At the moment, Discovery Gold Corp (OTCPK:DCGD), is an empty shell stock with a $150M+ market cap. This is an unheard of valuation for a shell. Right now, investors literally own nothing except the stock symbol listed on the OTC exchange. It has no cash, no assets, and no business. Shells generally have an intrinsic value of about $500K, which is on average what they sell for on this website.
We believe once all the hype settles down and DCGD finishes its reverse merger, investors will experience a 95-98% decline in share price to about $0.02 or less. Which is still about 10x what the shares were purchased for by the new CEO, Justin Costello. We believe this not only because the company is currently an empty shell, but also because we don't trust the competence or the honesty of management.
Costello acquired 56% of the company with the intention of reverse-merging his investment banking services company, GRN Holdings, into it. On 7/1/19, DCGD filed an 8-K that states on 6/20/19, Costello acquired 139M shares of DCGD, 55.65% of the outstanding shares, for only $300K. That comes out to a price of $0.00216 per share. Today, at $0.70 a share, Costello has achieved a return in two months of over 20,000%! That has to be some kind of record.
Costello is a 38 year-old businessman who in only two months saw his investment in DCGD grow from $300K to over $90M (on paper)!
Investors should know that any assets or companies that the company acquires will have to be paid for in either equity or cash, likely equity because right now the company has no cash.
We’ve found some questionable promotional tactics are being used by DCGD. We found that the claims that GRN Funds (the company that will merge into DCGD) is a hedge fund and that Costello attended Harvard Business School are both likely false.
We have alerted the SEC of these likely false claims by DCGD and Costello, and submitted this report to the SEC Whistleblower Program here. We also contacted the company to ask about these issues on 8/8/19, and have not received a response.
DCGD Investors Do Not Seem To Know Why They Are Buying
Looking at the DCGD Investors Hub message board and doing a search for $DCGD on Twitter shows that investors don’t seem to know why they’re buying the stock. There’s no discussion of value, or comps, and most don’t even realize what kind of company will be merged into it. They seem to be buying only because the stock is going up.
The fallacy of that mentality is if the stock starts going down, then the reason to buy just because it’s going up won’t be a reason anymore. At that point, investors and traders will have to think about the fundamental value of the company, which we believe is very little.
Our Research Suggests That Justin Costello Did Not Really Attend Harvard
A filing on sec.gov and two penny stock promotion websites said that Justin Costello graduated from Harvard Business School. We contacted the Harvard alumni registry and found that he never really graduated from Harvard.
DCGD’s 8-K filing filed on 7/1/19 states that:
Mr. Costello is a graduate of the University of Minnesota in Public Business Administration and a graduate of the Harvard Business School.
As shown here, Costello got an undergraduate degree from the University of Minnesota. Far from an Ivy League school, the University of Minnesota is only ranked number 76 in national Universities in the US.
Costello’s LinkedIn page doesn’t show his education, although it does say one of his “Interests” is Harvard. We find that suspicious. If he did really graduate from Harvard, wouldn’t he want to show that off in his LinkedIn profile?
DCGD was promoted on 7/9/19 on Microcapdaily.com here. The article says: “new CEO Justin Costello, a Harvard grad”
DCGD was promoted on 7/11/19 on Pennystocks.com here. It also says Costello is “a Harvard Business School Alum”.
We contacted the Harvard Business School (HBS) registrar’s office to see if Costello did indeed graduate from HBS. The contact email is email@example.com. The following is the main part of our email conversation:
HBS Registrar: Give me the name and I can check for you.
WDR: The name is Justin Costello, he likely would've attended in the early to mid 2000s.
HBS Registrar: I don’t see a Justin Costello in our alumni directory. Could he possibly have a different or other formal first name?
WDR: Great, thanks. No I don't think he has another name.
HBS Registrar: Then I think the answer is no on him as an actual alum. It is possible he attended a certificate course through our Executive Education program. People who do often say they “went to HBS”, though that’s not the same as being an alumnus.
It’s clear from the HBS Registrar that Costello didn’t graduate from Harvard Business School. If he only completed a certificate course, then we believe that’s misleading for not making that distinction to investors. Of course, there is the slim possibility that Costello graduated from Harvard under a different name or the registrar mistakenly couldn't find him.
Our Research Shows GRN Funds Is Really Not A Registered Hedge Fund
A tweet from 8/1/19 suggested that Justin Costello bragged about running a “billion dollar hedge fund”. The tweet was from twitter account @BinDaddys and showed an online chat with Costello. The chat revealed:
Justin Costello’s LinkedIn page shows:
DCGD’s 8-K referred to earlier that was filed on 7/1/19 states:
Mr. Costello manages and is the Chief Executive Officer of GRN Funds, LLC, a private equity and hedge fund.
But we found that GRN Funds is not really a hedge fund. Hedge funds must register with the SEC as an investment advisor. We entered GRN Funds in the SEC’s investment adviser search, and no match was found. Shown below:
We found that a search for "Justin Costello" at adviserinfo.sec.gov does bring up a broker by that name. But it is clearly a different Justin Costello who works at PJT Partners, shown on his Linkedin here.
Just entering a search at adviserinfo.sec.gov for "GRN" brings up a group called Chester-Kelsey Corp., also known as GRN Financial Services and GRN Securities. But this is clearly an unrelated company to DCGD and is listed as an inactive brokerage firm from California here.
We checked to see what publicly traded companies GRN Funds owned majority positions in. All we found was the filing for the DCGD ownership, as shown below:
You would think a billion dollar hedge fund would have a lot of majority positions in small public companies. Especially given that GRN Funds deals primarily with small cannabis companies.
On the company website, grnfunds.com, it states:
GRN Funds provides secure banking resources to medium businesses and ancillaries.
That is not a description of a hedge fund business in our opinion. It also doesn’t say anything about being a hedge fund on the website.
Looking At What The GRN Funds Website Used To Look Like Conveys A Different Message
We’ve found looking at the past design of grnfunds.com, that it has a different look after Costello purchased DCGD. Waybackmachine.com shows the way it looked before.
On the 3/6/19 website, it shows in the upper right corner:
On the website today, it shows in the upper right corner:
Notice the BANKING tab is gone. Perhaps the company doesn’t want to emphasize to investors that it does banking?
This is further confirmed by the 3/6/19 website shows in the middle:
Today’s website shows in the middle:
As shown, the site replaced the “Apply For Banking” option with “News & Media”. Based on the website change, visitors no longer notice the "banking" aspect of what GRN Funds is involved with.
Comparing DCGD To MCTC – Is There Any Fundamental Difference?
Let’s consider the cannabis company, MCTC Holdings (OTCPK:MCTC) that Costello was added to its Strategic Advisory Board announced on 7/18/19. The news that Costello was added to the board can be found in the headline section on the DCGD Yahoo finance page.
Looking at the MCTC Yahoo finance page, it shows that it’s a $6M market cap company. The company currently has no revenues, and historically burns only about $6K per quarter in SG&A expenses. Clearly, investors have hope that MCTC will eventually generate revenues and positive earnings, but right now there isn't much of a business at all.
DCGD appears to be another cannabis company in about the same "formation" stage as MCTC. As shown on each respective Yahoo finance headlines, MCTC is adding industry veterans to its board, and so is DCGD. Over the past three weeks, MCTC has added Jim Riley and Justin Costello to its board, and in that same period, DCGD has added Peter Juvet and Jeff Sharkey to its board. It says in the PRS, that Jeff Sharkey is a nationally recognized marijuana and hemp government relations consultant based in the State of Florida. Peter Juvet was a sales executive for 3M.
So what are the significant fundamental differences between MCTC and DCGD? The obvious difference are the market caps of these firms, with DCDG trading for $150M, versus only $6M for MCTC .
We write reports based on our deep-dive fundamental research and make trades when we think the timing is right. We think the right timing to short DCGD, although the stock could conceivably keep going higher with more hype. Sometimes OTC stocks reach insane levels mainly because of a small float and low volume. We believe DCGD has significant volume and float to keep the stock price down to earth. We don’t believe it will go much above its current $150M+ market cap, which makes now an optimal time to short it.
Disclosure: I am/we are short DCGD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.