About a month ago, I wrote an article on Creative Edge Nutrition (OTC:FITX) and raised concerns regarding ostensibly unaffiliated insiders who held large stakes in the company. In researching the backgrounds of these individuals, I stumbled upon names like Randy A. Hamdan, a stock promoter who was recently sued by the SEC for allegedly orchestrating a fraudulent marketing campaign for the purposes of a pump and dump scheme.
After publishing, I discovered through social media that this individual had decided to file a defamation lawsuit against me. Purported investors of the pink sheet penny stock triumphantly shared links via social media of a copy of the lawsuit published on another purported shareholder's website. Bloggers like Chris Parry interpreted this action as "SLAPP" suit, or a strategic lawsuit against public participation.
The purpose of a SLAPP suit is to discourage further public participation so as to silence negative discourse. It is...
"a form of litigation filed by a large organization or in some cases an individual plaintiff, to intimidate and silence a less powerful critic by so severely burdening them with the cost of a legal defense that they abandon their criticism."
Or in the words of the CEO of FITX, Bill Bahige Chaaban, stated Tuesday, June 24, 2014 at 6:36 pm EDT,
"You will need hundreds of thousands of dollars for your attorneys by the time he is done with you. And imagine if our shareholders join in a class action lawsuit because of your untrue allegations that negatively affect share price."
Shut up or bear the brunt of debilitating legal fees.
Many states, but not all, have adopted anti-SLAPP statues to protect writers from paying hefty lawyer fees fighting SLAPPs. Federal law is ambiguous, but tends to favor the defendant.
This is not the first time a SLAPP suit was filed in relation to bloggers openly criticizing penny stocks. In 2007, GTX Global Corp. vs. Left made history as being the first instance where an online blogger was protected by California anti-SLAPP statues for statements made about penny stock company GTX Global Corp. In February 2009, penny stock GeneThera Inc. (OTCPK:GTHR) also lost its case in appellate court, after filing a lawsuit against Troy and Gould for a breach of contractual agreement. A recent example that has made multiple headlines occurred after a private shareholder of Xumanii (XUII) filed a class action lawsuit against Mr. George Sharp. The case was thrown out of court.
Nowadays, companies are foregoing the actual process of filing a lawsuit, and simply threatening litigation in press releases instead. Companies like Terra Tech Inc. (OTCQX:TRTC) and Easton Pharmaceuticals (OTCPK:EAPH) have announced intentions to sue those writing negatively about their companies. For example, TRTC's ominously warned the libelers on 08/13/14 that it had retained council to address the "potentially libelous statements made through multiple online sources." EAPH most recently declared on 08/05/14 that it has notified,
"Investorhub of its intent to serve them with a lawsuit and possible class action lawsuit after an investigation has determined that the vast majority of long term Easton investors have been either removed or have had their posts removed as part of what Easton and other company's believes is proof of abuse of moderator discretion, and biased censorship by investorhub."
I believe as investors, we should condemn companies that attempt to frighten opposition through SLAPP litigation. The only way that investors can make intelligent investment decisions is with the free and open exchange of ideas. Companies that support censorship are un-American, in my opinion. The exercise of free speech is a First Amendment constitutional right, and any company that attempts to abridge that through costly and debilitating lawsuits do not deserve our investment dollars. What makes us think we can trust these companies to use our investment dollars that resort to such Gestapo tactics to silence negativity?
I am disappointed to see Derek Peterson going down the road of Easton Pharmaceuticals and Creative Edge Nutrition. As one of the few companies actually producing revenues, it appears to me an act of desperation, as if they don't have confidence in the future of their company.
With so many novice investors in this space, healthy open dialogue is the only way that investors can make intelligent investing decisions.
The message I hear when companies threaten litigation is that they have exhausted all other options to boost their share price. And if all they care about is the share price, what business are they really in? Selling marijuana or selling shares?
And I can understand why TRTC is resorting to litigation. It is selling product cheaper than it costs to actually produce it. And on top of that, there's the debilitating OPEX. All it has left is market sentiment to keep investors buying up stock.
I think it is fair to say that a company that uses litigation against opposition as a tactic to boost share price has run out of legitimate options. If this isn't the case, prove the investor community wrong. How about build a successful business. Then, once you have sufficient funds from operations, move forward with your litigation.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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