This blog has reached the end of its life. I have decided to re-brand myself and you can find me blogging at GoodeTrades.com(which also has all my posts and comments from this blog and my ReaperTrades.com blog). I have a new Twitter too, GoodeTrades, and a new Profit.ly user account: MichaelGoode.

This blog and my ReaperTrades.com blog will remain up but there will be no new posts.

In the Matter of : MaxLife Fund Corp. :

ORDER OF SUSPENSION OF TRADING
File No. 500-1

It appears to the Securities and Exchange Commission that there is a lack of current and
accurate information concerning the securities of MaxLife Fund Corp. (“MaxLife”) because of
questions that have arisen concerning representations made by MaxLife, the control of its stock,
its market price, and trading in the stock. MaxLife trades on the OTCQB Market operated by the
OTC Markets Group Inc. under the symbol MXFD.

The Commission is of the opinion that the public interest and the protection of investors
require a suspension of trading in the securities of the company listed above.

Therefore, it is ordered, pursuant to Section 12(k) of the Securities Exchange Act of
1934, that trading in the securities of the company listed above is suspended for the period from
9:30 a.m. EDT, April 8, 2011, through 11:59 p.m. EDT, on April 21, 2011.

By the Commission.

Elizabeth M. Murphy
Secretary

Disclosure: No positions. I lost a lot of money short-selling MXFD back in 2008. See my terms of use.

A former enforcement attorney for the Securities and Exchange Commission was sentenced Friday to eight years in prison for his role in a a series of multimillion dollar pump-and-dump stock fraud schemes.Dallas-based attorney Phillip Offill Jr., 51, was convicted by a jury earlier this year on 10 counts of wire fraud and conspiracy. He testified that he was acting within the law, but the jury rejected his defense, and so too did U.S. District Judge Liam O’Grady.

“Your testimony … was an affront to justice,” O’Grady told Offill at Friday’s sentencing hearing. “It was one of the biggest pack of lies I’ve ever heard.”

Disclosure: No positions or relations with those mentioned.

The U.S. Securities & Exchange Commission sued a New York lawyer on Monday for allegedly writing bogus opinion letters to help stock promoters improperly procure unrestricted stock certificates in three unregistered “penny” stock offerings.The lawsuit, filed in U.S. District Court in Manhattan on Monday, alleges that Stephen Czarnik, a partner at Cohen and Czarnik LLP, assisted three stock promoters in the abuse of a rule that allows accredited investors to acquire unrestricted shares from transfer agents in unregistered securities offerings that don’t exceed $1 million.

The SEC said Czarnik continues to serve as a “one-man ‘opinion-mill’ for unregistered penny stock offerings.” The regulator said Czarnik has authored at least 111 opinion letters for unregistered stock offerings, involving the transfer of more than 2.5 billion shares to penny stock promoters by 43 issuers.

Disclosure: No positions in any stocks mentioned and no relation to anyone mentioned. I have a terms of use.

sued Summit Advisory Partners, LLC and its managing partner, Robert Feeback, for directing and providing essential services in a scheme to “pump and dump” the stock of various penny stock companies in Texas. According to the complaint, the actions of Feeback and Summit allowed three stock promoters – Ryan Reynolds, Jason Wynn and Carlton Fleming – to purchase millions of shares of stock for pennies per share, hype the companies through promotional mailers and other advertising, and illicitly sell their shares to the public for millions of dollars in profits. The Commission alleges that because the shares were not registered, public investors were deprived of full and fair disclosures necessary to make an informed decision to purchase the stock.

The pump and dumps mentioned in the complaint are “My Vintage Baby, Inc., Alchemy Creative, Inc. and Beverage Creations, Inc.” I suggest reading the SEC’s full legal complaint (pdf). The best part of the complain is the SEC’s description of how the pump & dump allegedly worked:

In each of the MVBY, Alchemy, and BCI offerings, the Promoters applied the same basic “pump and dump” formula. The Promoters (a) organized a reverse merger of the company into a public shell, (b) purchased large blocks of common stock at pennies a share from the Issuer in a purported Rule 504 offering (in an effort to evade registration requirements and obtain a large percentage of the company’s stock without investing much of their own cash), (c) created initial trading volume for the stock by selling some of their shares to a tightly controlled group of friends, family, and affiliated brokers, (d) touted the company to the public through spam, television advertising, and mass mailers, and then (e) dumped their shares on the investing public without registration at prices grossly inflated by their promotion activity.

Furthermore, the SEC complain alleges that

The Promoters also touted the Issuers through a penny stock promotion website, www.thestockpic.com, then run by Ryan Reynolds’s sister. In addition, the Promoters helped create a flurry of press releases for each Issuer to release during the first few weeks of public trading.

The pump & dumps worked and the stock prices of all three stocks pumped soared:

BCI’s stock price more than doubled, from an intraday low of $.55 per share on January 30 to its February 21 close at $1.25 per share. Likewise, in the first five weeks of trading, Alchemy’s stock price soared almost 75%, from an intraday low of $1.90 per share on December 5, 2007 to an intraday high of $3.32 per share on January 11, 2008. My Vintage Baby’s stock price experienced even greater gains over its first five weeks of trading, rising from an intraday low of $.40 per share to an intraday high of $2.88 per share.

The scheme was also allegedly highly profitable:

“Fueled by the pump, the Promoters sold their purported 504 shares to the investing public for a total profit of over $20 million.

Disclosure: No positions in any stocks mentioned and no relation to anyone mentioned. I have a terms of use.

A potentially controlling 46% of the shares belong to Itamar (Eddy) Cohen of Concord, Ont. He also owns four-year-old investor relations firm Maxwell Network Group, whose Web site proclaims, “We will work to quickly and dramatically increase your stock’s marketability and liquidity.” Not always with lasting results: Shares of recent clients Royal Spring Water and Red Rock Pictures Holdings have fallen 97% off their 2007 peaks. Cohen, 46, tells FORBES he’s not promoting MaxLife and “This is not a pump and dump.”

Cohen canceled his shares in August of 2009, which would support his earlier assertion that MaxLife wasn’t a pump & dump. But Maxlife is also not a real company (it has had no consistent revenues and remains in the ‘development stage’), despite having had two years since I started watching it to develop a real business. During that time the company has seen its book value fall to $284,411 (as of the most recent 10-Q) from $557,473 (as of the January 2008 10-QSB) and its accumulated deficit has increased from $29,616 to $1,697,564. It had actual revenues for only one or two quarters and the company’s total gross profit since inception in 2006 is $26,750 (on the sale of one life settlement policy).

Maybe Maxlife Fund Corp will become a real company with real revenues. Maybe not. But no matter what, this company is a great illustration of how there are many shell companies and barely functioning companies with no revenues trading on the OTC BB exchange. While there are plenty of outright scams and barely-legal pump & dumps, ‘investors’ in the poorly functioning or shell companies can do just as poorly. Considering Maxlife Fund Corp’s continuing insane valuation (over $100m) investors in the company will likely suffer no matter what happens to the company.

Disclosure: No positions. This blog has a terms of use.

Investools agreed to a civil injunction and to pay a $3 million civil penalty. Drew and Miller agreed, respectively, to pay civil penalties of $380,000 and $130,000, and to be enjoined from violating the antifraud provisions of the federal securities laws. Drew and Miller additionally agreed to be enjoined, for five years, from receiving compensation for their participation in, among other related activities, the sale of classes, workshops, or seminars given to actual or prospective securities investors concerning securities trading. In settling the matter, Investools, Drew and Miller neither admitted nor denied the allegations in the Commission’s complaint.

Perhaps the funniest part is that while the Investools salesmen claimed they were great traders, they were allegedly poor traders who lost money.

The Commission’s complaint alleges that from 2004 to approximately June 2007 at Investools how-to-trade-securities workshops former Investools employees Drew and Miller misleadingly portrayed themselves as expert investors who made their living trading securities. They did so to mislead investors into believing that they too would make extraordinary profits trading securities if they purchased expensive Investools instructional courses and other products and followed Investools’ securities trading strategies. The complaint further alleges that in reality, neither Drew nor Miller made the trading profits they claimed. For example, in 2005 and 2006, while Drew was portraying himself as a successful investor, he had hundreds of thousands of dollars in net trading losses. In 2006 and 2007, while Miller was portraying himself as a successful investor, he had tens of thousands of dollars in net trading losses.

The SEC also states in the release that the investigation of Investools is ongoing.

Investools Ad

What is the moral of the story? Don’t trust anyone. If someone says they are a good trader and have a good trading system, ask for verification. If their results are audited, check out the auditor.

Disclosure: I have no positions and I have no connection to anyone involved. I have a disclosure policy.

Here are some excerpts from the SEC’s litigation release:

The SEC alleges that Home Solutions of America, Inc. recorded millions of dollars in bogus revenue and issued a series of materially false press releases boasting robust financial results following Katrina and other weather-related disasters, thus inflating the company’s stock price. The stock price later plummeted after large insider stock sales, the filing of private securities lawsuits alleging fraud, and the company’s public announcement that it would restate its financial statements. Home Solutions then-CEO Frank Fradella, who is among seven individuals charged by the SEC in the scheme, dumped approximately $6.8 million worth of stock into the inflated market.

The SEC further alleges that Marshall engaged in a separate revenue-inflation scheme at Fireline, booking more than $9 million of fake construction revenue from undisclosed, related-party contracts with entities that Marshall controlled. In fact, at the time Fireline caused Home Solutions to record the revenue, very little work had been performed on the projects and most remained bare-dirt lots.

Unlike most SEC complaints, just about every executive at HSOA was named, and four of the lesser executives have already consented to the SEC’s findings, without acknowledging guilt of course

Four others charged today by the SEC simultaneously agreed to settle on the following terms, without admitting or denying the allegations in the complaint.

• Former Home Solutions CFO and COO Rick O’Brien agreed to pay a $130,000 penalty.
• Former Fireline controller Stephen Gingrich agreed to pay a $25,000 penalty and to an administrative order barring him from practicing before the Commission as an accountant for at least three years.
• Former Fireline COO Thomas Davis agreed to pay a $25,000 penalty and to pay disgorgement and interest of $32,850.
• In addition, O’Brien, Gingrich and Davis each consented to final judgments permanently enjoining them from violating Sections 17(a)(2) and (3) of the Securities Act and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.
• Finally, Jeff Craft, a business partner of Marshall, consented to a final judgment permanently enjoining him from violating Rule 13b2-2 under the Exchange Act.

So it turns out that once again the short seller was right, the executives were (allegedly) crooked, and the SEC was slow.

Disclosure: I have no positions and I have no connection to anyone involved besides reading Left’s blog.

IndexIQ, a pioneer in the area of hedge fund and inflation hedge ETFs, is preparing to launch another fund, the IQ ARB Merger Arbitrage ETF. The fund is scheduled to begin trading later this month under the clever ticker MNA. The proposed ETF will track the IQ ARB Merger Arbitrage Index, a strategy that involves investing in global companies for which there has been a public announcement of a takeover. The index also includes short exposure to global equities as a partial equity market hedge.

Read more here.

Disclosure: No positions.