“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.