Readers of our research should know that we are in the business of exposing alleged fraud or folly. Some of our targets present fantastic short opportunities, while others represent more of an altruistic crusade to eradicate blatant fraud from capital markets, specifically the OTCBB microcap market.
This report will be a mixture of both. The company we will be reporting on, Pristine Solutions (OTC:PRTN-OLD) is an obvious short, given it now trades at a $220 million dollar valuation even though it has no revenues, no cash and negative shareholder equity. Most importantly the company has $90 million worth of undisclosed, free trading shares parked offshore that are being liquidated onto unsuspecting retail investors.
In addition to highlighting this obvious short opportunity, we will uncover the infrastructure that has allowed the repeat offenders behind PRTN to methodically extract $250 million or more annually from the US retail investor, since at least 2010. This infrastructure is comprised of gatekeepers, such as securities attorneys that willfully turn a blind eye while they create securities they know will become weapons of mass destruction, and most importantly the brokers and market makers -- the actual human beings that not only deposit these shares, but dutifully serve them by trading the stocks in an effort to liquidate as many shares as possible and in the process collect a fat commission for themselves.
This is the story of PRTN, The AwesomePennyStocks Collective, and most importantly a trader at Wilson & Davis & Company (WDCO) who sits behind a computer screen in Denver, Colorado and helps offshore perpetrators commit what we believe to be the most audacious stock market manipulations since the days of Jesse Livermore and his infamous bull pools. The only differences being that Jesse Livermore would corner the shares of real companies by purchasing shares in the open market (as opposed to being issued them at fractions of a penny), and when he engaged in this activity it was not yet illegal as the Securities and Exchange Commission was only formed in 1934.
Pristine Solutions, Inc.
Pristine Solutions Inc., through its wholly owned subsidiary Eaton Scientific, is purported to be engaged in the development of a drug to treat hot flashes in pre-menopausal woman. The company repeatedly states (almost on a daily basis) that it is in the process of preparing for Phase 1 & 2 Clinical Trials.
Shares Outstanding (Pro Forma Merger)
Most Recent Share Price (9/21/2012)
Cash as of March 31,2012
Debts & Liabilities as of March 31,2012
Shareholder Equity as of March 31,2012
Revenues as of March 31, 2012
Undisclosed Shares in Float
Value of Undisclosed Shares in Float
Looking at the fundamentals one has to wonder how any ethical adult would distribute any press releases at all when the company they head has not even one dollar in cash and is running a deficiency (liabilities that exceed assets) of $46,000!
We are not going to waste any more time on the purported business of PRTN as doing so would be an injustice to readers of this report as it would only be validating what is a blatant fraud. The only true objective of this enterprise is to provide the narrative for investors to be duped into purchasing shares @ $0.50 cents directly from offshore scammers that own 178,000,000 of those shares and paid only $.0003 (one thirtieth of one penny).
The "Set Up"
On September 3rd, 2010 Pristine Solutions a company based in Jamaica Filed an S-1 registering 29,666,781 shares that were purchased at $0.002 per share (one fifth of one penny). We wonder what Mr. Luis Carrillo the principal of Carrillo Huettel, LLP was thinking when he filed this document with the SEC. Was he intoxicated? He did after all misspell the name of his firm in the filing. Surely this must be one of the lowest prices ever paid for shares in an S-1 ever.
What happens next? Surely our readers know by now... But of course, a Forward Split!
On February 27, 2012 PRTN completed a 6 for 1 forward split turning those 29,666,781 free trading shares into 178,000,686 shares. Following the split the average cost of the shares has been reduced to $0.0003 per share ($0.002 original price divided by 6).
There is so much more that can be written about the sloppiness in the way this company was put together. For example the company never filed an 8-K about the split, instead choosing to disclose the split in a line item on the 10Q.
Following the forward split PRTN has been loaded up with 178,000,686 free trading shares and a total outstanding share count of 443,000,686.
The next step in building this scam is to inject a story with pawn officers and directors to hold the front line. On August 24, 2012 at precisely 4:33:37 PM EST PRTN disclosed to the world that it had acquired Eaton Scientific for 25,000,000 shares of PRTN.
The reason we highlighted the time of the disclosure is because of what happened on the day of August 24, 2012 in the full trading day leading up to the release. In what appears to be an obvious case of confidential information being leaked by insiders shares of PRTN traded volume of 22,611,000 shares from a low of $0.17 cents to as high as $0.53 cents. Why they traded so aggressively can only be explained by three words: Awesome Penny Stocks.
This group of unscrupulous individuals has essentially mastered the art of stock promotion taking a production line approach to creating, promoting, and liquidating worthless securities for hundreds of millions of dollars in illicit gains. Their approach is completely methodical and consists of:
- Acquiring a DTC eligible OTCBB shell where they can own every share in the float
- Completing a forward stock split prior to initiation of trading to increase their block of shares to an average size of 50-100 million shares and at an average cost that is always less than $.005 cents (half of one penny).
- Using a syndicate websites that include: awesomepennystocks.com, equityreporters.com, pennystockgains.com, pennystockexpert.com, pennystockuniverse.com, secretpennystocks.com, premiumstockreport.com amongst a slew of others to advertise on Google (NASDAQ:GOOG), Yahoo (YHOO), AOL (NYSE:AOL), MSN (NASDAQ:MSFT), and IAC (IACI) under search terms revolving around investing in finance for textual ads and financial related websites for display ads.
- These websites all serve as aggregators that harvest email addresses into one centralized database. In the weeks and months leading to a promotion the cartel will increase their ad spends to as much as $1 million per month competing with the ad budgets of TD Ameritrade (NASDAQ:AMTD) and E*Trade (NASDAQ:ETFC) while they send their growing list of subscribers emails preparing them for their next pick going so far as giving instructions on how to open online brokerage accounts and entering stock orders!
- When all systems are go (ie: worthless shares have been deposited into a US Broker Dealer and ready to be sold) APS unleashes emails announcing their newest pick. Like clockwork, the same day that APS begins to send a barrage of emails the OTCBB companies conveniently begin to issue daily press releases touting their purported businesses.
- Once the emails begin to hit and naïve buyers rush in to buy the worthless shares from the APS clan their work only begins. In what is a meticulous effort to manipulate nearly every tick in the trading of their scams the APS clan uses a group of market makers to place abnormally sized bids allowing them to quite literally move their scams up and down to their liking, inducing panic sell offs, buy backs, and short squeezes.
- Once they have manipulated the stock to the point of liquidating most of their worthless shares, the APS group ceases to support their scams with the abnormal bids leading to massive collapses of between 40-80% in ONE DAY. Watch this video to see one of these collapses in real-time and note the insane amount of volume trading every second. Every single one of these prints equates to worthless shares being sold to US investors.
Once the shares collapse APS simply moves on to the next deal like a swarm of locust while they funnel their illicit proceeds to their offshore jurisdictions including: Canada, Poland, Costa Rica, and Spain. Let us review a table of the list of APS stock scams and their respective performance:
Table of "Awesome Penny Stock" Cartel Scams
It's truly mind boggling to see the sheer scale of the APS cartel. Since October 2010 this group has driven nearly 10 billion shares of volume representing over $4 Billion worth of buying into their OTCBB scams. These figures translate into hundreds of millions of dollars of profits from the liquidation of worthless shares purchased for nothing to unsuspecting retail investors. These figures are so huge that we believe the main stream media will soon catch on that the dollar value equates to the size and scale of the drug cartels in the 1980s'. And when they do these stories will become common front-page worthy investigations.
Remember all this money that ends up being lost by retail investors flows directly offshore into the hands of the stock scammers completely leaving the US economy. For lack of a better word, APS is a cancer and must be stopped.
Invert Always Invert
We would like to think that if we really wanted to we could figure out who the main perpetrator is but after spending several hours preparing for this investigation we realized that as trained mathematicians we were overlooking a key problem solving technique that has worked so well for us before. This same technique had already helped us in deciphering crucial elements of the (OTC:CHMR) fraud as outlined in this report.
As the great mathematician Carl Gustav Jacobi said: "Invert always Invert"
To continue and waste time and resources in an effort to pin point the perpetrator makes little sense when there are certain components of the APS frauds that can be more easily targeted. Let's review the various components that are required to make these scams possible and then work our way through the various systems in place to provide possible checks and balances:
- We know that the goal is to purchase worthless shares at a fraction of a penny and then sell those same shares at an artificially inflated price by inducing retail investors to buy through the means and instrumentalities of the US.
- We know that when the perpetrators purchase the shares they use offshore companies with nominee directors and officers making it extremely difficult to pin down the true owner of the shares.
- We know that when the perpetrators setup advertising accounts with Google and other media outlets they use offshore or US corporations operated by nominee officers and directors making it nearly impossible to pin down who the true owners of the companies are.
- We know that in order to liquidate US securities one must engage in the services of a US regulated Broker Dealer.
- We know that there are certain broker dealers that will never get involved in the clearing and trading of OTCBB securities (the majority).
- We know that in every APS scam there are abnormal bid sizes represented by just two broker dealers: Wilson Davis & Company (WDCO) and Automated Trading Desk, LLC (ATDF) a subsidiary of Citigroup (NYSE:C).
- As evidenced in these videos both WDCO and ATDF not only represent abnormally sized orders but move their bids around so much throughout the day that they must obviously be receiving instructions from someone to do so and could not be acting on their own account.
The Significance of Abnormally Sized Bids on OTCBB Scams
The OTCBB market is composed of Market Makers that display bids and offers for securities in an over the counter fashion. When investors place orders to buy or sell securities these orders get routed to one of these market makers who then displays those orders in the marketplace and executes the trades when their price is matched by another market maker.
Typically on the OTCBB market makers display the standard sizes regardless of the shares they represent. This is consistent with market etiquette but more importantly is consistent with the logic of obtaining the best price for your customer. Let us elaborate:
If you are in the market interested to buy 10,000 shares of a stock on the OTCBB @ $1.00 while every other market maker is displaying the standard 500 shares between $1.00 and $1.50 wouldn't it make more sense to display the standard 500 share amount and not tip off the market that there is a huge buyer in the market for 10,000 shares? If your true intention is to accumulate a position in the security the best course of action is to let the market sell those shares to you naturally.
What the APS group does is display 1,000,000-5,000,000 share bids on a stock where every single market maker displays 500 shares. These orders make no sense and often supersede the entire daily or weekly trading volume of the stocks. They are meant only to manipulate the shares higher. But what is so terrible about these orders is that they can be cancelled in heartbeat confirming that the original indication of interest was nothing but a sham.
From our discussions with regulators and broker dealers they explained to us that 90% of market makers would never display the size of an order exceeding the standard amounts both for the obvious reasons we stated and for fear of being viewed as manipulating the price of a security. Clearly, Wilson Davis & Company (WDCO) is not one of them.
Wilson Davis & Company (WDCO) Is the Chief Enabler of APS Scams While ATDF does not appear to be functioning as a mandated ECN
Let's review where we are: We know that in order to sell those shares into the market the perpetrators have to use the services of a US regulated Broker Dealer. We also know that one specific broker dealer Wilson Davis & Company is continually engaged in showing abnormally large bid sizes on every single APS scam since 2010.
The most obvious question to ask is why? Why would WDCO go out of its way to display such larger orders if their true intention was to buy the shares. The obvious answer is that WDCO is not trying to buy shares they are trying to manipulate the stock while other market makers such as ATDF liquidate shares. These transactions occur simultaneously often serendipitously:
- APS Stock begins to decline
- WDCO shows up with an abnormally sized bid, stock stabilizes
- ATDF shows up on the offer and sells into the buying generated by WDCO.
There are other variations to the WDCO/ATDF relationship, one could liken them to chess strategies but the one common denominator is that the two are obviously working in tandem in an effort to net sell as many possible shares into the retail volume stirred up by APS.
We are not the first ones to have outlined these alleged manipulations. Readers should visit this website and note how the author has so perfectly documented WDCO's tricks on yet another APS Scam that delivered total losses to investors: (OTCPK:GWBU).
Wilson Davis & Company is Just a Firm - Anthony Kerrigone is The Trader
There has been much discussion on the internet about the WDCO/ATDF relationship and about the obvious manipulation by WDCO of APS stock scams. But what all the message board posters and independent bloggers missed is that WDCO is only a firm with many independent traders. From what we learned, every market maker firm has several traders that are given authority over a specific stock. Last week, one of us called WDCO's head offices in Salt Lake City and asked who the trader was that handled the shares of PRTN. The answer was: Anthony B. Kerrigone. We then asked this same person if Mr. Kerrigone had been the trader that handled SNPK, GWBU, and VLNX and astoundingly the answer was affirmative.
When The Walls Come Tumbling Down
The last section leads us to a satellite office of Wilson & Davis Co. at 6901 S. Yosemite St. in a suburb near Denver called Centennial. There is appears to us, Mr. Kerrigone has been quietly facilitating some of the largest stock scams in the history of the OTCBB. This is in our opinion the closest thing to a ground-zero for the APS cartel (in the United States).
Remember, no matter what alibi Mr. Kerrigone may have for his trading activity in the APS scams, Occam's razor dictates that there is most probably some type of an embedded compensatory relationship between the APS cartel and this individual providing the best lead we could independently come up with for possibly stopping the cancer that is APS.
A Moment To Reflect
Since we started on this journey in early August we have received a large amount of feedback to our research both privately through the inbox on our SA account and on the comments sections of our research reports. Overall the majority of feedback has been positive with readers praising our work as having enlightened them on the intricacies of the OTCBB. We have also received several threats (confirming our choice to remain anonymous was the correct one) but the ratio of threats to positive comments is maybe 6/100 while the threats have all come from newly formed Seeking Alpha accounts with minimal comment history.
In addition to outright threats we have received about 40 comments and private messages from investors that agree with our analysis of the OTCBB yet at the same time feel we were painting the entire market in a negative light. These comments indicated to us that some investors are well aware of the risks on the OTCBB but enjoy the volatility and view the market as more of a casino where they can take punts on far flung ideas.
When we set out on this journey nearly two months ago we could have never imagined that 6 well researched articles would have resulted in such a large following and reverberations through the small cap world. While we are humbled by the result we would like to provide some more color as to the origins of Infitialis and our modus operandi.
Infitialis is a collective of analysts from the buy-side world that met up together for a drink over the summer. While knocking down pints at our favorite bar one of us told the story of how his father had lost over $60,000 on an OTCBB stock (SNPK.OB) after having received a hard-mailer at his doorstep. Two of us were astounded as we had literally no clue that the OTCBB market existed. Fortunately our set of skills in deciphering complex securities made analyzing OTCBB companies child's play. In late July we all got together in an effort to write reports that would eradicate fraud and folly from the markets. As one of us was a Latin Major we choose the name: Infitialis - which means rejection in Latin. This is how Infitialis was born.
The common backlash writers of short reports receive is one that places short-sellers in a more negative light than stock promoters. We find this logic to be flawed and even childish. After all the data introduced by a short seller should not have any impact on the market unless it influences a purchaser (who has supposedly done the due diligence to rationalize a purchase) to sell. What most readers don't know is that we add the "I am short" disclaimer as a boiler plate on our pieces and in some cases we are either short a very small amount of shares or no shares at all (like today on PRTN). The amount of time required to write these reports (as evidenced by their length and quality) should clearly carry the message across to any intelligent readers that Infitialis, while obviously motivated by potential profits is also on a crusade to eradicate fraud that is somewhat personal.
After reading the filings of over 200 OTCBB companies we have had plenty of time to think about the fatal flaws that are embedded into this market which have allowed unscrupulous stock scammers to extract billions of dollars from hard-working retail investors. In this next section we will outline our vision for a cleaner, better, OTCBB that would serve its main purpose while preventing up to 90% of the current frauds.
It is important to note that there is a segment of the OTCBB investment populace which we call the day trading scalpers who selfishly believe that OTCBB scams are good because they allow them to buy and sell very rapidly hopefully exiting before the pump turns into a dump. These day traders refuse to come to grips with the mathematics underlying the supply and demand of these scams IE: (Scammer purchases shares for fractions of a penny to sell to retail who ultimately own the shares forever). The day traders that buy and sell shares in between are only extracting spreads on the backs of retail investors who have to hold the bag in the end. With that said, intelligent day traders will look at some of our ideas in the next section and be pleasantly surprised as the market we envisage would only provide them with even more opportunities for profit as the quality of the companies on the exchange would be markedly better leading to more buyouts, graduations, and real value creation which is what serves as a put option for day traders.
Let's Clean Up The OTCBB
Why is it that after nearly two decades the OTCBB is still a haven for scammers and pump and dumps? The answer is that there has been a lack of leadership on the part of FINRA the former owner of the OTCBB to implement simple policies that we believe could eradicate up to 90% of all fraud on the OTCBB.
We truly hope that the new owner of the OTCBB Mr. Cromwell Coulson and his highly reputable OTC Markets Group (OTCQX:OTCM) will listen to some of these suggestions as their implementation will only lead to a healthier market ultimately providing OTC Markets Group with a more profitable business.
The key tenets underlying our proposed changes to the OTCBB revolve around eradicating the type of fraud that we believe leads to nearly 99% investor losses (99 out of 100 investors lose all their money on these scams) because the capital structure of the companies is so heavily skewed against the retail investor. Here are the first set of rules and changes we propose:
This first set of proposed rules would change the entire dynamic of the OTCBB for the scammers and pump and dumpers. For the average reader these rules will come across as sensible even lenient yet what may surprise you is that the first three rules are so powerful they would have prevented nearly every single OTCBB company we have covered from gaining entry.
Take PRTN, which raised only $60,000 by selling 29,666,000 shares @ $.002 per share (and then forward split the stock 6:1 lowering the purchase price to $.0003). In our new OTCBB PRTN couldn't exist unless it raised $1,000,000 in a subsequent offering at $.01 per share. Now a group like the APS cartel may be able to put up a million bucks but it completely changes the mathematics underlying their scam as they have now paid about 20x more for their shares changing the risk/reward characteristics completely. More importantly the smaller time crooks which make up the majority of the OTCBB market would simply cease to exist as $1,000,000 is simply too much. On the same token, legitimate companies that are only interested in raising $50-999,000 can do so but at a price per share of $.01 or higher. This would lead to capital structures with less shares outstanding, something that should have no impact on the success of the company or the share price activity.
The minimum price per share rule is one that naïve investors may mistake as being un-American or against the principles of free markets. But we just don't see it that way. We believe that there is no point in being a publicly traded company if the objective is to be a sub penny issuer. Most sub penny stocks have reached that level due to a long list of failures. By remaining sub-penny these companies simply attract more naïve investors who double down hoping that one day their lottery tickets will be worth something. These companies almost always end up going through reverse splits anyways as often the shares reach the lowest price currently possible ($.0001).
As for the minimum listing requirement of $500,000, we think that it's time to implement some kind of cut-off as the old system clearly doesn't work. $500,000 is high enough to change the risk/reward dynamics for the scammers while at the same time being low enough for legitimate startup companies to gain the privileged access of being a publicly traded issuer. Frankly a world where every single OTCBB company had at least $500k in tangible assets or revenues would only be a net benefit for investors.
A Newer Better OTCBB
We envisage a much better OTCBB one that truly provides opportunities for innovative companies to access capital while providing speculative investors with big risks and big rewards. We have no qualms about promotions and market awareness programs if they are adequately disclosed as long as the capital structures of the promoted companies have integrity and are not positioned in a manner that leads to repeated total losses for retail investors. We see no reason for the volatility and large percentage movements to disappear. If anything we can see much more of these moves to the upsides given the quality of the companies will significantly improve. Day traders that think OTCBB scams are good are foolishly mistaking that the fundamental dynamics of markets will disappear if the scams do. There will always be stocks that move rapidly to the upside or the downside and stocks that are either overvalued or undervalued. What we want is to simply weed out the ones that always end in 99% losses for the people that invest their hard earned money.
There is more at stake than meets the eye as being successful on this front (implementing new rules) would mean that all the billions of dollars that are currently being invested by hard working retail investors would actually make their way into the hands of entrepreneurs at the helm of these companies instead of the offshore bank accounts of the scammers. Think about how many jobs all the lost APS money could have potentially contributed to the US economy or all the potential innovation and wealth creation that would have ensued from this risk capital that was originally intended on being invested with a fair shot of success.
There are good companies listed on the OTCBB that provide solid opportunities for the enterprising investor such as: BMPI, VPIG, HOFD, CMXI, ACTC etc. (we are in no way recommending the purchase of shares in any of these companies). These companies have all engaged in promotion and have minimal to no revenues but they all host legitimate capital structures and at least provide their investors with an honest shot at making money.
We truly hope that the sensible recommendations we have proposed in this section are considered by the powers that be. The days of a loosely regulated OTCBB have ended in nearly tens of billions in investor losses and if nothing is done will surely end in tens of billions more.
We urge investors to stay away from shares of PRTN as with all APS scams they should soon decline by 99% from the promotional high. In PRTN's case the promotional high is $.53 cents indicating that shares of PRTN will trade at a price of $.005 in 6 months or less (as per the other APS scams).
We also urge investors and participants in the OTCBB market that share are views and are supporting of our proposed changes to email this article to the powers that be as we have done. Hopefully, someone out there in a leadership position will listen and maybe even implement these rules. Then we can get to focusing on NASDAQ short reports revolving more around folly (overvaluation, hype etc.) than outright fraud.
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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.