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By Janice Shell and Melissa Davis

When the U.S. Securities and Exchange Commission recently suspended trading in 17 dubious microcap companies, the agency spared one notorious player – Jammin Java (OTCQB:JAMN) – that easily ranks among the most overhyped penny stocks of the entire year.

Fueled by an aggressive promotional campaign, far more powerful than those lifting the stocks actually included on the SEC hit list, JAMN exploded from 17 cents to $6.35 a share before losing more than half of its value after we began raising serious questions about the company. Within days, JAMN quickly shed $250 million worth of its market value, as cold reality sobered up giddy investors previously drunk on overblown hype.

“They may be called ‘penny stocks,’” the SEC observed when announcing its recent crackdown, “but victims of microcap fraud can suffer devastating losses.”

While the SEC excluded JAMN from its net, focusing on older favorites of penny-stock promoters instead, the agency cited many concerns that look quite relevant to JAMN itself. Like most of the stocks caught in that SEC halt, JAMN clearly surged on paid promotions – recording huge gains in both its trading volume and its share price – since the company’s dismal operational results, including barely $1,000 in annual sales, could hardly inspire even a meager rally in the shares. Moreover, like the promotions that boosted those other penny stocks, the JAMN campaign has relied on shadowy figures hiding behind mysterious websites and financed by obscure “third-party” outfits to set the company’s stock on fire. As covered in more detail below, the JAMN campaign also bears striking similarities to another aggressive promotion – touting shares of Big Bear Mining (OTC:BGBR) – that has already ended horribly for gullible investors.

Once valued at nearly $150 million, BGBR (another stock absent from the SEC list) has seen its market capitalization dwindle to just $6.4 million over the course of just one short year. We warned investors away from BGBR right after it peaked, sparing those who listened considerable pain, and has since sounded loud alarms about JAMN – while exposing critical links between the junior miner and the coffee company – as well.

JAMN promoters, so far ignored by regulators and only temporarily hampered by website administrators that interrupted their aggressive campaign, kept on boldly touting the company’s stock even after those damaging reports. Thanks to that lasting push, JAMN managed to stage yet another breathless rally – more than doubling in recent weeks from roughly $1 to $2.50 a share – before the fledgling coffee company awakened investors from their intoxicating dreams once again.

Late Wednesday, JAMN disclosed that its outside auditing firm – which had just signed off on its disturbing (and overdue) financial statements the previous month – had decided to sever its ties to the company. LBB & Associates actually resigned as JAMN’s auditor almost a full week earlier, filings show, but the company waited until it had retained a tarnished replacement – with its hyperactive stock jumping more than 50% in the meantime – before reporting that material event. Near the end of that 8-K filing, almost as an afterthought, JAMN also officially acknowledged that a regulatory agency up north (the British Columbia Securities Commission) had enacted a cease-trade order for the company’s shares.

By then, we were already taking another hard look at JAMN and the forces that had driven such radical upswings in the company’s stock. This time, we uncovered even more red flags and further parallels between the powerful JAMN and BGBR campaigns.

Imaginary Friends

The JAMN promotion began slowly in late December, records show, with the stock barely trading on the ghostly “Grey Market,” by promising a hot stock tip (for weeks and then months) before finally introducing the company by name. The campaign hit its peak in May, ignited by frequent ads on Yahoo Finance, and appeared to involve multiple promoters – including one identified as “John Bell,” who promised the tip and starred in the ads, and another as “Marc Lautner” – with the same wildly bullish JAMN story to share. Bell and Lautner sounded almost like parrots, in fact, essentially delivering identical messages employing the same cryptic style (with very short sentences and hard carriage returns) that almost looked like a stab at stock-picking “poetry” on the page.

The promotional websites operated by Bell and Lautner mysteriously vanished, taking their bullish JAMN touts along with them, just before we released our first investigative report on the company. However, the second site – known as “The Lautner Letter” – soon reappeared, with Bell and Lautner later merging together in spam emails to seemingly become one and the same.

Late last month, much to our surprise, we fielded one of those unsolicited emails itself. Bell appears as the official sender of that bullish JAMN message, even though Lautner identifies himself in both the captivating subject line – “Who the HELL is Marc Lautner?” – and the actual email as the celebrated author of that tout. Bell not only reveals himself as the supplier of that email, signed above by “Your Pal, Marc Lautner,” but he also goes a step further by adding a specific address (3368 Mount Tabor in Elmsford, N.Y.) that looked almost authentic until Internet research exposed it as an outright fake.

Succumbing to the same clumsy habit, records indicate, both Bell and Lautner have fabricated other addresses when touting JAMN on their websites as well. They have also disclosed payments from a mysterious “third-party shareholder” that seemed to surface out of nowhere just to finance their promotional campaigns.

About a year ago, BGBR briefly rocketed on an aggressive publicity campaign employing many of the same tricks later used in the high-powered JAMN promotion. Back then, a promoter identifying himself as “Michael Cohen” built up mounting anticipation by repeatedly promising – and delaying – a great stock pick before finally announcing BGBR as his imminent homerun. Cohen originally touted BGBR on a website known as “DoublingStocks,” which began directing visitors to a second site called “Day Trading Robot” after its own content suddenly disappeared. While the second site featured a BGBR tout penned under a different name, “Jason Kelly,” the co-inventor of the so-called robot that purportedly discovered BGBR had previously been identified in an official press release as none other than Cohen himself.

Like JAMN, records suggest, BGBR was touted by the same promoter using different names, fabricated addresses and mysterious funding sources that remain hidden behind the curtains of obscure (and potentially bogus) firms to this day.

The promotions share other traits as well. Both published bullish touts in the same distinct style, favoring the short sentences and hard carriage returns normally associated with poetry, and even used identical words and phrases to boot. Bell urged readers to “whitelist” his email address, a unique jargon term for excluding senders from email filters, just as Cohen had done the previous year. The pair also delivered the same bold promise: If their chosen stock (JAMN for Bell, BGBR for Cohen) failed to triple in price in the coming weeks, they vowed, then they would officially call it quits and “retire as a stock picker.”

Meanwhile, long before JAMN replaced BGBR as a promised winner, we had already linked the two companies together. More than a year ago, we uncovered a notorious player – this one with a real name and a real address – connected to JAMN and BGBR alike.

Shane Whittle, a short-tempered Vancouver stock promoter, abruptly resigned from his executive and boardroom posts at JAMN right after we connected him to BGBR in our detailed coverage of that company. Whittle never showed up in official filings for BGBR, the primary focus of that old story, but his Vancouver address did. That location, identified as Whittle’s address in earlier filings for other companies, later surfaced as the address for the top executive of BGBR (a former barroom bouncer) as well.

Even so, when contacted by us (and separately by The Vancouver Sun), Whittle angrily denied any ties to BGBR and followed up with curse-laced threats before quickly hanging up the phone. More recently, Whittle claimed that he had reported us to the SEC: a move that, if true, could potentially generate some welcome scrutiny from the same regulatory agency that just halted more than a dozen heavily promoted penny stocks in its fresh crackdown on microcap fraud.

Shadowy Deals

The SEC specifically cited concerns about dubious financing deals when suspending trade in some of those suspicious stocks.

Like those companies, records show, both JAMN and BGBR have reported curious funding arrangements – with several of the same features -- as well. Last December, with its stock barely trading on the illiquid Grey Market, JAMN inked a financing deal with an obscure firm that the company described as a United Kingdom outfit at the time. Under the terms of that arrangement, JAMN could raise up to $2.5 million by selling “Straight Path Capital” big blocks of its stock at 40 cents a share. The deal officially lasted for one year, filings indicate, but could be extended for another year – or canceled at any time – at the request of either party involved.

Months later, filings indicate, JAMN had generated a paltry $120,000 by selling 300,000 shares of company stock – soon worth more than $1 million on the open market – to Straight Path through that financing deal. On May 5, with JAMN breaking past the $3 mark and set to double from there in a week, JAMN followed up by quietly agreeing to sell Straight Path another 5.95 million shares (with the option to make it an even 6 million) at that same cut-rate price.

We exposed a glaring problem with that deal a couple of weeks later. According to Companies House, which officially registers companies located in the UK, Straight Path Capital does not exist.

Shortly after that, when JAMN finally filed its overdue annual report, the company redefined Straight Path as an outfit located in the Marshall Islands instead. We initially found no registrations for Straight Path there, either – despite searches for the firm as a corporation, a partnership and a limited liability company – although Straight Path magically surfaced in the registry, listing October 2008 as its formation date, after we revealed that mysterious omission.

Last year, BGBR signed a financing deal carrying very similar terms. Under that agreement, BGBR could raise up to $1.4 million by selling company stock to a foreign firm – this one, known as Intosh Services, located on a faraway island out in the Indian Ocean – for 70 cents a share. That deal also officially lasted a year, but could be extended or canceled by either party, as well.

Unlike Straight Path Capital, Intosh Services at least showed up in the corporate registry operated by the country identified in company filings as its home base. Intosh officially registered as a company in Mauritius, a sunny tax haven, in January of 2010 and negotiated its financing deal with BGBR a couple of months later. Less fortunate than Straight Path (at least so far), Intosh went on to suffer big losses on that investment virtually every step of the way.

Intosh spent $1.4 million purchasing BGBR stock at 70 cents a share during a three-month period ending in mid-2010, records show, with the stock plummeting -- from an early high of $1.75 to a final low of 24 cents a share – throughout that buying spree. Undeterred, records show, Intosh bravely purchased another 1.67 million shares of BGBR stock this spring -- this time at just 15 cents a share – and wound up recording major losses, as the stock fell to half that price, that time around as well.

By the time Intosh executed that last purchase, records indicate, the firm had already allowed its corporate registration in Mauritius to officially expire. Now defunct, Intosh basically lasted a year and – like Straight Path – appeared to serve no real purpose outside of its role as a funding partner for a heavily promoted penny-stock company.

Familiar Footsteps

At the time, as we previously documented, JAMN and BGBR employed the same controversial transfer agent and suspect law firm as well. They even used the same tarnished auditing firm, flagged for poor financial oversight in the past, until LBB & Associates abruptly severed its ties to JAMN earlier this month.

JAMN now relies on KBL, which arguably sports an even lousier record, instead. In a report published earlier this year, the Public Company Accounting Oversight Board announced that it had uncovered significant deficiencies in both KBL audits that it reviewed during an official inspection of the firm. Notably, the PCAOB said, both audits failed to identify or address violations of standard accounting rules that later triggered formal restatements of financial results deemed reliable by the firm in the past.

Meanwhile, despite its classification as a company with “significant connections” to British Columbia, JAMN has yet to supply mandatory paperwork -- including SEC filings and official press releases – to B.C. regulators, records show, who have responded by enacting a cease-trade order for the company’s stock. As a result of that action, taken on May 20, B.C. investors remained on the sidelines during the latest rise and fall of the company’s volatile shares.

U.S. investors have taken another wild ride in the meantime. Those who purchased JAMN at or near its latest peak of $2.48 a share earlier this week, hoping for a powerful rally like the one that previously pushed the stock past the $6 mark, have paid a high price. The stock has instead reversed course, following news of the sudden auditor change, and now barely fetches $2 a share.

If JAMN continues to follow in the footsteps of BGBR – or other overhyped penny stocks like those recently suspended by SEC – the shares face a much steeper plunge, with little hope for recovery, on down the road. While day traders could get lucky and make some money (by playing the swings and banking the gains) along the way, history suggests, ordinary investors face the prospect of devastating losses instead.

Some investors, who placed long-term bets on microcap companies in the past, have already learned that expensive lesson the hard way. We fielded a desperate email just this week from one of them: an office worker, one year shy of retirement age, who spent almost a fourth of her meager savings buying stock in Americas Energy (AENY.OB) -- a past target of in-depth coverage on this website -- after it soared to $5 on paid promotions. She held onto the stock through the plunge that soon followed, fruitlessly hoping for a recovery, and finally stopped checking on its waning share price (now a paltry 18 cents) because she could no longer stand the pain.

She lost cash she could not afford to spare and, at this point, now wishes she had simply given those precious funds away.

“Having absolutely no smarts about investing and having very little money (I’m 64), I bought $5,000 worth of this crappy stock at $5 per share,” she stated. “I would have felt better about losing my $5,000 if I had given it to my church or handed it out little by little to people who live on the streets …

“Instead,” she lamented, “I helped bankroll a bunch of crooks who are out there living the high life, completely unconcerned that they have swindled people who couldn’t afford to finance their lavish lifestyles.”

She concluded with an urgent plea for help. She stands out as just one of many vulnerable victims – simply hoping to expand their limited budgets -- that the SEC, through its enhanced crackdown on microcap fraud, is now trying harder to protect.

Even “Mad Money” host Jim Cramer, a frequent SEC critic, praised the agency and its ambitious new “strike against the hype” upon learning of the campaign.

“I cannot tell you how important this initiative is, because there are so many ways for enterprising and unethical people to do ‘pump-and-dump’ these days,” Cramer stated on CNBC this week. “It’s incredibly urgent for the SEC to stay vigilant on this issue.

“It should be applauded for its crackdown on penny-stock operators … The sooner these operators are shut down,” he concluded, “the better.”

Disclosure: Prior to the publication of this article, TheStreetSweeper (through its members) effected a “short sale” of 60,825 shares of JAMN stock, beginning on June 7, 2011, at an average price of $2 a share, with the intent of profiting from decreases in the price of the stock. TheStreetSweeper may choose to adjust the size of this investment -- increasing, decreasing or covering its short position in the stock -- and will fully disclose the details of those trades as they occur. As a matter of policy, TheStreetSweeper prohibits members of its editorial staff from taking financial positions in any stocks that they cover.

Update: TheStreetSweeper covered its short position in JAMN, under a "forced buy-in," on June 13 at $1.99 a share.

Source: Jammin Java Cools Off While Escaping SEC Heat