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 thestreet.com 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.

2 comments:

Tajitj said...

Congrats on calling this a while back. I am not holder, just followed a little since it rocketed from .04 and up. Thought it was a great story of small company making it, oh well. I will say the fillings will not lie, and when they don't show, tells alot.

trendz49 said...

Yes or no do you believe that the company spongetech delivery systems will be able to file their 10k by tomorrow the 16th of october 2009 which is the deadline?

Please answer at the following poll.
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http://www.squidoo.com/stockmarket_investor_sentiment