Guangzhou Global Telecom: Spam Stock Tips Go Postal

Over the last year, I’ve noticed a pretty big increase in the amount of stock spam that shows up in my inbox. It’s easy enough for me to delete these and move on, but there are a lot of people who take the bait and get burned on these types of promotions. Normally, I wouldn’t find a piece of stock spam interesting enough to write about it, but today a piece of spam showed up in my physical mailbox, instead of my inbox.

This was the first time I’ve gotten stock spam via regular mail, but I have a sinking feeling that this will not be the last. Technically, I can stop people from emailing me, but because they pay the cost to send the letter, I can’t opt out of mailings.

What is interesting about this particular piece of spam, is that unlike most spam, it was actually targeted directly at me. They probably pulled my name off a list of people who work in finance and are hoping that I will pass on snail mail stock tips, to people I work with. This is shady on so many levels, but it does demonstrate how sophisticated stock promoters have become, in their attempts to influence the market.

The article that they sent me contained the customary, 'this is not a solicitation' language, but the big print screams “strong buy” and “short term potential.” The piece is more than a little biased and includes numbers that I can’t seem to find in the SEC filings.

The newsletter is published by a company called growthstockguru.com, who's touting a penny stock named Guangzhou Global Telecom (GZGT.OB). In exchange for promoting the company, it received $25,000 in cash. If you take a closer look at GZGT, you’ll see that it shares many of the same characteristics that you find in typical pump and dump operations.

The company was only recently formed through a reverse merger. After the merger, over 75% of the company is still controlled by insiders. The company also has the right to issue another 15 million shares in order to raise capital.

There has been an aggressive ad campaign in business magazines and websites, promoting the company. Last week, Thomas Anderson wrote a scathing article, warning investors that this bubble is being driven by advertising and stock promoters. Despite his admonishment, not everyone has listened, and the stock traded another 4.5 million shares Tuesday, or about a third of its float.

All it takes is one quick look at its SEC documents and you can tell that it's in trouble. The company has already had its first run-in with the SEC and was forced to go back and amend an 8k filing, after it failed to report that it had fired its auditors, over a disagreement on a going concern letter.

In the newsletter, it touts the potential for 200% - 500% upside growth (in months, if not days, no less), yet at its current valuation, it's already worth $107 million, which is pretty expensive considering that it only brought in $15,000 of net income over the last quarter (yes 15 THOUSAND, not millions.) At these prices, I’m not sure what will drive the stock to a half a billion dollar valuation, but something smells fishy about this one.

If investors want to speculate on penny stocks, that is up to them, but to do it without even considering the risks involved is just plain stupid. This company raises so many question marks, it’s crazy and yet it has still been able to create a market cap of $100 million with party tricks and cheap promotions. It’s a mystery to me, why someone would invest in a company while someone is going through this much trouble trying to sellout, but it’s clear that this stock spam must work, otherwise we wouldn’t keep seeing more of it.

Comments

[kjnahoom]

Sorry Davis, GZGT is very much for real.

Most people who receive a "piece of spam" via the postal mail simply throw it in the garbage. Thus, I suspect your are naked short the stock or have some other direct or indirect interest. Hopefully, you are not for the welfare of your wallet.

GZGT will eventually push through $2.25 which is the "squeeze trigger" price for 3.1 million short shares of GZGT.

[kjnahoom]

Sorry Davis, GZGT is very much for real.

Most people who receive a "piece of spam" via the postal mail simply throw it in the garbage. Thus, I suspect your are naked short the stock or have some other direct or indirect interest. Hopefully, you are not for the welfare of your wallet.

GZGT will eventually push through $2.25 which is the "squeeze trigger" price for 3.1 million short shares of GZGT. Note where the strong resistance is/was on Tues., 6/5/07. You guessed it, $2.25

[DavisFreeberg]

Nope Kerry, I have no financial interest in seeing the company succeed or fail. I don't actually like shorting stocks, too much bad karma and I don't like taking unlimited risk. Feel free to look through my past posts and you'll see that I've never thought very highly of stock spam. If I was going to short something, you can bet that it would be a large cap or a midcap stock through. Too much downside risk in trying to bet against a microcap company. I could be right about the valuation and it could still go up because someone is pimping it. If you'd like to help me better understand why the fundamentals justify such a lofty valuation, I'm all ears, but even if GZGT was the real deal (which I don't think that it is), I would still question the wisdom of trying to buy during the middle (or end?) of a mass marketing campaign. People are playing a dangerous game of musical chairs right now. As long as new buyers keep coming in, people will keep playing, but once support for the stock falls, you'll hear a massive sucking sound as that money gets pulled off the table. If you want to gamble with your own money that's fine, but between the auditor issues, the pumping that is going on and the questions being raised by other journalists, I think that this is one opportunity that investors may be better off taking a pass on. I'm sorry if you disagree with my opinion, but I suspect that I'm a lot less biased on this issue than you might be.