and in October 2004, AIPC would be forced to declare bankruptcy in a Louisiana courthouse. Two years alter, the SEC would revoke AIPC’s stock registrations for failing to file current reports.
To get an idea of the type of hyping that Millennium Holdings was allegedly engaged in, just take a look at this Silicon Investor post where someone says that “Gary from Millennium Holdings” touted a potential $50 share price in an AOL chat session with investors. I’m not sure what the stock was worth then, but today you can buy a share on the pink sheets for only .002 cents.
I don’t know what it is about the name, but there must be something about Voice that Schultheis and Tabin like, because on June 23rd, 1997 they picked up over 300,000 shares of iVoice.com. A little over a year later, they acquired an additional 925,000 shares.
On November 15th, 1999, iVoice hired Integrity Capital to perform a laundry list of “investor relation” services. At the time Robert Pratt was a principal owner of Integrity. In February of 2008, the SEC finally caught up with Mr. Pratt and accused him of running a pump and dump scheme.
In August 1997, Millennium Holdings group acquired shares in a company named MDI Entertainment. A few years later, MDI would sue Oxford International (another “investor relations” firm), alleging securities fraud.
In August 97′, Millennium took an interest in TearDrop Golf Company. Four years and several “acquisitions” later, TearDrop was forced to file for bankruptcy protection.
On Sept. 15th, 1997, Millennium announced that they would be taking on Sled Dog as a client. A little over a year later, Sled Dog would file for bankruptcy protection in Minneapolis. Given the short time between when Sled Dog hired Millennium and the bankruptcy, one has to wonder what type of due diligence Millennium was doing before taking on clients.
In November 97′, Millennium helped Mark Fixler, President and CEO of Fix-Corp International, Inc. secure an interview on Fox News. In 2008, Fixler would be named in a civil lawsuit, alleging, yup you guessed it, securities fraud.
In January 1998, Millennium Holdings was pitching Advanced Media Inc (ADVI) to potential investors. In September 2005, ADVI had their stock registration revoked for failing to keep their SEC filings up to date.
On March 12th, 1998, Winners All International, Inc. sued Millennium Holdings Group Inc. for breaching “a consulting agreement, common law fraud and fraud in the purchase of securities.” The statement of claim sought rescission of the agreement, restitution of the stock shares issued and a claim for $200,000 in damages. Millennium would later settle the lawsuit by paying out the $200,000.
In Sept. 98′, Millennium took on NetMed Inc. as a client. Less than 6 months later, OxyNet sued NetMed alleging fraud. Approximately, 3 weeks after the lawsuit was filed, NetMed declared Chapter 11.
In Sept. 98′, Millennium was also providing investor relations support to Silverado Gold Mines, Ltd. As if this story couldn’t get any more surreal, Silverado’s CEO would later appear “in a staged interview with a TV host, previously sued by the SEC in a multi-million dollar fraud case involving live goats and goat carcasses.”
Ten years after hiring Millennium, Silverado would eventually get busted after a series of damaging articles by the legendary business journalist, David Baines
In November 1998, Millennium Holdings announced that they had been hired to provide investor relations support for Keystone Energy Services Inc. Six months before they began their marketing campaign, Keystone was sued as part of a class action lawsuit for issuing misleading statements to their investors. In March of 2001, two Keystone execs, were indicted on 114 different violations. This case is especially notable because it was the first time that the state of Minnesota pursued charges on a pump and dump that involved the internet.
International Industries / International Internet Inc. / Evolve One – The Gift That Kept On Giving
After being involved in so many companies at the investor relations level, it was only a matter of time before Schultheis and Tabin would want to set up a company of their own to run. In preparation for public office, On May 30th, 1997, they formed a company named Mr. Cigar Inc.
They were supposed to be a cigar kiosk company, but after learning about a patent on the concept, the company decided to just be a distributor instead. On Jan. 26th, 1998, International Industries Inc. acquired Mr. Cigar Inc. and gave control of the company to Schultheis and Tabin through a reverse merger.
8 months after the acquisition, Transmedia Consultants (another financial relations company) would try to get their pound of flesh by suing them over some kind of grievance. While the suit would later be withdrawn for an unknown settlement, what was so damning about the lawsuit was that Transmedia was after the equity in Mr. Cigar Inc. NOT International Industries. This would suggest that stock promoters were lined up, even before Mr. Cigar Inc was bought.
On Jan. 14th, 1999, Bloomberg wrote an article accusing International Industries of adding to the “internet stock market mania” by issuing a press release announcing their acceptance into the Amazon affiliate program. Of course, we know today that even small time publications like my own, can easily get accepted into the program. At the time though, investors were so hungry for growth opportunities that they bid up International Industries by 100% on the day the press release was issued.
With the old economy starting to look stale, International Industries would change their name to International Internet in 1999. Later the company would be known as Evolve One.
On May 10th, 1999 International Internet announced a drastic change to their business model. Going forward, they wanted to act more like an internet incubator and try to acquire various businesses. Later they would spinoff these investments which would create new public companies for them to feed off of.
A month after announcing this change in business model, they acquired Auction Concept Inc., in the first of what would be a series of acquisitions.
Running low on funds, International Internet took to the street to raise money. In March of 2000, with the market near its high, they received a commitment for $11.25 million from Avenel Financial Group. Avenel was a financial firm controlled by Michael Pruitt. Pruitt will drift in and out of the story as time goes on, but this investment was notable for two reasons.
First and foremost, International Internet had just made an acquisition of Reconversion Technologies. Inc. on March 8th, 2000. As far as I know, this transaction was never reported as the related transaction that it was. Only two days later, Pruitt would be appointed as a Director of Reconversion Tech (now known as Healthsport.)
Another troubling connection between Pruitt and International Internet occurred on Jan. 14th, 2000 when International Internet LLC acquired a minority interest in Vertical Computer Systems.
Nine months later, One Travel Holdings Inc. (a company where Pruitt was the CEO) would enter into a contract with Vertical Computer systems to have them provide “internet, e-commerce and software services.”
On March 16th, 2001, International Internet registered to sell 550,000 shares of EResources Capital Group, Inc. EResources was yet another firm where Pruitt served as the CEO. Again, I couldn’t find a single related transaction disclosure.
While it’s easy to say that the SEC fell asleep at the switch on this one, Schultheis and Tabin did show up on their radar while they were working International Internet. In 2002, agents from the SEC recommended that “the SEC pursue a federal injunctive action against EONE for violations of the antifraud provisions of the federal securities laws.” Specifically, they were concerned about two false and misleading press releases that were issued in February 2000. Despite my best efforts, I wasn’t able to find out how this was resolved.
International Broadcasting Corporation – Ground Control To Major Tom
I never did quite figure out how Schultheis and Tabin acquired their stake in International Broadcasting Corp., but like many of the companies in this article, it also has had a troubled history. The firm was a collection of internet radio stations that broadcast everything from Blues to stock market commentary. Before it was IBC, the company was named “Explosive Financial Opportunities” Feldman Sherb & company was the auditor.
In May of 2002, IBC filed an SB-2 that brought Tabin and Schultheis’ positions under 5% (meaning that after the offering, Tabin and Schultheis would no longer have to report their trades or positions.) In the SB-2, IBC claims that “none of the selling security holders has or within the past three years has had, any position, office or other material relationship with us or any of our predecessors or affiliates, other than Tyler Fleming, who is Daryn Fleming’s brother and Sharon Fleming who is Daryn Fleming’s mother.”
Daryn Fleming, who was the CEO of IBC, may have disclosed his family relationships, but what IBC did not disclose was that Arthur Dermer, who also sold shares in the offering was (and still is) listed as a Director of the Tabin Family Foundation. I don’t know what his relationship to the family is, but it represents yet another related transaction that was hidden from the public.
Even before Fleming took on his role at IBC, he had prior relationships with Schultheis and Tabin. In July 98′, Fleming was hired to provide marketing to International Industries. As part of the promotion, he issued a positive “research” report on the company.
Despite the controversial nature of Fleming’s business model, the man knew no shame. A mere two weeks after his report on International Industries, he was highlighting a company that “helps investors who have been victimized by fraudulent and corrupt practices of brokers.”
In 1999, the Wall Street Journal would take Fleming to the woodshed for hyping stocks on the internet without disclosing that his firm, Wall St. West, was being compensated for the promotions. In the article, WSJ reporter Jason Anders, took a critical look at Fleming’s client base and included comments from Schultheis on why they hired Fleming in the first place.
“Gary Schultheis, president of International Industries says he hired Wall Street West to get some exposure for his company, particularly on-line. “[Mr. Fleming] said that he is very active in the internet, and that he had lots of places to get us good corporate exposure.” Mr. Schulteis [SIC] says he never specifically asked Mr. Fleming to post on message boards.
Mr. Fleming created a Silicon Investor message board to discuss International Industries, a Boca Raton, Fla., company that manufactures cigars and cigar vending machines. Mr. Fleming has posted 11 of the board’s 27 messages. When some participants complained that the stock’s price appeared to be slipping, he responded, “We think mostly big time investors bought [International], which is why we want to do a Wall Street West style SQUEEZE. This is where none of us will sell. In light of increasing demand, the stock could soar!!!!”
In 2005, Mr. Fleming would find himself in a bit of hot water after going on “Stock Talk Live”, one of IBC’s radio shows and making false statements to investors about acquiring various radio stations. Two years later, the SEC would lower the hammer and would file a complaint against him for fraud.
Interactive Golf Marketing/WowStores.com – More Than One Way To Skin A Cat
A little over a year after joining International Industries, Schultheis, Tabin and Rakesh Taneja purchased Interactive Golf Management (IGM), through a company named Estores.com. The purchase occurred on February 16th, 1999. One day later, International Internet, (which was also controlled by Schultheis and Tabin at the time) made a $20,000 investment into IGM. In March of that year, International Internet would end up acquiring 16% of the company. While it has been over ten years since this transaction took place, as hard as I tried, I still couldn’t find where it was reported as a related transaction.
After taking over, the group must not have been very happy with their golf swing, because they promptly changed the name of the company to WowStores.com. A short 7 months later, Tabin and Schultheis would leave the company after selling their stake to StockFirst.com
StockFirst was an “unbiased” financial site dedicated to emerging opportunities. The president of StockFirst at the time of the acquisition was David Hirsch. Before Joining StockFirst, Hirsch was working for a boiler room operation named First United Equities Corporation. While there, he was caught pushing two different microcap stocks on investors. In a settlement with the SEC, Hirsch admited to engaging in manipulative trading, lying to his clients about not earning commissions from selling them the stocks and refusing to let customers sell out of positions, unless they purchased one of the other house stocks instead.
Network Systems International/OnSpan/Double Eagle – Make Sure To Look Out For Number One
Of all the stocks that I’ll discuss in this report, Network Systems International was by far the most damning. On July 25th, 2000 Millennium Holdings Group conducted a private placement where they sold approximately $1 million worth of stock to investors. In addition, Tabin purchased another 2.7 million shares for a cool $1.5 million. After the transaction, Tabin would become the CEO of the new company.
While it would take nearly 6 years to unravel, this transaction would end up haunting Schultheis and Tabin for a very long time. Two of the $1 million investors, Richard T. Clark and Joel C. Holt would end up suing Schultheis and Tabin after things didn’t quite turn out as planned.
According to their complaint against the company, on May 8th, 9th and 10th, 2000, Tabin held a meeting in the Bahamas with Clark, Holt and other investors to discuss the acquisition of a small cap stock. Tabin’s attorney for the deal, G. David Gordon would also attend. From the complaint,
“At the meeting, Tabin solicited Clark and Holt, as well as others, to invest $1,000,000 for an operating company which was publicly traded and listed on the Small Cap NASDAQ Exchange. Tabin told Clark and Holt that the money would be used by OnSpan to acquire some operating business with independent managements [SIC] that would enhance the value of OnSpan’s stock and render a profitable return to its stockholders. Tabin told Clark and Holt that he would be buying out the ONSpan insdiers and assuming the role of OnSpan corporate director. Tabin told them that if Clark, Holt and other investors invested $1,000,000, then the insiders’ stock positions that he acquired would give them as a group effective control of OnSpan so that the business plan he had outlined for OnSpan could be carried out.”
Later in the filing,
“Tabin’s representations and warranties concerning the investment strategy and business plan never included, or even contemplated, that Tabin would remain a long term officer or Director of the Company. Nor would he draw a salary or other cash remuneration after he had assisted OnSpan in located and acquiring an operating business with an independent management. When Tabin made his statements and representations to Clark and Holt at the meeting, he made false representations of material facts, and omitted and failed to tell them of certain material facts, which would have had a substantial impact on their decisions to invest in OnSpan, and the absence of which, when considered in the context of the information that Tabin did provide to them, mad Tabin’s presentation misleading. These false representations and omissions of material facts include without limitation, the following:
(a) Tabin did not advise Clark or Holt, that their money had to be committed and in escrow to enable Tabin to acquire his interest in OnSpan, and that therefore he was not undertaking any risk until Clark and Holt had already assumed the risk of the investment.
(b) Omission of the fact that he already had an agreement with the current directors and management of OnSpan to purchase stock at a lower price than to be paid by Clark and Holt
(c) Omission of the fact that he had an agreement with one or more other John Doe investors to acquire a controlling interest in OnSpan as a group, instead of voting his shares with the shares purchased by Clark and Holt, and any other Initial Investors, for purposes which were contrary to his representations and warranties made to Clark and Holt. Tabin actual purpose included taking control of the Board of Directors of OnSpan so that the Board would be under the dominion and control of Tabin so that Tabin could direct the actions of OnSpan as he saw fit, including the dissipation of company assets and opportunities and the conversion or misappropriation of its assets by paying himself a large salary, and possibly other compensation and benefits, at a time that OnSpan had no revenue and no business operations whatsoever and while Tabin was drawing full compensations from Evolve One, inc., another company for which Tabin raised funds under the same or similar circumstances as OnSpan
(d) Omission of the fact that he was associated with acquiring another company, Vertical Computer Systems, Inc., in much the same fashion as he did for OnSpan, which was under investigation by the Security Exchange Commission for possible violations of federal securities laws.”
While it’s easy to look at a complaint like this and claim that it’s just Clark and Holt crying over sour grapes, there is supporting evidence to suggest that something may have been up.
On February 10th, 2009 the SEC charged David Gordon with securities fraud. In their complaint, the SEC claims that Gordon was part of a shell creation group that derived over $41 million in illegal profits from their pump and dump activity. Richard Clark would also be indicted as part of the scheme.
“To execute their scheme to defraud, Defendants, acting in concert with other persons, obtained market domination in the target stocks; engaged in coordinated trading activity, including the use of illegal matched orders; and created and distributed to the public deceptive promotional materials, all of which generated the false appearance of investor interest in the Target Stocks thereby artificially inflating the prices of the shares. Defendants, acting in concert with other persons, sold shares of the same three Target Stocks they were recommending that the public buy. This scheme is commonly referred to as a “pump and dump” because the perpetrators artificially inflate or “pump” the price of a stock and then sell their own shares (the “dump”), at the artificially inflated “pumped ” price.”
In case you think that Tabin was actually looking out the interests of OnSpan shareholders, I’d like to point out that once he faced legal liability, he was quick to offload the risk to the shoulders of OnSpan investors.
In 2006, Tabin and Schultheis would eventually settle the lawsuit by giving up their shares in OnSpan/Double Eagle in exchange for the Vois.com domain name. When Tabin finally did leave, Michael Pruitt would replace Tabin as CEO and Chairman of the board.
Marc A. Saitta – Chief Financial Officer
In this report, I’ve focused most of my comments on Schultheis and Tabin’s career, but one character who jumped out at me was Vois’ CFO Marc A. Saitta. I’m not exactly sure what connections he had with Vois, prior to its creation, but I found his prior employment at Smithsonian Business Ventures extremely interesting.
It would take another 7,000 words to go into all of the details behind the conspiracy, but essentially the executives at SBV found a loophole in the Government that allowed them to loot one of our Nation’s treasures. While investigating SBV, Senator Charles Grassley had a most appropriate quote,
“It looks like the leaders of Smithsonian Business Ventures were living like Thurston Howell and managing like Gilligan.”
Unfortunately, Grassley would never pick up on the microcap angle to the story and this was never fully investigated. Instead, SBV would eventually trip themselves up by signing a 30 year exclusive deal with Showtime to produce historical films. When Congress found out about SBV, they were furious. The investigation produced several lengthy hearings and a report that is over 100 pages long.
I’m not a fan of the political thrillers myself, but if a journalist wanted to take a closer look at SBV’s licensing deals, I think they’d find a story that is eerily similar to Vois, only involving extremely powerful Washington insiders.
The Auditor – Second Verse Same As The First
Over the last 20 years, Tabin and Schultheis have appeared with a wide variety of supporting cast, but one bad actor who kept reappearing during my research was Sherb & Co., Vois.com’s auditor.
In looking at the history of the firm, one must conclude that these guys are either incompetent, actively helping to perpetuate stock fraud or are simply the world’s unluckiest auditors.
Recently, famed short seller Manual Asensio cited China Sky’s use of Sherb & Co. as a major red flag for the company. In 2007 (right before Vois first hired Sherb & Co.) the auditor was reprimanded by the PCAOB after they looked at 8 of their clients and found material deficiencies in the audits. Specifically, they cited one case that “included a deficiency of such significance that it appeared to the inspection team that the Firm did not obtain sufficient competent evidential matter to support its opinion on the Issuer’s financial statements.”
Whether we are talking about Smart Online, Spear & Jackson, China Sky, ProNetLink, Light Management Group Triton, or Optionable, Sherb & Company has consistently failed to catch problems before they happen. That may be a benefit to someone who is trying to hide illegal behavior, but shareholders deserve a higher level of performance from someone who is so crucial in identifying and preventing fraud.
Over the years, Schultheis and Tabin have worked with Sherb & Co. enough times, that I think it’s fair to question whether or not the firm is considered independent. While I understand how hard it can be to identify firms that are engaging in fraud from that ones who just make mistakes, I can’t but help find it frustrating that Sherb & Co. has been able to have such a high failure rate and yet they’ve received little more than a slap on the wrist by regulators.
Given that Vois has been fooling the blogosphere for over a year now, some may ask why I choose to speak out on this issue now. While deep down inside I really didn’t want to make enemies with people I don’t know, I became concerned that a trap was being set after Vois announced that they were doing a 1 to 100 forward split. Through this use of financial engineering, they’ve been able to dilute their shareholders.
Why do I think that Vois is doing the 1 to 100 forward split now? It’s pretty simple really, they are out of money and likely won’t make it through December, unless they can offload warrant debt onto public shareholders that is. TheRichArab from Yahoo! Finance explains this point best,
“WARRANTS ARE LIENS. the company is doing the split to cover the WARRANT. which EXPIRE IN DECEMBER OF 2009. IF the warrant is not covered by shareholder capitalization then THEY THE COMPANY must pay the outstanding amount. IT IS SIMILAR TO OPTIONS, VS. MMs and US (you cannot option a pinkie).
SO, what does the company do when the stock has moved south ever since the LIEN of the WARRANT ISSUE? THE offer a 100 to forward split! Look at VOIS it has not moved at all since the SEC Filing – WHY? Because NOBODY F*ING CARES. The only paper in play is the WARRANT. They want that CAPITALIZED in order not to have EVEN MORE DEBT than they already have.
The Strike price previously on the WARRANT was 18.50
with the forward split it will be .1850 – 100 X less.
you will not get more share (nor will your PPS holdings be 100X less). But VOISW can convert to common shares at .1850! that is the play for us holding! AND I guarantee that this stock VOISW will reach .185 before and beyond the split! the company wants everyone in the warrants to succeed. they could care less about the company they are diluting with the 100 to 1 split. they simply dont want to go bankrupt on the LIEN, which looking at their company they are very close to doing.
So what do you do as an investor. RIDE THE WARRANT AND F*K the COMPANY. My prediction, this split will cause the warrant will be worth more than company stock – look at VOIS vs VOISW and the 3200% VOISW has made in 1 month versus the NEGATIVE SPIRAL CONTINUING with VOIS.
this is from company you can email them too
From: CRAIG A [mailto:email@example.com]
Sent: Fri 6/26/2009 9:55 AM
Subject: investor question
In regards to your question about whether the split affects both VOIS
and VOISW, I just wanted to clarify something. The common shares of
VOIS will split 100 for 1, and the exercise price of the warrants
split. So instead of exercising at $18.75 they would split at an
equivalent of .1875.
Former convicted stock felon Barry Minkow describes financial fraud as “the skin of the truth stuffed with a lie.” The best con artists must pepper their lies with truths in order to perpetuate their fraud for as long as they can. You have to have people believe in the legitmacy of what you are doing, if you want to do more than pickpocket them.
Vois claims that they are a legitimate web 2.0 company with a “strong” management team that has taken many tech companies public. What they don’t tell the public is that over the course of their careers, the founders have been exactly one degree away from businesses and individuals who have been directly involved in fraud on multiple occasions.
Whether or not Vois’ founders are trying to pull the wool over their investor’s eyes, I’ll leave up to you to decide, but make no mistake about what is at stake.
People who are victimized by stock fraud don’t tend to be the sophisticated investors that the big name VC firms are going after, they tend be be an unsuspecting and unsavvy web 2.0 public that doesn’t understand the first thing about investments. Hopefully, before recommending a company like Vois again, we’ll see sites like TechCrunch and Mashable do better due diligence to help protect their readers.
*Just in case you didn’t get enough of this story in the article, tune in on July 9th at midnight PDT for part 2 of my expose as well as a a podcast where I confront Vois Co-Founder Craig Agranoff on the air.
I love being able to time shift my television and take full advantage of my fast forward button. If I absolutely need to see something live, I’ll still wait 20 minutes, just so that I can skip past the commercials. Over the last six years, I’ve been every marketers worst nightmare and yet, there has been one company that I have never been able to block.
Sleeptrain Mattress Centers
It’s not a major company, but this sleepy little company has been able to outsmart the DVR, by exploiting the very fast forward feature, that I love so much.
When you are fast forwarding, you don’t know when to stop until after your program has already started. Because of this, TiVo has built in a feature that starts playing the program a few seconds before you actually hit the play button. The idea is to account for the time that it takes your brain to tell your finger to hit the button.
When I bought my first TiVo, I did a good job of fusing with the skip back feature. By instinct, I knew the exact moment that I needed to hit play, in order to achieve TiVo nirvana. It sounds funny, but there is a certain sense of satisfaction, in starting a program exactly as a commercial ends.
It wasn’t until I “upgraded” to a cable company HDTV-DVR, that I lost my TiVo mojo. The fast forward speed on the generic device was beyond ridiculous and I had a hard time adjusting. Add to this the lag time, whenever you hit play anyway and it was easy to go 15 minutes into a program, before I could regain control of the DVR. I don’t remember the exact timing on the cable skip back, but it seemed much shorter then TiVo’s and required lightning fast reflexes, in order to get right.
When I upgraded to a TiVo series 3, I thought that my commercial skipping rhythm would return, but sadly, I haven’t been able to make the adjustment back. I’m still trigger happy when it comes to hitting play and start things far too early. I’ve thought about using hacks to shorten the length of the auto skip back feature, but would rather try and adjust to the default if I can.
Because I’ve had difficulty hitting the TiVo sweet spot, it means that I catch the end of a lot of advertisements. There aren’t a lot of companies that have focused on this, but over the years I’ve noticed that Sleep Train Mattress Centers seems to be at the end of a lot of commercial pods.
At first, I thought that this was a random thing, but I’ve also noticed that they buy time at the 30 minute marks, so that their logo is the last thing you see, when you delete a lot of programs from your DVR. As advertising continues to adjust to a DVR world, we’ll see more companies begin to pay a premium, in order to capture even a few seconds of a viewers attention.
In thinking about DVR advertising, there are two key spots. The first spot following a commercial and the very last moments before a program starts. The first spot is important because the advertiser has a chance to convince the viewer to watch. It’s like a home version of the Gong show. The minute you realize it’s boring, you hit fast forward and are back to your program. Sometimes, if it’s a movie preview or an especially creative ad, they can convince me to watch, but most of the time, I’m fast forwarding the second I know that it’s not part of the show.
With all of the middle ads being largely ignored, those last few seconds of a pod may be the only other chance for an advertiser to reach a fast forwarding public. I haven’t seen a lot of companies take advantage of this, but give kudos to Sleeptrain for having taken early advantage of this. They may not be able to convince me to buy a new mattress, but through the use of micro commercials and smart placement, they have succeeded at burning their logo into my brain, every time I hear a train whistle.]]>
In fairness to TiVo, there is evidence to suggest, that they had intended these ads to carry a sponsored by TiVo disclaimer, but due to quality control issues at Pay Per Post, the ads were leaked without the proper disclaimers.
Even though I think that TiVo made a mistake by partnering with Pay Per Post to begin with, killing the campaign was the right antidote for dealing with this poison in our community. There will always be times when companies make mistakes, but it’s how they react to those mistakes that define who they are and in this case, TiVo made the right move by deleting the campaign.
By moving quickly to kill the campaign, TiVo demonstrated that they are willing to listen to their community and take action, even when they’ve misjudged the rules that their community plays by.
In the long run, this won’t represent more than a five second skip back in the history of TiVo, but I do think that other companies can learn a valuable lesson from TiVo’s experience.
User generated content is sexy and it’s tempting to try and manufacture buzz, but sooner or later, your customers will find out that you are gaming the system and they will attack. Steve Rubel said it best, when he recomended that marketers be careful about trying to manipulate the social web.
“Digg, Reddit, del.icio.us and other collaborative news sites are like Bengal Tigers. They’re beautiful to look at and admire, but they’re very dangerous to touch. If your stories end up landing on these sites, then terrific. Be happy. Include the metrics in your coverage reports. But seeding PR links is trouble waiting to happen, especially as these communities become barraged with spam and the users’ sensitivity meter goes to code red.”
If your brand has no value, then there may be no place to go but up, but if you think that there is any equity in your brand, then smart marketers will think twice before supporting this tumor on the world wide web.
Even if there were an upside to astroturfing YouTube with fake ads, this controversy alone should make companies rethink their support for the Pay Per Post brand. If by partnering with the company, you end up damaging the reputation of your brand, then what have you really gained by paying people to create fake testimonials?
If I was an ad exec and my marketing consultant suggested Pay Per Post to me, I would fire them and find a marketing firm that has better ethics and an understanding of what it really takes to build grassroot support. Instead of uploading fake ads to YouTube, TiVo would have been better off, by having someone search YouTube, LiveJournal, Blogspot and MySpace for real TiVo testimonials and then leave comments thanking them for the support.
There are lots of times when I make suggestions for TiVo and while not everyone of them is a great idea, I can tell you that I would freak out if someone who worked for TiVo, left me a comment validating an idea and promising to consider it as a future development. Even if TiVo never implemented my idea, knowing that someone from the company took their time to consider it, would be exciting enough. This isn’t astroturfing, this is interacting and responding to your customers.
Fake ads, will always run the risk of blowing up on you, but by being open and transparent with your fan base, it’s not that hard to turn happy customers into viral customers. Instead of supporting companies like Pay Per Post, businesses should instead be thinking about how to engage their existing fans.
While you may or may not agree that the ethics behind Pay Per Post are deplorable, it’s clear that the company is a lightning rod for criticism. Whether or not that criticism is fair, should be irrelevant to marketers. There are some who believe that even bad publicity is good publicity, but I don’t think that anyone wants to see their brand dragged through the social mud. It’s exciting to see grassroots support for your products, but if you are going get into the same cage as the tigers, then you shouldn’t be surprised when they turn on you and attack. If some PR hack recommends Pay Per Post as a way to build buzz, do yourself a favor and go hire someone who knows what they are talking about.]]>
Despite my normal enthusiasm for TiVo’s PR stunts, their latest campaign has been a little over the top, for even my tastes. It started in late August, when TiVo issued a press release that declared that their new TiVo HD box, had all the features that people expect from a perfect companion. When I first read the release it was so syrupy, I could barely finish it.
I even almost wrote a snarky blog post, where I was going to point out that despite their claims, I’m actually looking for something a little bit different from my “hook ups”, then the family friendly criteria that they included in the PR fluff. Things like someone who won’t freeze up on me after I had been out drinking with the boys or someone with a pair of really big hard drives or a companion that doesn’t get jealous when I play video games.
I ended up getting distracted and never wrote my post, but when I saw TiVo issue another lovefest press release, I just rolled my eyes and figured that I was in the wrong demographic to ever understand this one.
Normally, I wouldn’t have thought much more about this campaign, except while I was surfing YouTube, I came across several clips that appeared to be fan made videos expressing their excitement for the HD TiVo product. At first I actually thought that these were made by TiVo customers. There is definitely an indie feel to them. One of them actually does an amusing simulation of the world from TiVo’s perspective It wasn’t until I got to my my favorite video of the bunch that I finally figured out why there was such a sudden rush of TiVo videos on YouTube. Of all the clips out there, this is the only one that I could find, that was honest enough to at least identify that it’s part of the Pay Per Post program.
Pay Per Post has been a very controversial company from the start. Because they pay individuals to make fake user generated content, that are really covert advertisements for sponsors, the FTC has even expressed some concerns over the truth in advertising issues related to their service.
Now I don’t think that there is anything wrong with TiVo paying someone to make commercials for them, but there is something wrong with conning consumers into believing, that they are witnessing legitimate testimonials when in fact, it’s really just a shill that is being paid to tout the product. If TiVo were requiring these video bloggers to put Pay Per Post on every video, I wouldn’t even see this as controversial, but 5 of the 6 ads that I saw, carried no warnings.
In the past, I’ve appreciated TiVo’s edginess in how they advertise. It may not always be to my liking, but I don’t mind them taking risks. This time though, they’ve crossed the line. By not clearly identifying this content as an advertisement, they have insulted the grassroots community that already spends so much time and effort evangelizing TiVo’s brand. By polluting their community with this vaporous buzz, they damage the credibility of every piece of user generated content, even if it really is being made by a legitimate fan.
If TiVo already had a terrible reputation or couldn’t get buzz to begin with, I could understand why they would stoop to this level, but their customers already love their products and spend plenty of time gushing over each and every little development. With as PR savvy as TiVo has been, it puzzles me why they would risk this kind of damage to their reputation, just so that they could get a few more videos up on YouTube?
If they really are proud of supporting these artists, why not put a big TiVo logo on the front of every clip and let YouTubers know that they are watching paid programming? If this was on the up and up, TiVo wouldn’t be hiding this, but because they want it to appear authentic, they’ve choosen to support Pay Per Post and let them do the dirty work.
As a member of the TiVo community, I love it when I see cool fan creations. It’s neat to be able to connect with other people who feel just as passionate about the TiVo experience. Over the years, TiVo has gotten a tremendous amount of grassroot support from the social net and to betray that trust is a huge blunder. By choosing to “hook up” with Pay Per Post for their latest ad campaign, they have introduced a toxic poison into the TiVoSphere that can only make it sick. TiVo needs to end this questionable form of guerrilla marketing, before they damage the credibility of their fan base any further.]]>
After doing my research on GrowthStockGuru’s most recent hot stock tip, I contacted the business press and asked for comments on why they would run an ad for a microcap company, whose former Director is married to a convicted stock promoter? I emailed Business Week twice and Smart Money once, but neither of them seemed to feel it was important enough to reply to. Forbes and Investor’s Business Daily did reply though and unfortunately Forbes said that the print ads had gone out, but that future ads were being discontinued.
“Thanks for your note- we obviously take this very seriously given our
reputation in the industry. Just so you know Forbes.com and Forbes
magazine are separate organizations with separate sales teams. I had
some people here at Forbes.com run a check and it appears that we’ve
never shown those ads online. I can confirm that there had been ads run
in the print mag in the past but from what I’m told those are going to
While, it’s unfortunate that Forbes ran the ad to begin with, I can understand how they could miss some of the details behind GrowthStockGuru’s tip. Digging through the SEC files was like peeling an onion, the more I read, the more I wanted to cry. Forbes willingness to re-evaluate the history of the company and their decision to discontinue future ads, demonstrates that, while careless, they do care enough about their readers trust, to understand that the easy money, isn’t worth the hit to their credibility.
Investors Business Daily on the other hand, did not seem to think that there was anything wrong with advertising a penny stock, in order to increase “awareness” of the company.
“Thank you for your email regarding the advertising from GrowthStockGuru. Investorâ€™s Business Daily does have a policy in of rejecting display advertising that promotes penny stocks. Display advertising refers to the ads that are placed throughout the newspaper.
The ad you referred to ran in our Corporate News section. This is classified advertising section designed as a forum for public companies to increase awareness of their stock. Most of the ads that run in Corporate News are penny stocks. Many of our readers regularly read this advertising feature searching for new and interesting investment opportunities. The section is labeled as advertising and in no way is an endorsement by Investorâ€™s Business Daily. We also run a small disclaimer in the section stating that we can not guarantee the accuracy of the information in the ads.
Thank you for taking the time to share your concerns with us. We value your input and take all suggestions and comments very seriously.”
After reading IBD’s email, I was really surprised to learn that advertising “classifieds” of penny stocks is part of their business model. I’ve always thought of them, as being one of the top five business publications for Wall St. investors. Unfortunately, I didn’t get to see the print ad personally, so I don’t know about the disclaimers there, but on their website, they are still running the growthstockguru ads and I don’t see any disclaimers. In order to get to this ad, you click “corporate news” from their home page and then you see a summary of the stocks being advertised. If you click through to the third page, you finally see an “advertising” logo, identifying the piece as pay for post content.
Since IBD seemed to feel that the stocks being advertised were “new and interesting investment opportunities”, I decided to take a closer look at some of the opportunities, that they were showing their readers. In order to find out how good these picks have turned out, I picked a semi-random sample of companies and took a look at the performance of their stock price, after the ads. Thanks to the magic of Archive.org, it was pretty easy to find the past advertisements, but tracking down the prices was a different story.
The methodology I used for my study was to take any stock under $100 million that was advertised in IBD’s “announcements” section of their “corporate news” service. I then found seven stocks that actually had historical prices and figured out what long term “INVESTORS” would have made, had they bought and held the stocks, at the time they were being advertised. For the stocks that I couldn’t find pricing on, I think it’s fair to call them a failure, but I’ll leave it up to my readers to decide, what they think those returns would have been, if investors had access to historical information.
You Can Get Better Odds In Vegas
On March 1st, 2005, Investor’s Business Daily ran “classifieds” for BSDM, IGTN (now IGTG), AHCKF, GMED and TNSX.
BSDM was a bio-tech play, the company’s seems to think that they have microwaves that can cure diseases. When IBD readers were being tempted to buy in, the stock was at .14 a share, today it closed at .055. A loss of 60%. I couldn’t get pricing on IGTN, but typically when a company changes their symbol, that’s not a good sign. Since being listed as IGTG, the company has gone from 0.15 to .0525, a loss of 65%. AHCKF was another stock that did not have historical information. Currently, the company is priced at .01 per share. After the ads ran in IBD, their auditor started raising questions about insider compensation and the company was issued a cease trade order by the British Columbia Securities Commission.
GMED, I was able to find pricing on. They trade on the pink sheets and on the day the ad ran, they opened at $0.083 per share, today they are at .01, a loss of 88%. TNSX is also a healthcare play, but they use software instead of microwaves. They closed at .14 on the day the ad ran and finished at .055 today, a loss of 60%.
In 2005, this section wasn’t called “corporate news” yet, it was called “investor newswire” and to be fair to IBD, it was listed under the advertising section on the main page. Sometime later, they changed the site and made it so that you have to click to the third page, before you know that you are reading an ad.
On 01/01/06, they ran ads for three companies that I could locate. TLPE, LNXGF and ANSW. TLPE is a “wireless telecommunications provider”. On the day the ad ran, the stock was at .27, today it’s worth .028, a loss of 89%. LNXGF was a mining play, but I’m not sure why they picked their name. Less tech savvy investors may have thought that there was a connection, but Linux Gold Corp. had nothing to do with Richard Stallman. They just look for mines. Things weren’t so golden though, after IBD’s ad. The stock has gone from .35 to .18, a loss of 48%.
Of all the microcap stocks that I found, ANSW has been the only one to actually finish in the black. Had you gotten in on their ad, you would have paid $11 and today it’s at $14.50, a positive return of 31%, albeit for a considerable amount of risk. Even though, ANSW has finished positive, it’s also been a very volatile ride. Earlier this month, Eric Savitz’s at Tech Trader Daily, wanted answers on why ANSW was seeing such wild trading, it wasn’t their fundamentals, it was advertisements. A few days after ANSW hit $12.50, WallSt.net announced a partnership with them and the stock took off. WallSt.net specializes in providing “promotional” help to small stocks in exchange for cash or shares. There were no details about any advertising relationship mentioned by Answer.com or WallSt.net, but over the next few weeks, Answer.com mysteriously saw it’s stock price run to $17.15, before crashing on heavy volume. Today it’s back at $12.54. Three days after the sell off, WallSt.net ran a second press release announcing the integration of their bookmarking tools into ANSW’s site.
On March 1st, 2006, IBD advertised “classifieds” for BGES, PTGC and a company named Plasticon International. BGES is another bio-tech play. On the day it was advertised, the price was $1.80 and today it’s at $1.00, a loss of 45%. PTGC was tougher to track down. I knew it’s starting price, but like many stocks that take severe nose dives, they changed their ticker symbol to reflect “a different direction” for their business. In this case they used PEYG. When companies do this, Yahoo! finance and other sites drop the past pricing and hit reset on the historical pricing. It puts the regular investor at a huge disadvantage because they don’t know the trading history on the stock. One way that the SEC could help to prevent these things, is to require that historical pricing be available, if a company wants to change symbols.
I did a little digging and luckily, I was able to track down the SEC document where they report a 5 for 1 reverse split. From there, I was able to figure out that on a split adjusted basis PEYG was at $1.95 on the day the ad ran and today it’s at $0.43, a loss of 78%.
Unfortunately, I could not get historical pricing on Plasticon, but of all the companies, it was by far my favorite. Their CEO should be writing a blog, instead of trying to replace steel with plastic. I would subscribe just for the entertainment value. One of ads featured the CEO wearing a superman suit, it was a hysterical read, even though I would never have invested in his company. It’s hard to believe that even cheesy copy ads seem to work. Unfortunately, for Plasticon though, they weren’t able to leap over creditors in a single bound and filed bankruptcy on May 25th of this year. Their stock is currently worth $0.0001 per share.
Had you gone out and invested $1,000, into just the seven companies that I could find pricing for, your $7,000 investment would now be worth $3,630. You would have taken a 49% loss from buying these stocks, that you saw advertised as a “corporate news” on IBD’s website.
Now I realize that my sample size is too small for this to be a scientific study, but I feel fairly confident, that if you take a closer at the other ads that have run, you will find a similar failure rate, among the businesses being advertised. Maybe I was naive for not knowing that the business press was selling out their readers for penny stock ad money, but I find it outrageous that these “respected” business tabloids run ads, that are very likely, hurting their readers financially.
To make matters worse, this problem appears to be more widespread than just Business Week, Forbes, IBD, & Smart Money. It also appears that Reuters runs ads for microcap companies too. Right now they are featuring an ad from a company, named “lil stock investors”. I took a closer look at the companies that they are advertising and sure enough, GrowthStockGuru’s hot stock pick is one of them.
The business press is very quick to get lathered up about the latest stock scam convictions, but they refuse to acknowledge the role that they are playing in some of these very promotions. When your ads can influence the price of a security, the media owes it to their readers to do their due diligence. When someone knows that a stock will fall, after an ad ends, it might just be insider trading. Why won’t Business Week and “Smart” money return my emails about their relationship with GrowthStockGuru? What is it that they are afraid of? There is clearly a conflict of interest here and if people don’t speak up, the press will bury this, because they have a financial stake in making sure that people don’t know about the cesspool advertisements.]]>
(Click on the links to see larger images of the slides: Cover, Avalon, Global Telcom Holding Ltd, Godels, Solomon, Barber & Co., International Tea Company, Technology Resources Inc., WES Consulting, Contracted Services, Inc, MCG Diversified Inc., Electro Energy, Ivecon, Diane Harrison, Randall Drake)
One of the problems with stock spam, is that it preys on the get rich quick mentality. Investors are encouraged to act right away and to take claims at face value. I’ve never been opposed to investing in high risk investments, but you can bet that I do my homework before I jump in. Unfortunately, too many investors don’t take the time to read the SEC filings, before making an investment and when the hype dies down, they get hurt.
Another problem with stock spam is that sometimes the companies being promoted, are as much a victim to the fraud, as investors are. Some microcap companies will even issue press releases warning investors that spamming is going on. Even though these companies temporarily benefit from the attention, for legitimate businesses, the volatility can create real problems in the long term execution of a business plan.
Because GrowthStockGuru was willing to pay bulk postage rates, just to get my attention, I wanted to take a closer look at the people behind Guangzhou Global Telecom (GZGT), just to make sure they weren’t a victim, in all of this. The deeper I dug, the more ugly things looked.
It All Started With $100
In order to better understand the prospects for GZGT to succeed, you need to look at the qualifications of the key players behind the business. Because the company was formed as part of a reverse merger, it’s important to look at the pieces that make up this puzzle before the company merged. Even though, GZGT is being promoted as a Chinese stock market play, a Florida real estate company named Avalon Development Enterprises played a more important role, in creating the company.
Avalon was first formed in 1999, after Charles Godels, invested $100 into the company and filed the appropriate paperwork. Shortly thereafter his wife, Marguerite Godels also purchased 100 shares for $100. Between Aug. 2004 and and Feb. 05, the company must have needed more capital because they had another underwriting where they sold 3 shares a piece at a $1 valuation and brought in 44 more investors.
On 12/5/05, the company did a forward stock split of 4500:1 and overnight, investors saw their 332 shares turn into 1,494,000. They also filed a registration, that would allow them to sell their shares at .50 cents a piece to other investors. At this valuation, it meant that on a split adjusted basis, their $1 share price was now closer to $2,250.
On 01/08/07, Charles P. Godels, Diane J. Harrison, Madanna Yovino, Michael T. Jones, and David E. Dunn all resigned from Avalon’s board of directors. At that time, Allen S. Greenberg officially took over as the company’s president. Two days later, they entered into their merger transaction.
In the footnotes of the 8k filing announcing the resignations, I noticed something about Mr. Greenberg’s biography that raises some interesting questions about where the money is going to.
“from 2005 until the present, Mr. Greenberg served as the Operations and Customer Service Manager for Global Administrative Provider in Costa Rica. In that capacity, he was the client service contact for all investment advisory firms, was responsible for setting up offshore investment structures for clients, oversaw all incoming and outgoing wires via international custodian banks, and oversaw all company invoicing.”
Avalon was supposed to be a local Florida Real Estate company and yet, they brought Mr Greenberg’s in, in order to set up offshore investment structures from Costa Rica? As a Chinese company, I can understand why there would be some need for this, but while doing my research I found several offshore accounts, that can be connected to different players behind Avalon Development. I also found an alarming amount of small shell companies, that are either currently trying to get listed or who have tried, but failed to go public. If GZGT really is a once in a lifetime opportunity, why have so many investors utilized accounts, that are beyond the immediate reach of the US Government?
Investors Cool To Hurricane Real Estate, China Gets Bubble Fever
Investor were tuning out Real Estate, so if Avalon wanted to make a splash they needed access to a hot sexy growth market that investors like right now. They decided on a Chinese phone card company and agreed to buy them out with stock. In order to get access to Global Telecom Holding Limited,(herein referred to as GTHL) Avalon issued 39,817,500 of restricted common stock, in exchange for 100% of the company. During the merger, the company also executed another forward split, this time at 8.75 – 1.
After completing the merger, they had 52,890,000 shares outstanding and could authorize up to 75,000,000. Based on Friday’s closing price of $1.95, this means that on a split adjusted basis, the original $1 per share investment is now worth $77,000 per share. Mr. Godels initial $100 investment is now worth $7.6 million or $15.2 million if you include his wife’s shares (assuming that he hasn’t sold anything along the way, of course ). Not a bad return, given that Avalon admits that Florida real estate wasn’t much of a business in their 10KSB filing.
There isn’t a lot of information about GTHL, in the SEC’s database, but we do know that GZGT’s CEO Yankuan Li was by and large the largest beneficiary of the acquisition. He ended up with about 12.3 million shares (about $23 million based on Friday’s close) When all the dust was settled, GTHL ended up with 51% of the company, but a lot of it was in restricted shares.
Investors Get Caught In PacificNet’s Tidal Wave
In Mr. Li’s bio, it’s disclosed that he worked at PacificNet (PACT) from 2004 until 2005. During that time, the company experienced unusually high trading volume and went from $2.50 a share to as high as $13, before crashing back down again to $7 per share. These gains occurred largely in late October of 2004. According to Bloomberg, Sept 04′ was the highest activity of insider buying, in PACT’s history. Currently, PACT is delinquent in their SEC filings due to back dating issues, which occurred during Mr. Li’s employment with the company. I do not believe that this will end up being a slap on the wrist, there was a lot of insider selling at the top. The company has claimed that they relied on the advice of their auditor, Clancy and Co., P.L.L.C., who has since been forced to withdraw their certifications from that time.
Three months before PACT saw their share price spike and than drop, the Public Company Accounting Oversight Board (PCAOB) performed an audit of Clancy and Co. During that Audit, they reviewed 6 of Clancy and Co’s 15 clients. I don’t know if PACT was one of those clients selected, but the PCAOB’s review did find 14 serious issues with their auditor, including “failure to properly perform procedures related to consideration of the possibility of material misstatement due to fraud.” None of this suggests, that Mr. Li was personally involved in any shenanigans, but it does raise some important questions about the corporate culture at his previous employer.
The Bankers, The Bean Counters And The Ambulance Chasers
In order to be able to underwrite stock to the public, there are a few key pieces you need in place. Mostly, bankers, attorneys and most importantly, the auditor. Information about GZGT’s banking relationships are scarce, but there is an SEC filing that references a company named Zenith Capital Management, who has agreed to buy 200,000 shares at a price of $2.50 per share. They only committed part of the money up front, which for me, would raise questions about Zenith’s credibility and their intentions to make good on these pledges, especially if GZGT falls apart, before it can get back to $2.50.
When Avalon did their 4500:1 forward stock split, Diane J. Harrison was the attorney who wrote the consenting legal opinion. Charles Godels audited the books himself, (under small business rules that allowed him to avoid an independent audit) and later on, the company brought in Randall N. Drake as their official auditor.
Mr Drake’s name shows up as the auditor in many of the companies mentioned in this article. In 2001, he audited the books of Mobile Area Networks Inc. (MANW.ob) Investors may have been hoping that MANW would make them rich, but it turned out to be a belly flop. After MANW went public, it briefly kissed $4.87 before it came crashing down to $1.00 over the next month. Today, the stock is at $0.10.
Of all of the characters in this bizarre story, Diane Harrison is the one that raises the most eyebrows. She is the attorney. She helped create Avalon. She has been involved, either as an investor or as legal council, in many different penny stocks that can be linked to Godels or his partners. On 10/27/06, the Secretary of Avalon resigned and Harrison was official brought in as the new Secretary and as a Director. Her role at GZGT is unclear, but two days before Avalon’s merger, she resigned from the board. In 1999, her husband, Michael J. Daniels, was convicted of securities fraud and spent 6 months under house arrest and 3 years on probation. He is now officially classified as a stock promoter under the SEC rules.
Daniels has had no direct affiliation with GZGT, but he can be connected to Godels through an auditing relationship with Godels, Solomon, Barber & Company, L.L.C. Before Avalon, Daniels tried to raise financing for a company called MCFTY National. The company was originally a mailbox etc. type business, but later tried to cash in on the vitamin water craze and changed their name to the International White Tea company. When Daniels and Harrison started the company, they also brought in Steven A. Sanders and Robert Bedore. Both Sanders and Bedore have also been classified as stock promoters by the SEC.
Over the last several years, Ms. Harrison has helped to set up several other companies with Godels and/or his partners. These include WES Consulting, Ivecon, Harcom Products, Technology Resources Inc. (herein referred to as TRI), and Contracted Services Inc.
What is interesting about all of these companies, is the number of related transactions between the different individuals involved. They would not only hire each other’s employees, but there was also money changing hands, between various companies. At one point, Godels CPA practice was a significant contributor to Avalon’s revenue. Even after studying the SEC documents on these companies, I still cannot sort out all of the different players involved. If you look at the shareholders, of these investments, there does appear to be another layer to this mystery, but for now, these players are beyond the scope of my discussion on GZGT’s business.
In trying to unravel this complex piece of financial engineering, it didn’t take me long to figure out that, everything always ends up coming back to the Godels. Whether it’s the high number of family members who were shareholders of Avalon, or tracing the cash from the different related transactions, the Godels’ family name keeps popping up. It’s as if they are trying to build a dynasty for the entire family. Interestingly enough, in the GrowthStockGuru newsletter, the anonymous author who wrote the report hints that a family may be behind GZGT’s marketing attempts, by using the name Aharon Bronfman.
The Bronfman family is a famous name on Wall St. In the 1920′s, they made their fortune selling bootleg liquor to the Northern United States. After prohibition ended, the Bronfman family distilleries were some of the most profitable in Canada. Later they would buy Segrams from the Segrams family and made a killing off the whiskey. The family’s history has always been checkered with allegations that their fortune was linked to the mob.
There is no way to know for sure, whether or not the Godels are connected to Mr. Bronfman’s marketing campaign, but the subtle undertones of the alias, raise suspicions that Mr. Bronfman might be working on behalf of a family that is willing to do whatever it takes, for them to build their own dynasty.
Electro Energy Shocks Investors
Given the level of sophistication involved, in this sort of transaction, it came as no surprise, when I learned, that this wasn’t the Godels first reverse merger. They got their first taste of the profits that could be made, when they first set up MCG Diversified Inc. The company was created by the same players who keep popping up again and again. Diane Harrison wrote the legal opinion on the common stock and Randall Drake provided the auditing.
MCG was supposed to be a human resources company. A lot of their revenue came directly from Avalon. Human resource companies seemed to be a common theme among the various public filings. On most of the filings they do not include information about partnerships, but it appears that some of the recruiting gong on, was just individuals shuffling from one company to another.
Marguerite Godels owned 50% of MCG and from the filings, you can sense that she was eager to cash out. Things were on track for MCG, but they almost ran into a disaster, when Mr. Drake made a mistake that almost scuttled their plans.
Somehow, he had managed to let his registration with the PCAOB lapse, but still filed audit reports for Technology Resources Inc. and for MCG, at that time. The PCAOB denied his application for a new license, after he agreed to a settlement, where he would be allowed to get his license back, in another year.
Frustrated, with their attempts to get listed on the bulletin boards, the Godels turned their sites to the white hot alternative energy market and in 2004, they executed a reverse merger with Electro Energy. (EEEI) In exchange for the access to income statements with real revenue, MCG was forced to take a 30% position, following the completion of the merger. Even at 30% though, they still realized obscene profits, considering how little they had actually contributed to MCG’s capital. When EEEI announced their change of auditors, they never mentioned that Mr. Drake’s license was no longer current.
After the reverse merger launched, stock promoters immediately jumped in. Had you invested at the first trading price, you would still be down 79%, but if you listened to the hype, you would have lost even more money faster. On 10/11/04 Stockwire issued a press release advertising EEEI’s stock. If you jumped in then, you’d be down 84%. On 11/04/04, Capital Investor Forum Growth, suggested that you look at the stock. Had you taken, their advice you would be down 90% right now. A year later, a firm that that continues to pop up on my radar, WallSt.Net issued a press release showcasing EEEI. Had you listened to WallSt.net’s analysis, you would be down 72%.
During this sharp run up, EEEI insiders took advantage and sold out. According to SEC form 4 filings, between 10/19/04 and 11/01/04, Assari Farhad sold a significant amount of stock and options. Given the question marks surrounding the promotional activities going on while he was selling, I thought that it was notable that his form 4 filing reporting the sales, was not filed until 12/04/04.
Perhaps, the strangest part of this whole story, isn’t that someone would want to sell inflated stock, it’s how Mr. Bronfman is going about generating the hype behind this bubble. Instead of the traditional email spam, they have been targeting investors by advertising in respected business magazines. On the Friday, that the Investor’s Business Daily ran their ad, their stock jumped very sharply before seeing heavy selling at the end of the day. IBD should be ashamed of themselves for not researching the company further. Their readers trust them to provide excellent financial advice and yet, they are willing to take money from a reverse merger penny stock, without hesitation. If IBD does not issue an apology, then they have lost all credibility in my book.
So far, the only mainstream media outlet to pick up on GZGT’s innovative marketing attempts, has been Kiplingers. When the company was first approached, they knew something didn’t look right and took steps to warn their readers. Unfortunately, other business publications seem to be more than willing to sellout. Business Week and Forbes have both agreed to run the ads, regardless of how questionable this might be ethically. I would encourage both publications to take a closer look at GZGT, instead of their advertising revenue, before putting the company in front of their readers.
Just because the bulletin boards are the wild west of the investing world, doesn’t mean you still can’t arm yourself with a six shooter. Six months ago, digging through these SEC files would have been much more difficult, but thankfully, the SEC has recently released a full text search feature on their website. It didn’t getting any buzz from the press, but by building the search tool, the SEC has turned over an exponential amount of data to the public. It is a powerful tool and an important development in making sure that the public has access to good data. There is a tremendous amount of information out there, but you need to read it, especially if you are acting on a tip, that someone paid money, in order to give you.
In Mr. Bronfman’s report on GZGT, he says that GZGT’s management has a tremendous track record, but when I look at the track records of the investors involved in them going public, I see a very different picture. Many of the companies that they have been involved with have turned into a pile of rubble, after the promotions die down and the stock has been diluted. If investors want to play with high risk investments, that is OK, but just remember to do your homework before jumping in.
Disclosures – I have no positions in any company listed in this article. To the best of my knowledge, no one that I have ever come into contact with has ever invested in or shorted, any company mentioned in this article.]]>
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.]]>
Last year, I signed up for Google’s personalized search program and after a year using the program, I’ve got to give it mixed results. This program has been a little bit controversial, because it allows Google to tie your search results to a unique profile.
Overall though, I don’t tend to worry too much about Google abusing this power and having access to filtered personalized search results, along with trend analysis on my queries, more than makes up for the small piece of my privacy that I have to give up.
In looking through my search stats, it wasn’t surprising to see TiVo and Netflix as my top two most requested results, but I was shocked to realize that I’ve searched Google over 22,000 times, in just the last year alone. The bulk of these searches were made during prime time television hours, which I found to be a little bit surprising. I’m not sure what it can tell me about my internet usage, but with 15,000 of my search queries coming during prime time hours, it highlights how much of an impact TiVo and the internet have had, on my television watching.
While Google’s personalization technology has largely improved my search experience, there is still quite a bit of room for improvement.
What I like about Google’s recommendations, is that it learns which sites I have a bias towards and will rerank my search results, according to my own personality. The downside to Google’s personalization program is that there is no way to tell Google, when they get a search woefully wrong.
The more powerful that Google has become, the more that people have tried to game the system. Whether it’s blackhat SEO tricks or coordinated Google bomb campaigns, it’s important to remember that Google’s results aren’t always unbiased. They can give a higher weighting to sites that you have already been to, but there is no way to tell them when a site is really search spam.
There are a lot of times that I am searching and an About.com article will pop up near the top. Now I know some people like the site, but I think About.com has to be one of the most worthless places on the net to find information. It is an ad factory that is highly dependent on Google for their profits. Google should give me a nuclear button that I can hit, that would permanetely ban About.com listings from any of my future search results. If enough users started banning a site, they could adjust their alogrithm to take into account the liklihood, that the result was really search spam.
Google’s About.com results are so bad, that someone actually took the time to write a Greasemonkey script, that will strip out the About.com results from Google, at the browser level. While this does offer me a way to remove About.com from my internet life, it’s really not a mass market solution and it doesn’t solve the countless other lame search results, that pollute what you’re really looking for.
I’m glad that Google is out there innovating and I see a lot of positive benefits to using their recommendation engine, but Google needs to do a better job of harnessing the power of their readers, to help make our search results even more relevant. Giving users the ability to blacklist a site from Google would be extreme, but with the SEO firms able to automate massive amounts of fake content, it is going to take the help of the masses, if Google wants to take control back.]]>
From the first moment it was introduced, TiVo has been feared by the ad guys. For consumers it’s dramatically improves the television experience, but for content owners TiVo and other DVRs have created new challenges for them to address. For decades, Hollywood has made a killing by selling 30 second spots, but as we move to an on demand society, this new paradigm has shifted the balance of power to the consumer and has forced mainstream media to think ahead. Those who can make this adjustment will be met with success, but the advertisers and content owners who refuse to change will be left behind.
Some content owners may view fast forwarding through programs as being equivalent to stealing from the content creators, but I don’t buy that line of rubbish at all. As much as they’d like to belive it, there is no social contract when it comes to television. Viewers aren’t required to sit through the commercials, they’ve just never had an easy way to opt out before.
Advertising may help to pay for the programming, but it’s the content itself that is competing for my attention, not the ad spots. If the content owners really don’t want their customers fast forwarding through their ads, then they need to make their content compelling enough that you are willing to watch all 30 minutes of a show, instead of just the 20 minutes that actually entertains us.
Fusing edgy advertising with good content is no easy task, but the ad agencies and content owners that can pull it off, will be the real winners when it comes to marketing to an on-demand customer. The content owners may wish that the technology companies would keep their paws off of their videos, but now that the power of time shifting has been turned over to the consumer, there is no turning back.
Some ad buyers have already begun to figure out the power of product placement, but it still amazes me that we haven’t seen a single show in the industry completely abandoned the 30 second spot just yet. The first TV show to run without a single 30 second ad is certain to get a lot of buzz, but unfortunately, for far too long, the status-quo has been plauged by it’s own inertia and it’s taken an influx of new ideas and technologies in order to force Hollywood to adapt.
I can’t really speak for everyone, but I know that at least in my case, product placement is an extremely effective advertising tool for a couple of reasons. When I bought my a car a year ago, it wasn’t the Super Bowl commercials that convinced me to buy my Thunderbird, it was smart ad placement in the 2002 season of 24 that made me fall in love with that car.
One of the reasons why product placement is such a powerful marketing tool is that it actually reaches 100% of your audience. While some aren’t as aggressive about cutting out clutter from their TV viewing, I’m a power ad skipper when it comes to my TiVo. I have very little tolerance for the commercials that programmers bombard at me, so if you want to get my attention, you need to embed your commericials in the actual shows, if you even want me to watch.
Perhaps more importantly then just reaching your audience, product placement is also an effective tactic psychologically because people associate the positive feelings they get from watching a good show with the brands that show up in the program.
A good example of how influential product placement can be, is to look at the most recent marketing campaigns for where you purchase your office supplies. In one corner you have Office Depot. They’ve been using a traditional 30 second spot to try and influence people into shopping at their store. Their commercial uses every annoying marketing gimmick out there. They’ve incorporated a jingle into the spot, to ensure that it will stick inside your brain for months, they purchased massive amounts of ad time on the same programs just in case someone may have missed it the first 50 times, and they’ve run the same commercial over and over and over again so that they can beat their message into potential customer’s heads, they even threw in a freaky looking mascot in a misguided attempt to help consumers better identify their brand.
This is the old paradigm, the way things have always been done. It requires no innovative marketing strategy or a rethinking of consumer demand. It represents a general malaise and lack of respect towards the new, more sophisticated time shifting consumer.
In the other corner you Staples. I’m not sure whether or not Staples still runs 30 second ads, but I can’t remember the last time I saw one of their 30 second spots. Instead, I actually look forward to seeing their ads once a week, when I’m watching one of my favorite shows, The Office. Each week they make their “commercial” different and fresh by integrating their products into the actual storyline of each show.
In the case of Office Depot, I don’t choose to watch their ad, they thrust it on me. Normally, it’s easy enough to tune this out, but because of their jingle, everytime this commercial runs, it’s impossible to ignore and my stress-o-meter starts heading through the roof. The first time I saw their creepy little mascot hand, I was ambivalent about the spot, but after watching the same ad fifty times, I now get an irrestible urge to start stabbing that freaky thing with a dull pair of scissors, everytime it airs.
While Staples hasn’t used any annoying jingles during The Office, because their content is already engaging, when their ads do show up, it not only creates an impression, but it’s a positive impression because I’m already enjoying the show and I know that the ad is directly supporting a show I know and love. This impression can later be reinforced in a variety of clever ways. For example, after the show where Dwight Schrute “quit” his job at Staples, the company actually went so far as to release a memo announcing that they weren’t very sorry to see Dwight leave their fine company.
This was really smart on Staples part because it not only extended their marketing campaign into other forms of media, but it also reinforced their sponsorship of the show. This in turn, helps viewers to later be on the lookout for the Staple ads embedded in the program.
Now compare this with how Office Depot has supported the marketing message that they are sending. Not only can you not find toys of their creepy hand mascot at their stores, but if you go on their website, they don’t even mention the hand. Given how much money they’ve spent trying to brand this image in people’s minds, you’d think that they’d support the marketing campaign by including it in other forms of media as well.
I’m not sure how much money Staples spent in order to get their ads embedded into The Office, but compared to Office Depot’s efforts, I have to believe that this has been money well spent. Office Depot may have been more successful at getting me to notice their ad and notice it more often, but Staples has actually won my heart by partnering with programs I care about, instead of mentally assaulting me with with programming that I don’t want to opt into.
At the end of the day, by using their annoying jingle to try and force me to pay attention, Office Depot has actually created hostile feelings in me when I think about their brand. Meanwhile, Staples advertising has not only made me laugh, but it actually makes me want to spend money at their company.
When all is said and done, it will be the Staples of the world, that end up succeeding in an on-demand environment, because they don’t hold you hostage for 30 minutes in exchange for 20 minutes of content, they make every single minute count. Some content owners may not be happy with consumers having control over their television viewing, but I’m excited that TiVo is forcing this transformation, because in the end, product placement will make everyone’s television better. It will help to ensure that our favorite shows continue to stay well funded, it will challenge advertisers to think more creativity when competing for your attention, and if it’s done right, it will make your programming more engaging and entertaining.]]>
After trying to hard sell him on a TiVo unit for over three weeks, I finally succeeded in convincing my friend to buy a DVR, but instead of going with the TiVo unit I recommended, he went with the ReplayTV 5000. I tried to talk him out of it, but no matter what I said he wouldn’t budge. I showed him the superior interface, I let him test drive my own unit, I tried pointing out that suggestions and wishlists were exclusive to TiVo, I even tried to scare him into believing that Replay would possible stop working, if the company went bankrupt. No matter how hard I tried though, I couldn’t convince him to choose TiVo over that ReplayTV 5000 unit because it had a feature no one could touch. Automatic commercial skipping.
When TiVo first launched, the movie studios completely freaked out over DVR technology. They understood early on, the impact time shifting would play on their revenues and went to great lengths to put a stop to it. Initially, TiVo wanted to partner with the studios, but instead the studios threatened to sue the company, if they even launched their product. Hollywood’s huffing and puffing turned out to be little more than hot air when it came to TiVo, but when ReplayTV had the nerve to introduce automatic commercial skipping, the studios knew they had to draw a line in the sand.
Immedietely they lashed out and sued Replay, in order to make them stop. Replay did their best to fend off their legal attack, but eventually their parent company collapsed and rather then let the courts decide the legality of the technology, Hollywood quickly settled the case and resigned themselves to having at least contained the DVR threat.
After Replay found out about automatic skipping the hard way, other companies have been understandably reluctant to provide the technology to their customers. For years, the only way to gain access to this skip technology was to buy old ReplayTV boxes off of Ebay, but thanks to the open source community, there now appears to be a way to unlock automatic commercial skip on any Media Center PC.
Turning on commercial skip isn’t for the mainstream consumer yet, but for those who do spend the time figuring it out, it can add a powerful component to the Media Center experience.
The program itself is customizable and pretty robust. If you are feeling guilty about “stealing” your television, it allows you to adjust the maximum number of minutes it cuts out of each program. You can also program it to strip out commercials and then tranfer those files to a media extender or Xbox.
As it becomes more popular, it will be interesting to see how the studios will react. Suing Replay or TiVo is one thing, but taking on a legal team that has already been up against the Justice department is another matter entirely. The studio’s could always forego the legal route and try to convince Microsoft to shut the leak with more juicy IPTV contracts, but sooner or later it will become an issue that they will want to address.
Hopefully, the studios will end up ignoring it as a fringe threat and let media center fans have their fun, but given how hard they fought round 1, I’m skeptical that we’ll always see skip technology around. For now though, with the help of the open source community, Microsoft has quietely gained a key differentiator in the crowded DVR market and consumers have one more way to enhance their television experience.]]>
While I think it’s pretty terrible that someone would release something that is going to cause so much trouble, I will say that the social engineering on the these holiday viruses is a lot smarter then many of the threats we see. Here you are minding your own business when all of a sudden you get an email from an old flame or someone already in your existing social network. Of course you’re going to be curious as to what it says, but by looking at it, you’ve now just sent it to all of the people in your address book and they are the next to be tempted by the bait. Given the number of email addresses that most people store in their address book, even if they got a minimal response rate, this thing was destined to take off pretty fast. Hopefully, the experts will have this contained pretty quickly, but in the meantime it’s much better to stick with physical Valentines anyway, they mean a lot more and don’t send emails to your ex-girlfriends.]]>
Advertising is a tricky business. Marketers know that people avoid commercials, but they still have to try and capture their attention. Over the years, they’ve had pretty much free reign to do whatever they want to consumers, but with the advent of DVRs, consumers have finally started to take back control of their television sets.
One of the more obnoxious techniques that marketing companies love to use is to jack up the volume on commercial spots and then start the ad off with a phone ringing or an alarm clock going off. Even if you’ve got your trigger finger on the fast foward button, it still can be tough to avoid and is very annoying. You’ll be sitting there enjoying a show at a comfortable volume level and then the next thing you know some snake oil salesman is trying to sell you a used car at a decible level loud enough to wake up the neighbors.
Luckily, Dolby has been working on a solution to this problem and whether marketing companies like it or not, they unveiled sound leveling technology at CES called Dolby Volume, that should help to shift control of the TV volume back into the hands of the consumer. In the past we’ve seen other tech companies try to launch their own solutions to this problem, but they’ve seen varying degrees of success. Between Dolby’s audio expertise and their relationships with the TV manufactuers though, Dolby is in a good position to solve this problem for consumers. Dolby Volume will not only level the sound experience between commercial breaks, but will also ensure a consistent sound experience when you change channels as well. While the technology isn’t scheduled to be included in TV sets until the end of the year, it’s still very cool to see technology continue to give control back to the consumer.]]>
1.) The best prize I ever won was a free Turkey. At the time I thought I would get a live one, but sadly my bird was frozen, yet still quite tasty.
2.) I once actually attended clown school
3.) The first time I served Jury Duty, I volunteered to be the foreman and we spent three days arguing over a fender bender before we hopelessly deadlocked.
4.) I used to have a pet goat. It would eat anything.
5.) At one time in my life, I worked as a butler.
Since Alex Raiano is itching to get tagged, I’ll tag him, Jose Alvear, Dale Dietrich, Jason Unger & Julio Ojeda-Zapata.]]>
At the same time, crime is easy. Anyone can steal, getting away with it’s the hard part and with the digital transition, it creates opportunities that many two bit theives want to cash in on even though they lack the skills to do this themselves. The problem is though, like any case where demand exceeds supply, there are only so many criminals who are willing to work in the cyberslums. As a result criminal enterprises have started paying for students to get technlogy degrees and have started recruiting kids who dabble in hacking into their gangs.
While I can understand the appeal of a rebel hacker gang to teenagers, this trend is really very frightening. Criminals aren’t the sort of people who make investments in human capital and then just let them walk away. If someone is going to blow $100K on an education, you have to expect that they’re going to want to make that money back, plus a lot of profit for the risks they are taking. With cyber crime having become even more sophisticated, these recruitment efforts are a natural way for these gangs to fill their need for quality tech people. With so many legitimate opportunities out there in life, it’s sad to think that people are trapping themselves in lives of crimes just so that they can spam the internet and run con jobs. Hopefully, this trend won’t turn out to be a long term development for the tech industry because there are already enough problems trying to stop the people who don’t know what their doing, let alone the ones who get training.]]>
When I pointed out the error in the company’s reporting, rather then making a public correction and admiting that they were wrong, they instead silently changed the story to remove the language that was in the original article.
Being interested in Netflix, I had registered with WallSt.net, in order to listen to the interview. Unfortunately, I quickly found the email address that I had used was overrun with penny stock spam. While I have no way of knowing whether or not WallSt.net was behind the spam, I did find it interesting to note that several of the companies that pay them to promote their stocks were included in these emails.
Regardless of whether or not WallSt.net was responsible for sending out the penny stock spam though, it’s clear that the company uses press releases as a tactic to tie legitimate companies to illiquid penny stocks that they have a financial interest in promoting. At the time of their first Netflix interview, they had issued a press release that appeared on the Netflix business wire, that included a mention of Teleplus Enterprises (TLPE.OB) in the headline. Since that date, Teleplus has lost over 52% of their value.
A few days later, WallSt.Net issued another press release on the Netflix business wire, promoting their Netflix interview yet again and this time referencing a company named Securac Corp. (SECU.OB) and China Mobility Solutions (CHMS.OB). Since that time Securac has lost 91% of their market value and China Mobility has lost 80%.
At the time, I had dismissed the interview as an honest mistake by Swasey and had assumed that Netflix would not have initially provided them with the interview, had they known about WallSt.net’s penny stock tactics beforehand. After seeing them abuse their coverage of their initial interview to tout these penny stocks, I had assumed that Netflix would cut off communication with their firm, yet earlier this week, I was suprised to find out that Steve Swasey has yet again, given another interview to WallSt.net and this morning, surprise surprise, WallSt.net issued another press release to the business newswires, reminding investors that they have an update on Checkpoint, Netflix and a company named Infinix Corp (INXR.PK). Infinix is a penny stock that trades on the pink sheets that has convienently agreed to pay WallSt.Net $3,150 for “media and advertising services.”
Now I don’t know anything about Infinix or their business model, but I do know that because they trade on the pink sheets, it which means that they are exempt from providing regulatory filings that legitimate public companies have to maintain. Investors don’t get quarterly financial reports, an accurate view of the number of shares outstanding, or any other important information that one needs to make informed decisions.
Why Netflix would allow their good corporate reputation to be sullied by these cheap carnival barkers is beyond me, but I find their continued support of the company to be truly disturbing. Considering, that after covering every single intimate detail about Netflix for nearly three years, that I can’t even get Netflix’s PR department to respond to a single email from me, I’m amazed that this site has been able to get not one, but two opportunities to muddy Netflix’s financial reputation. Had Netflix investors fallen for WallSt.net’s press release touting scheme last year, it would have cost them dearly and yet a year later, Steve Swasey is more then happy to publically discuss Netflix from a financial perspective on their site. Fool me once shame on me, fool me twice shame on Netflix.]]>
Whether it’s choosing a small club over a stadium concert or prefering a new restaurant over an old favorite, I’m the sort of person who will only bet on the underdog when I go to Las Vegas. It could be the demographic I’m in, it could be my natural affinity for innovation, or it may just be that I like having lots and lots of choices, but when it comes to choosing between the longtail or the short head, I’ll pick the longtail 95% of the time.
Given my natural bent towards longtail preferences, it came as no surprise, that when I needed to find new furniture for my place, I naturally turned towards the internet. This wasn’t my first move though, in fact I spent several Saturdays picking through local furniture stores, but everything I found was either generic or extremely expensive. It wasn’t until I turned to the net, that I realized I could not only save 50%, but that I could also increase my choices by expanding my search beyond the few local shops in my neighborhood, and into the thousands of local businesses across the entire US.
At first the choice was almost overwhelming, but finally I came across a store named Everything Furniture that seemed to have what I needed. Not only did they offer me a diverse and unique selection to choose from, but I found a number of positive reivews online as well.
While initially I had intended on writing a glowing review on the company by using them as an example of the benefits of living in the longtail, unfortunately my experience didn’t allow me to score this transaction as a victory for my longtail lifestyle. Yes, they delivered the furniture and yes it was much less expensive then purchasing furniture using a more traditional route, but there were several obstacles I had to overcome along the way.
The first was actually receiving the furniture itself. The delivery took longer then expected and while I didn’t mind waiting, I was disappointed when the shipping firm that they outsourced my order to, tried to extort me when it did arrive. Basically, my shipper flat out refused to move any of my furniture beyond the front door of my apartment building, despite there being an oversized elevator designed for just such a delivery.
When I protested that he he was leaving me with a lot of cargo and without any means of getting it to my apartment, I was told that for $20 (wink wink nudge nudge) he’d bend the “insurance” rules and bring the cargo to my front door. While I wouldn’t have minded paying an extra $20 for shipping, I did mind that this was never disclosed upfront and that the shipper was willing to break the rules as long as I slipped him a Lincoln. When I refused he left me to transport several large boxes on my own, without the proper equipment.
Once I managed to drag the boxes into my apartment, I quickly discovered that one of the pieces had been damaged during the shipping. I contacted Everything Furniture and they agreed to ship out a replacement piece, but it meant I had to wait another 2 – 3 weeks before completing my purchase.
While these issues were minor obstacles for me to deal with, the one that made me never want to do business with Everything Furniture again, was what happened after I completed my purchase. Shortly after receiving my furniture, I began to receive, at least, 2 catalogs a day from countless mail order companies. Over the last month, I’ve called 2 dozen companies and have asked to be taken off of their mailing lists, yet everyday I seem to get another catalog from a different company, which necessitates another telephone call on top of a 90 day waiting period, before they actually stop sending me anything. While I understand that Everything Furniture needs to turn a profit, they never asked my permission to sell my name and address to a catalog spam list and receiving junk mail is something that I’m particularly sensitive to.
We have laws against unsolicited phone calls, rules pertaining to spam and prohibitions against junk faxes, yet there is little that I can do to prevent being bombarded with one Christmas catalog after another.
I’ve never purchased anything from a catalog in my life and I don’t intend to start now. By quickly glancing over many of these mailings, I can tell that the prices are outrageous and that they are wasting their postage by sending them to me. While the discount on the furniture was nice, I would have picked another company to do business with, in a heartbeat, had I known that the cost of my purchase would be death by mail.
My experience isn’t likely to change my outlook on the longtail, but it does serve as a good warning on the dangers of living in the longtail. With many choices comes many risks and while I may have been smart enough to make sure that I wasn’t going to be ripped off by Everything Furniture, I never thought to research their business practices before placing my order. While the abundance of choice can be a good thing, something can also be said for sticking with brands that have established reputations as being good corporate citizens. Everything Furniture may have fulfilled their contractual obligation with me, but the experience now serves as an important reminder to be more careful when doing business with companies I’ve never heard of.]]>
The only thing more controversial then the ads that the studios make you watch when you buy a DVD are the ads that movie theaters force on you when you go see a film. The advertisments that you can opt out of, or skip past don’t bother me quite as much, but I can’t tell you how many times I’ve rented a movie and have then been forced to sit through some lousy spot that I have no interest in.
It would be one thing if the DVD was free, but when I’m paying hard earned cash for premium content, it’s just not right double dip into adverstising as well.
The HD-DVD and Blu-ray has been celebrated for their higher disc capacity, but if the studios plan on filling up that capacity with a bunch of spammy ads, it’s going to give consumers one more reason to take a pass on the technology. The strategy for HDTV DVDs has been a failure from the start and if the HD-DVD and Blu-ray camps can’t figure a way out of their stalemate, they risk being made largely irrelvent by video on demand. With the Xbox 360 now offering HDTV downloads, it is only a matter of time before we see VOD technology more broadly adopted.
It’s already a tough sell to get someone to pay up the big bucks for access to HDTV DVD technology, but if they are now going to including ads, after early adopters have shelled out $1,000 for what could possibly be obsolete technology, you can bet that there will be a backlash. Hopefully, the studios will realize that they need to do something fast because everyday that delays the implementation of HDTV DVD technology is one less day that the studios will be able to justify charging $15 – $20 for a movie.]]>
I hope that Movieland gets buried by this lawsuit. If what is being alleged is true, they deserve to have an example made out of them. I understand that it’s tempting to use slime ball tactics to make money, but with so many opportunities out there, it’s really not necessary to try and scam people in order to make a living. Pop ups are bad enough, but to tell people that they owe money for a free trial is even worse.]]>