Tuesday, April 13, 2010

Avoiding Stock Market Scams

We have discussed a couple of companies on this site that don't trade on the major exchanges (e.g. the NYSE, the Nasdaq etc). Though it has been mentioned that over-the-counter stocks do not offer investors the same protections as do stocks trading on the exchanges, the details were not explored. However, there are some "smell tests" investors may wish to apply to such apparent opportunities.

Consider NewMarket Technology (NWMT), a company that provides a range of technology-based services. The company has total assets of $53 million, and has net current assets of $12 million. However, the company trades for just a couple of hundred thousand dollars! For a company with $100 million in sales, how can this be?

It is possible that the company is not a scam at all, but just a victim of poor management. The company has issued several rounds of preferred shares, which are convertible to common stock. The conversion rates are extremely dilutive, resulting in the issuance of millions of shares that flood the market with this company's stock. Investors who believe this company to be legit should beware of further stock issuances, as convertible preferred stock remains outstanding.

But upon further investigation, there may be more to this story than the idea that this is simply an undervalued stock undergoing a flurry of dilution. While the company claims to have "over 600 employees" and its "target markets are located domestically in all 50 states", it is very difficult to pinpoint from where the company runs its operations. It's impossible to reach anyone by phone at the company's headquarters, as calls to the company's two provided numbers repeatedly went unanswered! E-mail and phone requests to the company's investor relation's department were also ignored.

Public companies are required to have independent auditors, which provide some form of comfort to investors. But this company has gone through several auditors in the past few years, each of which appears to have little in the way of name recognition but much in the way of legal issues. The auditor of the company's 2008 financial statements is now barred from practice, as per these findings of the SEC. The newest auditor is a two-person, husband and wife tandem who appear to operate out of their own home, for this a $100 million, international company!

But while it may be impossible to speak with any of the company's employees, the company doesn't hesitate to publish schools of positive press releases to pump the company's stock, including this laughable video, put together by a really professional outfit:



It's important that it be re-iterated that it's not clear that NewMarket is a scam. But it's never clear whether a company is acting fraudulently. Investors in companies that trade over-the-counter must take special steps to ensure the investment is legitimate, since the added layer of protection added by the major exchanges is absent. Since the #1 principle of value investing is "Never Lose Money", companies that don't pass these basic tests should be discarded.

Disclosure: None

8 comments:

tscott said...

Ha Great Post! I loved the video too (the buzz words, the terrible green screen and the high five!)

Akwon said...

Can't you just report them to the SEC or the exchange office, and short them? I heard there is actual groups and firms that do that. They find companies that aren't following regulation so they report them while shorting. Also heard it was 100% legal too.

Anonymous said...

Phil Verges, the CEO of this company, is certainly an unethical sleazebag. Whether he's a criminal scam artist, that's for a court to decide. His m.o. seems to be to tout the stock with public press releases, while secretly diluting and selling stock in the background. He's been doing it for 8 years, covering his tracks by changing the company's name.

Anonymous said...

I have been a shareholder for 5 years and the entire time I listen to promise after promise of dividends that never came true, unfulfilled promises of receiving stock in Philip Verges' other shell compaines, unfulfilled promises of increased share price.

Then, out of nowhere Philip Verges said the shareholders had to be more savvy and sell when the stock achieved a "milestone."

I now realize that NewMarket Technology Inc., is not what I thought it was and Philip Verges does not fit the image of a U.S. Military Academly graduate we think of.

For those that feel the same please file as I have done with the SEC.

Here is the website: https://denebleo.sec.gov/tcr/add.action?...

Anonymous said...

here are some interesting facts that should be cited in your complaint to with the SEC: http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_C/threadview?m=ts&bn=80550&tid=37490&mid=37490&tof=16&frt=1

Anonymous said...

While I consider myself to be a Christian, this man Philip Verges has so blatantly stolen from innocent investors and the SEC has so blatantly turned their head that I would consider doing something unchristian to him in the idea of seeking justice. This man should die a horrible death.

Anonymous said...

Even I, a small investor from the Netherlands, lost all of my reserves to this man (I bought Intercell shares on advice from a friend who also lost a lot. We lost tens of thousands of euros). How do we reach justice, from our place here? I'm sure this guy had partners in crime in Germany who have profited as well, because he arranged just too much press releases in Germany.

Anonymous said...

In 2007, Newmarket Technologies (NWMT) bought Silicon Aquarius and its 23 patents held in a shell company, S. Aqua Semiconductor LLC.

On Aug 12, 2015, 460 patents from at least 94 anonymous shell companies were reassigned to S. Aqua Semiconductor LLC. All of these shell companies were created in late 2006 to early 2008.

Some of these patents are very lucrative. For example, in 2009, the shell company "Mount Hamilton Partners, LLC" sued Google, Groupon, and OpenTable for patent infringement, and the case was settled for an undisclosed amount (Mount Hamilton Partners, LLC assigned to PRIAXESS SOFTWARE, LLC, which assigned to S. Aqua Semiconductor LLC). I have not looked into litigation of the other portfolios, and there's no way to determine how much licensing revenue is being generated by these patents.

Mr. Verges' mistake was in consolidating all these portfolios into the S. Aqua Semiconductor shell company, which is linked back to NewMarket. This property rightfully belongs to the shareholders of NewMarket but had been hidden from shareholders and regulators until now.

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