Saturday, October 10, 2009

Sponge Bob Stock Scam

You would think that a company with a brand as valuable as the delightfully goofy Sponge Bob Square Pants would be argus-eyed when it came to protecting the integrity of their brand.

If they decided to license the image to, say, a pump-and-dump stock scam run by career criminals you might expect them to do minimal due diligence on the licensee, particularly if they were alerted several times by a pesky blogger of their lapse in judgment.

If you thought that of Viacom you would, of course, be dead wrong.

Spongetech, a criminal enterprise disguised as a penny-stock, has made much of their license to produce and market Sponge Bob children's bath sponges pre-filled with soap, so much in fact that they went to the trouble of lying about the product's inclusion in the special WalMart 10th anniversary Sponge Bob product display. Since WalMart does not carry SpongeTech products, the product was a no-show.

Bath and carwash sponges are not the only sponge fixation of Sponge Tech President Steven Moscowitz. He also owns Vanity Events, which featured in a now-scrubbed website, sponges pre-loaded with male desensitizing creme, and a variety of other sexual aids, not products normally associated with the Nickelodean demographic.

The long and short of it is that Viacom allowed its Sponge Bob brand to play a starring role in a sleazy penny stock promotion that by any reasonable estimate sold over $200 million in worthless shares to the investing public. Spongetech is now suspended from trading, is under investigation for fraud by the Securities and Exchange Commission, and faces a class action shareholder lawsuit alleging theft by deception.

But I guess as long as the licensing fees and royalties are paid on time, that isn't Viacom's problem. Call it the Mr. Crab approach to money.

Monday, October 5, 2009

The Sound of One Hand Clapping

Spongetech (OTCBB SPNGE) today was handed a ten day trading suspension by the SEC, effectively ending one of the more elaborate and successful OTC pump and dump scams in recent history. Last week the company announced that had been notified by the SEC of the opening of a formal investigation, which almost always leads to SEC litigation being filed.

Both of these are good things, so why is only one hand clapping?

This is why: the SEC was notified in mid May of complaints from the Transfer Agent, Old Monmouth, and from former SPNG attorney Joel Pensley, both referencing Spongetech's widespread use of forged, and in some cases totally fabricated opinion letters allowing their (unregistered) shares to be free trading. When we obtained the documents in question, including a transfer agent report that documented SPNG's consistent public lies about their outstanding share count, we also sent a query to the SEC, using slightly more temperate language than is our habit.

Since the SEC was originally contacted, over two billion new unregistered shares have been issued and sold to the investing public, such sales being abetted by Company fabricated claims of sales and earnings, and a veritable army of paid (and undisclosed) stock promoters. At a conservative $0.10 per share price assumption, that represents $200 million stolen from the public based on documented forgery, counterfeiting, and lies that the SEC was informed about months ago. Since there were several promotion backed runs of the share price to over $0.20, the total theft may be far higher.

Our favorite message board IHub played a major role in the promotion scam. Despite IHub's head, Matt Brown being criminally indicted on multiple felonies related to stock fraud and money laundering, IHub followed their standard pattern of assigning paid promoters to "moderate" the message board and to prevent negative information from getting to the rapidly developing cult who came to believe that they had found the key to instant wealth.

The notable head board censor went by the name Soapy Bubbles. In addition to providing censorship services he also filled the intertubes with private messages and e-mails touting the stock and claiming insider information.

Our friend soapy was a paid shill, and touted the stock in blatant violation of SEC disclosure requirements.IHub and parent UK based ADVFN as usual can neither hear nor see evil when it comes to the use of their service to violate the law and rape the naifs who fall for these scams.

We suspect that the SEC was prodded a bit by a services of NY Post articles by reporter Kaja Whitehouse that further documented SPNG's forgery and financial fraud. Add on stories by Roddy Boyd, and Greenberg of may have also helped. Even David Patch, normally the most wild-eyed of the Naked Short wing-nuts took up the cause of exposing this egregious fraud.

So one hand clapping is what the SEC gets. A trade suspension is one of the most powerful weapon in the SEC's arsenal that can be used against penny stock scams, and is used far to rarely. A more aggressive SEC stance could stop most pump and dump promotions-which are painfully easy to spot-dead in their tracks and banish the stocks to the illiquid wilderness of the Gray Market. The agency had sufficient evidence for a suspension in their hands since mid May, five months and two hundred million investor dollars ago.

One hopes the magnitude of this scam crosses the threshold for DOJ involvement and criminal prosecution. One also hopes that just for kicks the agency will broaden the investigation to include promoters, IHub and its censorious board moderators/shills, and the complacent new Transfer Agent.

The SEC didn't drop this ball, but they sure took too long to pick it up.