Not all Paid-for Research is Created Equal


New York – Paid-for Research on Penny Stocks: “A Violent Torpedo of Truth”, or “A Rock Star from Mars”.  Recent developments in the inglorious world of penny stock promotion have led to at least one CFA, Margaret Lisa Springer, being expelled from the CFA Institute. At issue, a corner of the paid-for research market that has a propensity to transform research reports into stock promotion vehicles or even pump and dump schemes.  Springer worked as an analyst at Beacon Equity Research.

David Baines, a reporter for the Vancouver Sun, broke the story. As memory serves, Mr. Baines has written extensively on stock manipulation schemes and Beacon Equity Research in the past. In fact, after reviewing the history of these articles, one might think that Mr. Baines had it in for Beacon Equity Research.

Beacon Equity Research is headquartered in Tyler Texas, so why is the Vancouver Sun writing on these schemes? Primarily it is because of the terrible historic track record of the Vancouver Stock Exchange (VSE) in promoting small Canadian mining companies that have subsequently failed or been found to be fraudulent. In the 1990s, the VSE was combined with the Alberta Stock Exchange under the name of Canadian Venture Exchange, but the reputation and the shenanigans continue.

One of the more interesting cases is detailed in the article; “A classic example is Mitro-Pharm Corp., which purported to sell beverages and nutritional supplements. In July of 2009, the SEC filed a complaint in a Seattle court alleging that Vancouver promoter Pak Peter Cheung …orchestrated a pump and dump scheme in which they secretly unloaded $1.0 million of shares”. Marketing materials showed products in bottles that had not been developed yet.

Another case was that of Kranti Resources Inc. that ran out of money. With $53 in the bank, the directors stepped down and were replaced by a Japanese clothing retailer and marketer Mitsuo Kojima. Kojima announced that the company would purchase a Hong Kong-based company called Horiyoshi the Third Ltd., which manufactures and distributes clothing based on the artwork of tattoo artist Yoshihito Nakan-Horiyoshi III.  A subsequent stock promotion scheme lifted the stock from 5 cents to $3.14. The stock traded at $1.74 at the time the article was written.

In the compliance-laden environment of today, it seems strange that penny stock promotion continues unabashed.  Of course, fraud will always exist and is difficult to prevent. But the larger concern is that the entire paid-for research model, while not specifically targeted by regulators, could come under scrutiny. Those paid-for shops that work diligently to produce reasoned research reports may need to develop more robust compliance policies, procedures and practices to avoid being lumped in with less rigorous providers.



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