Raystream (RAYS.OB) recently began lighting up the skies of Pennyland by proclaiming that it had developed a new video-compression technology that outshines anything on the market today. In reality, however, Raystream appears to be selling open-source software - available at no charge - to anyone who wishes to use it. That software, known as "x264," can be downloaded here for free.
Raystream burst into the spotlight with the help of an aggressive promotional campaign financed by an outfit known as Unlimited Trade, which also furnished startup money for the company. In a striking coincidence, covered in more detail below, Raystream and Unlimited Trade share a common link with a once-famous - but now-fallen - German Wunderkind named Tan Siekmann.
When Raystream began trading under its current symbol this fall, the company issued a press release introducing the public to its video compression software. At the time, Raystream CEO Brian Peterson proudly declared that the company's "disruptive technology could forever alter the way business is done online." The announcement further explained that this "proprietary" technology "could reduce the bandwidth required to stream HD video online by up to 70%."
The next day, Raystream revised that figure to "up to 90%" and revealed that - thanks to a generous infusion from Unlimited Trade - the company now had almost $2 million in cash on hand. Raystream and its promoters spent the weeks that followed celebrating the importance of this technology, boldly predicting that it was likely to unleash a torrent of demand.
So who, exactly, is the genius responsible for this magical breakthrough? The CEO runs a Dallas signage company known as Peterson-Hines and, upon joining Raystream, brought most of his staff from that firm (who worked as salespeople) along with him. Only Raystream Chief Information Officer Roman Rumpf and his sidekick Thomas Friedl, who heads the company's German subsidiary, appear to have any real technology experience.
More importantly, just how "proprietary" is Raystream's video-compression technology? Not at all, it appears. On its website, Raystream invites the public to view a slick video that illustrates the technology's capabilities. While no technology publication has reviewed - or even discussed - the Raystream software, a few techies took an interest in it and then took a close look at that video as well.
With little effort, they made a remarkable discovery. They found that the Raystream source code begins like this: x264 - core 112 - H.264/MPEG-4 AVC codec - Copyleft 2003-2010.
In a nutshell, that code reveals that Raystream "created" its technology using x264 - an open-source video-compression encoder based on the H.264/MPEG-4 AVC codec - that serves as the industry standard. Comically enough, Raystream never even bothered to change any of the default parameters included in that sequence.
Jason Garret-Glaser, one of the developers behind x264, told TheStreetSweeper that Raystream could have better concealed its secret by simply removing the header that included the telling "x264" within it. Thanks to that oversight, however, that four-digit introductory code jumps out as the first thing that anyone who examines the code will see.
Garret-Glaser offered two more important observations as well. For starters, he said, any company that distributes x264 as part of its commercial proprietary software without purchasing an appropriate license from x264 LLC has violated copyright infringement rules. It remains unclear whether Raystream itself has complied with those mandatory guidelines.
Secondly, Garret-Glaser indicated, Raystream has touted a compression rate that - even when boosted toward 90% - falls well short of that recorded by others in the field.
"Modern video compression can achieve 100 to 1,000 times compression over raw video, or "99.9%," he said. "For example, raw 1080p RGB is 1.5 gigabits per second, but can be compressed to 3-6 megabits at relatively reasonable quality."
Perhaps Raystream has recognized that its technology looks vulnerable. On its website, the company offers a "free trial" that supposedly allows users to experiment with its powerful software. TheStreetSweeper signed up for the free trial two weeks ago, however, and has yet to receive that promised service. Another visitor apparently ran into the same dead end and then called the company to complain.
"A girl just told me that the trial version is not ready and may be ready in a week," that curious shopper reported on an Internet message board. "I asked if it had ever worked, and she said, 'No.'"
TheStreetSweeper called Raystream seeking comments for this story. It sent a detailed email to the CEO as well. So far, however, it has yet to receive any feedback from those inquiries.
Like so many penny-stock names, Raystream went public through a reverse merger with an existing shell company.
That company, originally known as Interdom (ITRD), was going nowhere before it changed hands. Incorporated in Nevada two years ago, records show, Interdom had total revenue of just $200 - and a mere $45 in the bank - when its founder Igor Rumianstev, a Florida real estate agent, decided to sell his controlling stake in the company. While Interdom had managed to secure a listing on the OTC Bulletin Board ahead of its sale, the stock had yet to begin trading at that time.
On June 14, two months after Interdom landed its spot on the penny-stock exchange, Rumiantsev sold his 83.8% stake in the company to Unlimited Trade for $200,000 and walked away from the firm. At that point, Roman Rumpf briefly took over as the sole officer of the company. Although Peterson technically replaced him as the top executive about four weeks later, Rump stayed on as the CIO and continues to hold down that position to this day.
Earlier this year, Rumpf helped launch a German technology company that carries the Raystream name. He began serving as the "general manager of Raystream GmbH" in March of 2011, official records state, somehow assuming that post four months before the company even surfaced as a registered business. Like its American parent, Raystream GmbH - a company co-founded by Rumpf and Thomas Friedli - specializes in video-compression technology.
Raystream issued 20 million shares of stock, or roughly 40% of its shares outstanding, in exchange for the German subsidiary that gave the company its name. It issued another 5 million shares to Unlimited Trade in exchange for $2 million to fund its operations.
A Panamanian company, Unlimited Trade shares two of its officers - Francela Ivonne Findlay Silva and Orlando Zamet Reyes Saldaña - with another mysterious outfit based in that same country. Those officers double as officers at Gekko Industries, the same Panamanian firm that financed a notorious stock promotion for Lithium Exploration (OTC: LEXG.OB) earlier this year.
Like Gekko Industries before it, Unlimited Trade spared no expense on its big penny-stock campaign. Although it has spent millions promoting Raystream, however, Unlimited Trade has obviously skimped on its rent. As this video shows, the firm operates from a building in Panama City - with no elevators or even electricity - that looks like an outright dump.
Before Rumpf and Friedli joined forces to establish the German technology firm that would soon give Raystream its name, they both crossed paths with a notorious entrepreneur who saw his fortunes swing by amazing extremes.
Back in the 1990s, a young Tan Siekmann found himself basking in glory - hyped by many as a German Bill Gates - after taking his company, Biodata AG, public during the dot-com boom. Like many technology stocks, however, Biodata soon collapsed during the dot-com bust that followed. Biodata filed for bankruptcy in 2001, with documentary filmmaker later creating an award-winning film about the dramatic rise and fall of the once-celebrated leader of the company.
The year after that, Siekmann hit another new low. A German prosecutor filed charges against him for allegedly engaging in fraud and violating insider- trading laws.
Still ambitious, Siekmann kept trying to repeat his early success. He created a new company, known as Safe-Comand hired none other than Rumpf to help him. While now dormant, Safe-Com lists Rumpf on its domain registration to this day.
In 2006, Safe-Com entered into a joint venture with a U.S. company now known as BodyTel Scientific (OTC:BDYT.PK). Like Raystream, BodyTel touted a remarkable invention. The stock crashed in 2008, however, plummeting from $3.50 to 70 cents a share in less than a week. It fetched mere pennies a few months later and continues to trade on the lowly Pink Sheets through the present date.
Meanwhile, in 2009, Siekmann launched yet another company. He founded an outfit known as eLogic, which markets a magic algorithm designed to perform FOREX (foreign exchange currency) trading, with Friedli stepping forward as his partner this time around.
All of those companies - as well as Raystream GmbH - list the same fancy German address. They share office space at Burg Lichtenfels, a picturesque medieval castle owned by the fallen tech wizard who founded the firms.
When Rumpf and Friedli incorporated Raystream GmbH in March, Siekmann showed up as a representative for a related company - Unlimited Trade - housed in much shabbier quarters. As noted above, Unlimited Trade owns 5 million shares of Raystream and paid millions for a promotional campaign designed to increase the value of those shares.
The promotion began with an over-the-top piece by "Elliott Dobbs" of Stock Market Authority that appeared a few days after Raystream began trading. Dobbs enthusiastically declared that the company offered "a revolutionary technology that's ready to create a monopoly" and then offered more of the same in a "report" posted on a different website: "Its technology can't be matched by the competition," he marveled, "and it can't be reverse-engineered, which provides a significant barrier to entry."
According to x264 developer Garret-Glaser, however, any software can in fact be reverse-engineered.
Dobbs proudly reminded investors that he had introduced them to LEXG earlier this year, while declaring that Raystream "has every bit as much potential for gains of 1,000% or more." Fueled by a multimillion-dollar publicity campaign, LEXG indeed skyrocketed from 12 cents to $10 a share - a rare feat for any stock in the microcap arena - but soon lost most of those rapid-fire gains and now trades for less than $1 a share.
Since then, Raystream has rallied with the help of a seven-figure stock promotion of its own. Stock Market Authority received $150,000 for touting Raystream, an official disclaimer reveals, with Unlimited Trade covering that handsome fee (through an intermediary) under a $3.25 million promotional campaign that ranks among the biggest of the year.
Smart Market Authority published its original bullish Raystream call on smathority.com. A few days ago, however, GoDaddy suspended that domain registration for "spam and abuse." Stock Market Authority continues to promote Raystream through two other domains in the meantime, both of those registered with an outfit known as NameCheap instead.
The Stock Detective, another LEXG promoter, followed Smart Market Authority as the next website to embrace Raystream and heartily tout its shares. In a bold move, The Stock Detective listed "the 10 companies most likely to acquire Raystream" - beginning with YouTube (Google) and Netflix (a company that well knows how to download and use open-source software if it ever wishes to do so) - and set a price target for the stock at $10 a share.
"Call your broker now!" The Stock Detective urged. "We believe that, as video quickly dominates the Internet, this could translate into a valuation for RAYS of several billion dollars."
That bullish report remains live, found on a domain registered by Agora Multimedia - another outfit connected to the LEXG campaign - and hosted by NameCheap as well.
Since than, SuperStockHunter - yet another LEXG promoter - has joined that group of paid cheerleaders by urging investors to snatch up shares of Raystream before "the Wall Street insiders realize the opportunity" and take advantage of it themselves. Notably, both SuperStockHunter and The Stock Detective use the same disclaimer found in the original Stock Market Authority report.
With 5 million shares of Raystream, Unlimited Trader - the backer of that expensive publicity campaign - arguably ranks as a clear insider of the company. It could attract some unwanted attention from regulators as a result, since the U.S. Securities and Exchange Commission recently launched a formal investigation of Jammin Java (OTC:JAMN.OB) in an effort to determine whether any insiders participated in the aggressive promotion that fueled a powerful - but fleeting - rally in that company's shares.
Raystream boasts a lofty market value of $89 million in the meantime, even though the company had generated a mere $200 in revenue - under its original owner - when it reported its most recent financial results. Despite the overblown rhetoric delivered by the promoters paid to tout its shares, however, Raystream has so far yet to approach the remarkable highs achieved by LEXG (before its crash) earlier this year. Nevertheless, on paper at least, a few key insiders have clearly struck it rich.
Disclosure: Prior to the publication of this article, TheStreetSweeper (through its members) established a short position in Raystream with the intention of profiting on future declines in the stock price. Since Nov. 15, TheStreetSweeper has shorted a total of 20,000 shares of RAYS short at an average price of $1.38 a share. Due to a "forced buy-in," TheStreetSweeper covered 3,950 of those shares at $2.07 a share before this article appeared. As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies they cover.