The "National Inflation Association" (NIA) is an ethically-questionable stock promotion newsletter that has now caused millions of dollars in investor losses with their recent promotions BVSN and SYNC. The NIA is run by Jonathan Lebed, an SEC-convicted stock manipulator who first came to prominence back in early 2001, when he was found guilty of artificially manipulating thinly-traded penny stocks by posting false news on message boards. This was just the beginning of Lebed's long career in stock manipulation, and well over a decade later he is still as active as ever in misrepresenting stocks and causing his followers to lose money on speculative investments.
Lebed's latest score is Synacor Inc (NASDAQ:SYNC), which was first profiled by NIA on May 2nd 2012. The stock traded an impressive 3.62 million shares that day and closed over $10. The day before that it had traded less than half a million shares, so it's easy to respect the buying power that the NIA newsletter can bring in. In the two or three months since the NIA first profiled SYNC, the stock usually traded over ten million dollars worth of volume each day, which I regard as very impressive. And while SYNC did not do quite as well as BVSN (the past promotion from NIA), it did hit highs of around $18 in July, before coming all the way back down and then some. At the time of this article, SYNC is trading at just $5.12, roughly half the price when it was first profiled by NIA.
It's true that there was plenty of money to be made trading SYNC as a result of NIA's promotional activities, and many intelligent traders did make money (either by going long at the beginning of the promotion, or shorting around the highs) - but the sad fact is that the losses from less-than-intelligent investors who held and hoped have been horrendous. On my stock analysis request form, I've had numerous enquires about SYNC, including from one NIA-subscriber who had lost over $60,000 by buying over $10, then blindly holding into Q3 earnings for no reason other than "I've lost too much on this stock and can't afford to sell." These cases are not uncommon. Given the volume and buying that took place in SYNC at its highs, there have to be more than a few horror stories. And the National Inflation Association newsletter is still going at it, trying to pump up SYNC and bring in buyers with an increasing air of desperation.
It's been over 6 months since NIA sent its first email hyping up SYNC, and it's been ridiculous how many emails NIA have sent in total promoting this stock. In my Gmail inbox, which subscribes to the NIA newsletter, I have 367 emails from the NIA encouraging me to buy SYNC (plus 40 more which landed in the spam filter). That is a total of over four hundred SYNC promotional emails that the NIA has sent me since early May. Indeed, every minor piece of news that SYNC comes out with results in a plethora of hype-filled emails from the NIA urging its followers to buy. Those who suffered losses on SYNC ought to have asked themselves, why is the NIA pushing this stock so heavily? Is their only motive to make me money by recommending this great stock? Or are they trying to line their own pockets? In the finance industry, there is always an ulterior motive, and indeed the primary goal of the NIA newsletter is to make money for itself and not necessarily its subscribers.
How Does The National Inflation Association (NIA) Make Money?
While most stock promotion newsletters take cash payment to promote stocks, it seems that the NIA makes most of its money by buying large positions in the stocks it promotes, and then selling those shares into its subscribers after spiking the price up. This is the same kind of thing that Lebed was doing 13 years ago, but on a larger scale. I believe it's very possible that the NIA is also being paid by major shareholders of the stocks it promotes, although we can't be sure.
In the case of BVSN (NIA's prior pump to SYNC), which went up well over 400% from when the NIA first profiled it, I believe the NIA made millions (or at least was up millions at some point) by buying a huge amount of shares in BVSN before the promotion and then selling after the stock had been artificially pumped up. There is big money involved here. NIA easily generates millions of dollars a day in volume to the stocks it promotes, and if they can take a large position in a stock and spike it up a whole lot, they can sell and net serious profits. Again, given Lebed's history of deception, it wouldn't surprise me if there was more to it than that (i.e. money under the table that isn't disclosed) but for now I'll just assume that NIA's primary business model is buying positions in stocks and hyping them up to its subscribers.
While BVSN was a huge win for the NIA, it seems that SYNC was a complete and utter disaster for them. I believe the NIA has lost nearly $2,000,000 on this stock. If they had sold their entire position around the highs of $18, they would have made a lot of money, but they didn't. Instead the NIA held on to its SYNC shares all the way down to its current price of below $5. That's what their disclaimers across the 400+ SYNC emails reveal, and by law those must be factual. NIA has had a large position in SYNC ever since they first started promoting it and they still do have a very large position. If the NIA's disclaimers are to believed, NIA originally had a 350,000 share position in SYNC on the day it first promoted it (May 2nd), which they had purchased at an average price of $8.53. Later the NIA added to this position, owning a maximum of 497,799 shares, and now they own 486,035 shares. According to their disclaimers the NIA has held 486,035 shares of SYNC since August 26th.
If the NIA still has this huge 486,035 share position in SYNC, and the stock has downtrended heavily (both in price and volume), it's hardly surprising that they are desperately trying to pump this stock back up again. At this stage I believe the NIA would resort to any means necessary to make some of their money back. Whether or not they believe SYNC really is as great a company as they say it is, is irrelevant. Unfortunately for the NIA, it's clear that their efforts are yielding diminishing returns, as the majority of their subscribers have presumably already been bombarded with SYNC promotional emails and are no longer receptive. But they have certainly done an enormous amount of promotional work on SYNC and are probably going to continue for some time.
FACT: The NIA Has Misrepresented SYNC, And Will Continue To Do So
Even after learning of Lebed's dark history of stock manipulation, and of the fact that the NIA has a 486,035 share position in SYNC and is thus heavily motivated to try to spike the stock up, there are people who will deny that the NIA has lied or manipulated SYNC. A truly great, undervalued stock does not slowly downtrend from around $18 to less than $5 in the space of a few months. There are only two possibilities: either the NIA was dead-wrong about SYNC, or they were lying the whole time. The NIA has come up with a number of excuses for SYNC's lackluster performance, including "illegal" short sellers (the standard pathetic excuse from promoters), the share lock-up expiration (where NIA claimed that certain venture capital funds in SYNC would sell after August 13th in order to raise capital, and that this had an unnatural bearish influence on the stock), lack of awareness among prolific investors and so on. None of these explanations are even close to convincing. SYNC stock has done badly for a simple reason, and that is that the company is not performing well.
SYNC released their Q3 results on October 24th, and since then the stock dropped a further 35% before its slight rebound on Wednesday. Why? Because SYNC's profits have been declining, with the company reporting Q3 net income of just $0.02/share (down from $0.07/share in 2011). Those interested in discovering SYNC's fair valuation can research the matter themselves, but there are a number of problems the company faces that the NIA never mentions, such as the fact that SYNC derives the majority of its revenue from a very small customer base, and that with the move to smartphones SYNC's revenue is taking a serious hit. Refer to the following links:
The focus of this article is not whether or not SYNC is currently fairly valued around $5. It's quite possible that SYNC will rebound now that it has fallen so much, or it could continue dropping. The important thing to understand is that the NIA has grossly misrepresented the health of SYNC stock to its substantial subscriber base, and caused some horrible investor losses as a result.
How The NIA Builds Its Subscriber Base
How is the NIA able to bring in so much volume to stocks like SYNC? I cannot know all the ways in which the NIA has built up their subscriber base (although I'm very curious), but it seems that much of their traffic comes from the videos that they upload to their NIA YouTube channel. NIA links to their website and encourages visitors to signup in the description box for all their YouTube videos, many of which have a large number of views. In the popular video "National Inflation Association co-founder admits NIA is a FRAUD" (worth watching in its entirety), an ex-NIA associate estimates that the NIA spends around $30,000 to $40,000 per video on YouTube advertising, on top of production costs. I've also noticed text advertisements on YouTube for NIA's website, inflation.us, although I would think the number of subscribers brought in from these ads is relatively minor. Currently, NIA's YouTube channel has over 42,000 subscribers, and their videos have millions of views in total. I can only make wild guesses as to how many newsletter subscribers the NIA has.
The NIA builds credibility for itself by producing professional thought provoking documentaries and branding itself as a political-commentary newsletter, and the majority of NIA-subscribers who enter their email and join the newsletter surely do not suspect that it's actually being primarily run by an SEC-convicted stock manipulator. I very much doubt the NIA is really interested in influencing political ideology or helping Americans "prepare for inflation". It is my belief that the newsletter exists only to pump up stocks, which they do very well.
What's In Store For The NIA and SYNC?
It looks like the NIA is going to continue promoting SYNC for some time, as if the 400+ emails already sent have not already been sufficient. After that, assuming the newsletter keeps running, the NIA will probably come out with a new stock promotion sometime, which will very likely crash at some point just like all of Lebed's past stock promotions. A lot of money will be made from those who understand how the game works, and a lot of money will be lost. As the popular saying from PT Barnum goes, "there's a sucker born every minute." Don't be a sucker. Understand that the NIA is only trying to make money for themselves, and don't hold their picks long term. It's my hope that by writing this article I can help at least a few people save their money and not get taken in by these schemes.
If you have any questions about this article or anything else, feel free to contact me.