Wednesday, December 22, 2010

The Fraudulent Small-Cap Universe

Getting second opinions on small-cap stocks in which you are interested isn't easy to do. There is no analyst coverage, and few people following most of the small-caps out there. To that end, I wrote a post a few months ago describing Agoracom as a potentially useful resource for small-cap investors. That turned out to be a mistake.

While the post in question mentioned that Agoracom's "business model derives revenue not from advertising, but from the small cap companies themselves", and that as a result, "it is unlikely you will find much in the way of negative information (about a stock)", the post severely underestimated the extent to which Agoracom was willing to go to push the stocks of its clients.

As it turns out, Agoracom was going way overboard. The Ontario Securities and Exchange Commission alleges that Agoracom's stock message board was mostly full of pump messages from its own employees. Apparently, some employees were required to post at least two messages per day or have their pay docked. These employees wrote messages under more than 670 fake profiles.

It gets worse. Apparently, the company's VP Operations was also monitoring private messages between real posters on the message board, in order to glean information about companies in which he was personally invested.

The bottom-line for small-cap investors is that there isn't a whole lot out there you can trust, including suggestions you get on this site! You have no choice but to be skeptical about anything you read, (especially on anonymous forums!) and to do your own research. In the alternative, you will get taken for a ride.

4 comments:

Parker Bohn said...

Saj has once again proven the truth of two famous quotes.

"Risk comes from not knowing what you’re doing." - Warren Buffett

"There's a sucker born every minute" - PT Barnum

The internet (including this site) is a great source of ideas, but if you buy a security based on someone else's analysis or credibility, you have no one but yourself to blame if you don't like the results.

Anonymous said...

A message of this sort is probably a few years overdue. Pumping in the small-cap universe goes back a long, long time, and the internet has just been a steroid for it.

I think you're well-positioned (more so than most) to compile a list of "most probably scam" stocks. It slaps you in the face with companies like CCTR, NWMT, etc., and there are other very shady companies out there - see NWD, ORS, TBYH, or any other Chinese "cell phone" manufacturer.

Paul said...

Saj,

It shows your character when you can bring up old mistakes and admit to them when no one is looking. I'll admit I forgot about that post and most likely wouldn't have remembered. It may sound weird, but I consider you a friend (in a totally nonstalker way, mind you!) and I appreciate you sharing your findings. Thank you! :)

Saj Karsan said...

Thanks guys!

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