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Investor RockieK
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Professionally licensed but commenting as an anonymous individual investor for informational and entertainment purposes only. Experienced in the industry since 1997 with an education in finance and economics. Prior to financial services industry, was a veteran of the armed services experienced... More
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  • My ECheck - Don't Bank On It.
    Silence in the face of evil is itself evil: God will not hold us guiltless. Not to speak is to speak. Not to act is to act. ― Dietrich Bonhoeffer

    Introduction

    Not too long ago, I got together with a bunch of guys over the weekend, where Mike, the one who pulled the event together told the story of a boy facing off against a giant. To reinforce the point, he gave each of us a rock to carry around; to remind us of what we are to do. I am keeping that rock, and because of it I am writing this instablog.

    For over a week now, there have been numerous comments, blogs, headlines, and releases about My eCheck (OTCPK:MYEC). I have, over the past week, begun to dig into the filings and history behind this company, and it has gotten to the point where I cannot maintain silence. This is wrong on so many levels.

    This ultra cheap stock is far too low priced to consider doing a real article on. Plus, the language that is going to come flying off my fingers will probably be much too harsh to make it past editorial review. To boot, I have no intention of making any kind of economic profit off this pathetic promotion, nor do I desire to try and communicate with the company or the promotional groups responsible. So, I will not bother attempting to submit a premium article to garner a few hundred page views and a plethora of critical comments that I feel obligated to respond to for a few measly bucks.

    Twas well observed by my Lord Bacon, That a little knowledge is apt to puff up, and make men giddy, but a greater share of it will set them right, and bring them to low and humble thoughts of themselves. - A.B.

    Background Information

    On October 28, 2003 the United States Congress passed The Check Clearing for the 21st Century Act (or Check 21 Act), U.S. Code Title 12, Chapter 50. The law came into effect the following year, and was designed to enable banks to handle more checks electronically, with the intention of making check processing faster and more efficient. It established the ability of financial institutions to use substitute checks created from check images; including Remote Deposit Capture or RDC and Remotely Created Checks or RCC.

    Since then, there has been a shift of checkable drafts to electronic format. However, as pointed out by the Federal Reserve Bank of Atlanta, remotely created checks "appear to be subject to a higher likelihood of abuse." They claim that because RCC's don't "require or rely upon a signature or any other documentation to indicate authorization, and an unauthorized remotely created check can be generated in an automated fashion, even using common desktop tools." And, they admit that do to, "publicized large-scale incidents of fraud, Canada's prohibition, and outcries from some encouraging the United States to follow Canada's lead, has postured remotely created checks center stage as a controversy within the world of negotiable instruments."

    There are many entities, institutions, and businesses that utilize both RDC and RCC. No one firm has a lock or patent or trademark on the technology or process. NO ONE! Competition is fierce.

    Competitive Environment

    Since the regulations governing the availability of funds (Reg. CC) and Check 21 have been in existing for a long time, Most financial institutions provide services for Remote Deposit Capture and Remotely Created Checks already.

    Major institutions like Wells Fargo, BB&T, SunTrust Financial, Bank of America, Citigroup, and Chase all offer services to their existing business clients, most popular being RDC. Additionally, there are numerous software and service providers that provide the same exact services that My eCheck plans to offer. For example:

    PaySimple

    Green Payment Processing

    PacNet Services

    CyberSource

    Vchecks

    Payment Processing Alliance

    Focal Payments

    RCC Billing Solutions

    Burroughs

    Panini

    Bluepoint Solutions

    Digital Check

    Most of these services have mobile apps already available, so I won't go through the plethora of apps that one can find available on iTunes or Google Play.

    So, obviously, there is no "moat" here for the planned release of My eCheck's apps on iPhone and Android. It will be another redundant payment processing app trying to compete with everyone else, including some of the largest financial institutions in the country.

    So, how does this company, My eCheck stack up against the competition?

    The newest hen in a crowded coop is always at the bottom of the pecking order.

    Company Background

    My eCheck has been in this business for years now, and has a grand total of 2 employees. However, they were not competitive and racked up losses over the years. As a matter of fact, in 2012, the company was over a million dollars in debt, had absolutely no revenue, and no money left in the bank. In essence, they were insolvent.

    During that year, the company began negotiating with creditors to write off debt. The company also generously issued 3 billion shares of common stock to the chief executive office, Edward R Starrs.

    Yes, you read that right - 3 BILLION with a B!

    Why? Well your guess is as good as mine. You see, in October 2012, Mr. Starr, acting on behalf of My eCheck voluntarily terminated the company's registration with the SEC. Hence the company became an alternate reporting entity on the OTC. That means that the company doesn't need to explain what Mr. Starrs did to earn those 3,000,000,000 shares of common stock.

    With the last annual report filed, we find out that Mr Starrs only owns just over 2 Billion shares of stock. Thanks to the "kind" contribution of readers, it has been pointed out to me that Mr. Starrs "retired" those shares just two months ago.

    For the remaining 2 billion shares, provided those shares were subject to rule 144 restriction, and given the time they were issued (2012), they could be eligible to trade freely in the market now. Plus, there is the additional 500 million shares that have been distributed over the past year as part of the company's re-organization and settlement with creditors. Were some "unrelated" third party or management decide to liquidate a portion of those more than 2,500,000,000 shares in the market where the average daily volume has been less than 25 million shares, they would undoubtedly move the market. And that market movement would NOT be in the direction desired by long shareholders.

    Speaking of the latest annual report, let's take a look at the company's financial position.

    Company Financials

    The latest annual report was filed March 31, 2014. Under financial highlights the company states, "For the twelve months ended December 31, 2013, net profit was $1,018,693 with revenue from operations at $439,233. Total liabilities were reduced by $718,365. For the 3 months ended December 31, 2013 (Q4), net profit was $465,083 with revenue from operations at $361,402 and total liabilities were reduced by $168,239." Obviously, the financial statements are not audited.

    At year end, the company reported $65 in the bank. It also reported receivable of $350,000. According to the notes, that means that the company has "delivered the product or performed the service, the fee is fixed or determinable and collection is reasonably assured." Which would be helpful considering the company also listed $480,188 in current assets. Net, that means the company is still potentially insolvent, and technical bankrupt.

    So, why would the per share value of common stock of a company that has 2 employees, 65 dollars in the bank, and is trying to re-enter the ferociously competitive market for electronic payments that drove it to insolvency in the first place rally 1000% since the beginning of the year?

    Ongoing Promotion

    Better is a poor person who walks in integrity than one who is crooked in speech and is a fool - Proverbs 19:1

    Here is the real reason I feel compelled to write this instablog. It didn't take long to uncover enough disclaimers to know what's really moving the price of MYEC. A cursory review of my normal sources uncovered promotions managed through Microcap Innocations LLC and Global Innovator Relations Market Wire Press. In addition, there has been limited promotion from G6 Stocks, Jason Thompson IR, Pennybusters, HotStocked, and SmallCap Network, StockPicks NYC, and the Stock Market Professor. Not to mention the numerous commentators here on Seeking Alpha, Yahoo, iHub, and so many other sites.

    Now, Yes I understand that Social Media Marketing and Investor Education are all part and parcel to this business. And, Yes, I understand that there is a legitimate need to distribute information about companies to increase investor awareness. But to me, there is a line.

    Granted, I'm no saint, but I try hard to live honorably and with integrity. I mess up some times (a lot), but I won't give up trying, and I won't stand by idly in the shadow of evil.

    These promotions are just plain wrong! There is no justification for a $100,000,000 market cap on a company with two employees and $65 dollars in the bank. This is a fact that those promoters cannot justify under any stretch of the imagination. I believe shares are waiting for some greater fool to come in with the blind faith that what these slick promoters are saying is true, when in fact it is not. Then they will sell shares at any price and hapless retail investors will be left holding the bag.

    This is one of the most obvious and poorly disguised pumps that I have seen in more than a decade. And, there is no acceptable excuse for ripping off innocent, trusting investors, just because "the boss" landed a deal with a "disinterested" or "unrelated" third party.

    Consider this:

    Summary - Five smooth stones

    1. Check 21 is not a new innovation in the financial services industry. Claiming that it is is a lie.
    2. The competitive environment the company is re-entering is fierce. They nearly went out of business before, and exaggerating the possibility that they will succeed is a lie.
    3. The company is financially insolvent with only two employees. Claiming that they are going to bust the ACH system or out maneuver the major players in the industry is a lie.
    4. There are more than 2.5 Billion shares that can flood the market at a moments notice, causing significant downside risk to retail investors.
    5. There is a concerted effort to promote the company stock using distorted and one sided information. Telling half a truth is the same as a lie.

    Now, I realized that as soon as I published this instablog I would be the target of immediate attack by both witless longs who will never admit their mistakes and wicked promo commentators. They have not disappointed. Both have attacked with the viciousness that befits their profiles. No amount of insults, diversions, or counter arguments will hide the truth, and I stand by my opinion.

    The current promotion of My eCheck stock (OTCPK:MYEC) is a scam! The stock should be halted, suspended, and investigated.

    1 Samuel 17:48

    Apr 17 4:54 PM | Link | 19 Comments
  • American Airlines Follow-Up

    Wow, what a fire storm I started with my article on the share distribution related to the American Airlines and United Airline merger here. Within minutes of publishing I had messages demanding a retraction, insulting my intelligence, and even questioning my birth legitimacy. Talk about shooting the messenger.

    This follow up will first clarify my original assumptions and highlight my lack of prudent judgment associated with those assumptions, relate additional information related to subsequent distributions certain stakeholders may receive, and highlight the remaining risks to the mid-term price of America Airlines Group (AAL).

    Prior Assumptions

    This past Monday, December 9th marked the closing of the merger and therefore the conversion of United Airlines (LCC) and first distribution to AMR (AAMRQ) stakeholders. For common shareholders, conversion was 1:1 for LLC and 1 for 0.0665 AAMRQ.

    Because there had been no trading history on the new common for American Airlines Group , and because the conversion rate was 1:1 for LCC, I reasonably assumed that the price of AAL would seek the prior fair value of LCC, near the $22.55 dollar level. I also assumed that stakeholders, specifically employees and creditors would begin to liquidate their common shares after settlement, December 12th. Now, since those stakeholders (employees and creditors) were to be issued the vast majority of the new shares (more than 70%), selling pressure would further drive the per share price well below fair value and into oversold territory. The assumption would be that share price would drop below $20, into the mid to upper teens. Were that to happen, the probability of additional distributions to holders of the old common stock were very low.

    Please note, there is no question about the additional distribution to the remaining stakeholders (employees and creditors). As a matter of fact, it is those very distributions that necessitates the withholding of shares and predicates future distribution based on the trading history of AAL at the 30, 60, 90, and 120 day mark.

    Determinants of the Distribution

    Each of the stakeholders associate with the old AMR, with the exception of common equity holders have a known amount they are to receive. With respect to Employees, or Labor, they will receive a fixed percentage of outstanding stock; 23.6%. With respect to creditors, they will receive a fixed dollar value of common stock based on average selling price of AAL to satisfy their authorized claims. A summary of unsecured claims is listed below.

    (AMR unsecured)

    (American unsecured)

    (American unsecured)

    In order to satisfy all the claims against AMR and American, the bankruptcy court has ordered that shares be withheld from the initial distribution. This is the pool of assets that will be used to pay creditors and compensate non-equity stakeholders throughout the settlement period. Since creditors are to be compensated with new equity, the higher the stock price, the fewer the number of shares that will be needed to satisfy the claim. Meanwhile, over the course of the settlement period, additional distributions will need to be made to employees and the unions to maintain their percentage of equity ownership established by the court order. Over time, these claims will reduce the pool of equity until everything has been satisfied.

    Whatever is left over goes to common shareholder of the old AMR Corporation. At the current price (over $26 per share) that could result in a considerable gain relative to last Friday's closing price. Were the share price to drop significantly (below $20 per share), that could result in a considerable loss.

    Revised Outlook and Summary

    Provided shares of American Airline Group remain high enough to satisfy creditors' claims, old shareholders of AAMRQ can expect to receive additional distributions of new common shares. These distributions may occur at the 30, 60, 90, and/or 120 day marks. Now that the new shares are trading, I freely admit that by prior fears have somewhat abated. I erroneously presumed that the probability of future distributions was minimal, but given the prior few days trading history, it is looking more and more likely that additional distributions will happen, and may end up being significantly more than what the market was anticipating last week.

    However, even though my pessimistic outlook from Monday is looking less and less likely, the probability still exists. If those creditors decide to sell their common shares to recapture invested capital, it would put downward pressure on the stock price and would reduce the number of shares available for distribution to old common shareholders. Pushed low enough, AAMRQ shareholders of record could receive nothing more than what they already have.

    Criticize me for my ultra-conservative prior outlook if you want, but differences in opinion are what makes our markets work.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Dec 12 6:01 AM | Link | 20 Comments
  • Closing Out The Sprint Arbitrage

    For anyone following this instablog stream who took a speculative long position in Sprint, congratulations on your arbitrage profit. (Provided you have closed your positions)

    The first strategy that was suggested was a long stock strategy. If you bought 385 shares of common stock at 7.13 per share (as of the time of writing), your total cost was $2,745.03 plus commission. This morning, the speculator should have received $2,171.40 in cash, and 100 shares of the new company, with an effective cost of $5.74 per share. So far today, the stock has traded within the range of $6.38 to $7.14 and is currently $7.00 on the bid (as of this writing). That provides the speculator with a potential gain of $126.00 or 4.5% return.

    The second strategy discussed was a long call option strategy. If you bought a July $7 strike price call options at a cost of $15 per contract, plus commission. These calls are currently selling at a bid of $45 dollars per contract. That is a $30 per contract gain or 200%.

    Alternatively, one could have closed out the position using a same day substitution (exercise the contracts and then sell the shares delivered into the account). With a new deliverable of $564 plus 26 shares of the new common stock, (See here for CBOE memorandum) exercising the contracts results in an effective per share cost of $5.80. Selling the shares as the current bid of $7.00 would result in a profit of $31.20 per contract or 208%.

    No matter which strategy you used, it was an excellent payout for a three day holding period. Pat yourself on the back and go have a nice dinner with someone special.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I have closed out all of my long positions in this security.

    Tags: S
    Jul 12 2:57 PM | Link | Comment!
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