“We’re in an industry that has high valuations.”
How stock market jockeys could be this stupid has boggled our minds for years. One thing we know: it doesn’t matter as long as stocks soar.
But when a stock suddenly dies, after having dutifully contributed to Ben Bernanke’s “Wealth Effect” miracle, the occasional regulator might step in and tell these folks: “How could you?!” And this is what happened today.
The SEC announced that it “temporarily suspended trading in the securities of NERO,” the ticker symbol for NeuroMama, whose shares are traded over-the-counter in the Wild West of US stocks, where just about anything goes, even more so than normally.
The outfit had no sales in 2012 and 2013, the last two years for which it filed “financial statements” – in quotes because there’s practically nothing financial in them. Maybe a mailbox company.
And yet, amazingly for rational minds, its shares traded well above zero in 2014. Last year, they jumped into double-digit territory. And over the past few months, they spiked to $56.25 a share, giving the company a market capitalization of $35.4 billion.
This is a lot of fictitious moolah idling in people’s idea of their own wealth. They’ll get to enjoy it until August 26, when the trading halt may be lifted, and when the brutalized short-sellers are finally going to have a field day.
The company does have a fancy website. It lists, for example, under the “1st Reason to Invest” in it, a lot of blah-blah-blah about how it was a “search engine on all-in-one internet platform,” followed by similar blah-blah-blah, including this gem: “The highlight on all-in-one internet platform is NeuroZone a clone of Amazon and EBAY.”
Then there’s the “2nd Reason To Invest: Capital Acquisition,” followed by even more daring blah-blah-blah that starts this way:
NeuroMama has Service and Financing agreement with Global Media and Internet Company, which guarantees $20 million dollars in financing to execute NeuroMama business plan over the next 16 month.
You’d have to be functionally illiterate not to get what this is. It just takes a glance!
Now, after so much money has been extracted from these hapless stock jockeys’ pockets, the SEC offers this laundry list of issues:
- Accuracy and adequacy of information in the marketplace about, among other things, the identity of the persons in control of the company’s operations and management;
- False statements to company shareholders and/or potential investors that the company has an application pending for listing on the NASDAQ Stock Market;
- And potentially manipulative transactions in the company’s stock.
Intrigued, Bloomberg got on the phone with Steven Zubkis, “the marketer behind NeuroMama, according to the company’s website.”
“We’re in an industry that has high valuations,” he told Bloomberg, citing the company’s social network and oceanfront property. Yup. The perfect explanation, heard so many times on Wall Street.
He “also goes by Steven Schwartzbard,” and according to Bloomberg has a fascinating history:
He left prison in August 2010 after being sentenced for five years for defrauding investors, in a $1.8 million scheme through misrepresentations tied to the renovation of a Las Vegas casino. The Ukrainian immigrant was sued by the SEC in the 1990s for orchestrating a $12 million penny stock scam. He was ordered to pay more than $21.6 million in disgorgement and penalties for selling unregistered securities from 1993 to 1996.
So how can an outfit like this hype its shares to enough gullible stock jockeys to reach a market cap of $35 billion?
It’s easy. It happens all the time. Some companies are like NeuroMama that the SEC eventually catches on to. Other companies have legitimate products and sales, and they’re working hard but lose a ton of money, operating on the paradigm that the more they sell, the more they can lose, despite rich government subsidies. Yet their shares and market cap reach levels that are so irrational that you can’t even have a rational discussion about them because rationality no longer applies, while the biggest banks on Wall Street promote them ruthlessly in order to extract maximum fees. Tesla comes to mind.
Even the broader stock market has moved into the gray area beyond rationality, ruled by hype and “adjusted” earnings and monkeyed accountings, financial engineering, and feverish hopes for central-bank market manipulation. Everyone loves a rigged market, as long as it’s rigged the right way. We’ve come to call it, “consensual hallucination.”
When something like NeuroMama blows up, or when a former darling goes bankrupt and destroys its equity investors, or when entire markets crash, it only hurts those fools that weren’t able to get out in time. As a lot of this fictitious moolah that forms people’s idea of their own wealth goes up in smoke, Wall Street goes on, already working on the next spike in one stock or another, and preferably a “melt-up” of the entire market, which makes life a lot easier because you don’t have to pick the next winners in this sea of fantasy numbers.
The same principles apply in real estate. But unlike stocks, real estate is connected to the real economy, and there are limits as to how far it can go. Read… The Pooh-Poohed Doom-and-Gloom Scenario for Miami’s Condo Bubble and its Lenders Has Arrived
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Some people can’t get rich for a very good reason: they are beyond stupid.
Most investors simply don’t know the meaning of due diligence…and 95%+ cannot read a financial statement. Investors like this are simply willing victims. If you don’t understand or won’t do both of the above, YOU SHOULD ONLY INVEST IN INDEX MUTUAL FUNDS.
You can’t cure stupid.
due diligence has no bearing on this current market. just buy everything LOL
Underneath this article is a pop-up ad for 3 simple toe nail fungus removal cures…
Now that sounds like one hot investment I could dive into…
No more. Out. Gone.
Largest portfolio item was Hormel Foods Corp (HRL)
Moved in September 2008 @ $9.07
Reduced 50% in September 2013 @ $21.06
Closed out on May 01, 2016 @ $34.41
Now on the sidelines in metals and cash.
This market has become absolutely insane.
There are no familiar parameters left. Valuations are a guess.
Too much fiction and non-GAAP day dreams in any financials.
Now I truly am “Out Looking In”!
You could buy contra stocks. Large producing gold miners. Precious metals are good but they ricochet up and down a lot depending on the wims of various bodies like the Fed. Solid producers are often hedged like my favourite Evolution Mining (ASX:EVN) at A$1700/ounce.
“Tesla comes to mind.” I loved that line. I started seriously looking at economics after 2006. I have watched Tesla grow on nothing. He’s building a gigafactory and I’ve seen nothing about how long he can supply it on a negative cash flow. Some of his raw materials come from overseas and they want hard cash.
Tesla burns a lot of cash at dizzying speed. When it runs out, which it does regularly, it goes to investors and asks for more (secondary stock offerings, convertible debt offerings, etc.), and gets it, many billions over time, with Goldman usually the lead underwriter. As long as investors are willing to fund these losses, Tesla will go on burning cash.
Wolf, when I read about this conveyer belt of offerings, out-of-money, offerings and the buying of such stocks, especially by the likes of the Swiss National Bank regarding Tesla. Other central banks are loading up on corporate stock and bonds too…it this not a backdoor ‘nationalization’? I can’t buy the idea that it is a real investment even if these banks are run by morons.
I read of the Bank of Japan owning a major position in 81 of the top 100 Japanese Companies, and a majority stock position in 51 of the 81 and the buying is not stopping. The notion that these ‘central banks’ are not a shadow of their government’s seem like fantasy to me, in which case the companies are being nationalized. How long before the quasi-government sits on the boards, directly or indirectly…or becomes the entire board?
Educate me.
Japan is in a desperate position and the new guy Kuroda forced the BOJ to buy stocks. after it had bought up all the gov bonds
The state pension fund has also been forced into the market.
Given the terrible demographics, this puts at risk the actual survival of elderly Japanese.
…….just like their over-rated ‘crash n burn’ wheels…….
The whole game is rigged, including gold. However gold cannot be created, only golden paper derivatives can.
When the market crashes, gold surely will shine.
That is a law of nature.
Try eating gold.
For the record: Gold today is $1,353, down 28% from the Sep 2011 peak of $1,875. This does not include the effect of 5 years of inflation between 2011 and now…
Funny, that’s not what happened during the last market crash?
Is it too late to start a Ponzi Scheme for this cycle? From what I read it is a sound business plan.
This is the age where one can declare anything on the web, have it repeated, and it becomes a fact….presto. Mainstream media then touts it and the best bet…calling CNBC, hello.
Just imagine what the Bank of Japan and the ECB are buying. Bet you might even find this stock in there box of dirty socks, underwear and CDSs.
meme—-used condoms according to mk
“STUPID”???????????
Why is the author trying to obfuscate the Truth?
Fed/CB largesse via NIRP and “securities” underwriting thru “dark pools of fiat liquidity” will continue to rig the market until . . . CB rejection simply from the fact that they “hold/captured” EVERYTHING. A major plunge in equities will set off margin calls and derivative defaults the likes that will make 07-08 look like a hiccup. Will it spell – at least – the beginning of the end for CB control?
No.
It just means the end of wealth. How could you possibly think massive failure would in any way impact CB bureaucratic power and employment?
The “end of wealth” for whom – the 99.9999%?
I doubt you are one of that residual 0.0001%.
If so, how do you feel about that?
Will you survive on such “intellectual understanding”?
CB . . . . ’employment’ ” – WTF ?????????????
The only thing CB’s “employ” is FRAUD by fiat dictat!
The operative word for “massive failure” is civil breakdown/WAR!
Granted, if the PTB’s have the capability/power to take down the internet, then a global corporate technocratic feudal nightmare may ensue – for a time.
Is that what you really think/want?
this reminds me of china last year. when the media questioned the small investors, the market went up what 50%+ in year. i have a feeling the same thing is beginning. investors from around the world driving the money they got from japan euro bond stock purchases chinese money fleeing central bank buying so people need to spend and invest their proceeds. maybe we should start advertising the stocks we own so get them to hit the stratosphere. lol
I learned my lesson dabbling in Biotechs 10-15 years ago. I even made some money as the sector took off. The problem was the management would dilute your ass if they got a favorable clinical trial result but even an FDA approval was no guarantee they would make money. Dendreon comes to mind where, based on a phase 3 trial of 36 patients, they showed a 3.5 month longer survival time over conventional treatment of prostate cancer. Problem was they wanted $90,000 plus for the treatment.
These small tech companies will, if they have any real promise, be bought out by the titans of the industry not peddle their stock OTC.
Could rapid moves in a stock price trick equity trading algorithms into just automatically investing in it? I wonder how much real company background information goes into the trades of such algorithms and how much actually could.
“despite rich government subsidies.” There ya go, there’s no question who chooses winners and losers.
How about a law that once at OTC company reaches say a billion or two- it must be accepted by an exchange or cease selling stock?
Why do that?
Why not just require reasonable but more rigorous standards from the OTC (example: OTC traded companies do not have to have audited financials.)?
Yea, you hear of some pretty funny stuff happening on the OTC, but just being on the NYSE is not the gold standard. Couple recent examples: Herbalife, Valiant, Enron
I agree that being on the NYSE is not the gold standard- I’m looking for ANY standard. This piece of junk with its absurd name run by a con operating under a false name could only get to this fantastic valuation in a zero regulation market. (When the guy got 5 years- wasn’t he barred from acting as an officer of a corporation?)
I also am enough of a true believer in the next- new- thing that I think there is a role for an almost unregulated market with minimal overheads but not at anywhere this scale. I don’t know much about US securities law but in Canada a start-up can have up to a hundred ground level investors without a prospectus. And there are bunch of conditions about their relationship to the principal.
The SEC seems to have bolted the barn door a week after the horse stole the owner’s identity, sold the farm and got on a plane.
Jeesus- how many 30+ billion outfits are there on this OTC?
The algorithms may be the Achilles heel. Just an example from my little corner of the world. I’m in Houston and I reload going to northern Virginia. The computer has me routed through Baton Rouge in fact fueling just across the river (the truckstop could be underwater as far as I know. So I decide to just sidestep the issue and run up US59 to Shreveport and across I-20. 6 of one a half dozen of the other. My lead dispatcher has a snit because I’m not running through an area under a state of emergency. The computer says. Meanwhile I’m flashing back to the ’93 floods.
I took an interest in penny stock trading after being outraged by Chris Faulkner of Breitling Energy. He appeared on CNBC and Fox as an expert on the oil and gas industry. He took his company public by a reverse merger with a corporation with no assets and lots of debt. What is interesting is that his shenanigans unfolded in an unusually public way. Other than that, BECC was just another penny stock with no net assets and certainly no profits. Market value reached almost $500 million, but during the life of the public company, only 44 million shares were traded at an average price of approximately 29 cents (calculated by closing price, so that might be a little off). Only $13 million dollars was spent on BECC stock and the amount lost on the stock could be much less than that–not every trader lost all his money. Also, the SEC alleges that Chris Faulkner surreptitiously traded with himself to “mark the close.” Those trades would have lost little money. One wonders if the $500 million market value had any meaning since any significant trade moved the market.
So the moral of the story is that there are thousands of worthless companies traded by hundreds of thousands, if not millions of people with no reason to pay one price or another in companies where there is no evidence of much more than a paper existence. This is faith-based trading and is beyond the realm of “stupid” or “smart.” This trading is not likely to stop any more than lotteries are going to lose participants.
Wolf, was it like this in the summer of 1929?
I don’t know. I wasn’t around at the time. My reference points go to 2007, 1999, and 1987. That’s three huge financial upheavals in two decades.