How did a seemingly fake social network from Belize become worth billions?
[UPDATE: See Pando's follow-up on subsequent SEC action against this company.]
If I asked you to name all the social networks with a $1 billion-plus valuation, chances are you’d list Facebook, Twitter, and LinkedIn. Maybe if you really thought about it, you’d add Snapchat, Instagram, Tumblr, YouTube, messaging clients like WhatsApp, Line, and WeChat, and if you’re really in the know, international giants like China’s Qzone, Russia’s VK, and Korea’s Cyworld.
One company that almost certainly wouldn’t make your list is CYNK Technology Corp. But, guess what? It’s currently valued at $6.1 billion.
Why is it that no one’s ever heard of this apparent social juggernaut? Well, the first thing is that it hasn’t launched yet – the company’s product doesn’t even exist. Next, it’s more than likely a complete scam.
CYNK is Nevada corporation with a Belize mailing address that is trading publicly on the over the counter equity markets (OTC), a largely unregulated market often called the “Pink Sheets.” The company has no revenue, $30,000 in current liabilities and over the last 12 months has incurred $2.34 million in total expenses, according to its filings. It also has no cash in the bank.
Best of all, in April of this year the company decided to suspend filing financial reports with the SEC (a winning indicator if there ever was one). A man named Marlon Sanchez is listed as CYNK’s President, CEO, CFO, Chief Accounting Officer, Secretary, Treasurer, and Director. Despite Mr. Sanchez’s many hats, the company warns in its SEC filings that it "does not have an employment contract with its key employee, the sole shareholder who is the Chief Executive and Chief Technical Officer." CYNK has an even-crazier celebrity-powered back story that pre-dates Sanchez's involvement, but none of that explains the company's current business or its wild stock price.
A brief description of the company on Yahoo Finance outlines its current status:
Cynk Technology Corp., a development stage company, focuses on operating a social network. Its social network is based on showing the types of people the user is connected with and associated. The company intends to serve seekers, who want to meet people; mavens, who know a lot of people; and targets, who are people that other people want to meet. The company was formerly known as Introbuzz, Inc. and changed its name to Cynk Technology Corp. in July 2013. Cynk Technology Corp. was founded in 2008 and is based in Belize City, Belize.A similar statement in the company’s November 30, 2013 quarterly report reads:
Cynk Technology Corp. is a development stage company that has not commenced its planned principal operations to date. Cynk Technology Corp. plans to launch its web based social network at the end of the next quarter following the placement of the offering. Operations to date have been devoted primarily to start-up and development activities, which include the following: 1. Development of the business plan; 2. Website development; 3. Programming including: user interface, search mechanism, registration, listings, membership profile, search functions, invitation screens, secured payment options; 4. Adopted marketing strategy and target market segmentation; 5. Conducted due diligence on market acceptance, membership trends and social network habits; 6. We plan to launch our website www.introbizz.com during the fourth quarter of 2013. We have identified a company in Texas to provide us with server space at a cost of $99 per server. If additional server space is needed (based on traffic to our site) this company can provide ample servers immediately on demand.You say Introbuzz, I say Introbizz. The Web currently features a site called IntroBiz that purports to sell introductions to celebrities and business leaders for a fee in the range of $50. Introbizz.com is nothing more than a collection of (presumably affiliate) links to: Accounting Course Online; Online Payroll; Medicare Supplement; Car Donation; Online School; Rewards Card; Apr Credit Card; and Pay Traffic Ticket.
Name confusion and scammy placeholder websites aside, there are two key details in these above descriptions that should make it clear what’s going on here.
First, a “development stage company,” in Wall Street terms is one that is still figuring out its business, may be doing R&D, and is likely to be undercapitalized. CYNK corroborates this by saying it will only launch its social network after completing the placement of its offering. Second, the company “intends” or “plans” to offer a variety of social experiences, meaning it is not currently doing so.
So what the hell is up with that market cap? I mean, seriously?
It’s impossible to say for sure, and I’m hesitant to make accusations that I can’t back up with evidence, but this stock has all the hallmarks of a pump and dump scam. Without getting too far into the stock fraud weeds, a pump and dump generally involves trading a relatively small number of shares – like a few hundred thousand shares in a company with hundreds of millions of shares outstanding – at high volumes and at artificially high prices in order to later sell large volumes – the other 290 million shares – at inflated prices. For anyone who saw (or read) The Wolf of Wall Street this was one of Jordan Belfort’s (Leonardo DiCaprio’s) favorite tricks.
Again, to be clear, I have no evidence that this is in fact occurring. It just fails the smell test, badly. Come on -- a $6.1 billion market cap and climbing? In the roughly 45 minutes since I started writing this post, the market cap has increased more than $1.1 billion.
On July 11 2013, CYNK traded its first shares and closed at $20 per share, although only 100 shares were traded at that price (making the market cap largely meaningless). The stock then settled comfortably below $1, trading an average of less than 30,000 shares per day. Despite being a development stage company with no “business” to speak of, this is not that atypical in what’s called the “penny stocks” market.
But on June 17 of this year, all hell broke loose. The stock opened trading at just $0.10 that day, but traded 367,379 shares, closing up at $4.25 – a rise of better than 4,000 percent. With 291.5 million shares outstanding, that gave the company a theoretical market cap of $1.24 billion. CNYK has continued to trade between 50,000 and 200,000 shares per day in the three weeks since with the stock rising as high as $6.75 in intra-day trading through this Tuesday.
As if this wasn’t crazy enough, CYNK nearly tripled yesterday, closing the day at its all-time high of $14.71 for a market cap of $4.29 billion. Today, the stock is up another 44.6 percent to $21.10, meaning it’s adding hundreds of millions in market cap with the casual abandon that Vegas revelers down expensive mini bar snacks.
In total, CYNK’s stock price has climbed more than 35,000 percent over the last 19 trading days. Apple, the world’s most valuable company went public in 1980 and is up just 18,000 percent in the 34 years since.
The ZeroHedge blog noticed this same crazy story and (unsurprisingly) arrived at the same conclusion: this can’t be anything but a fraud. But the financial blogger took the subsequent step of pointing the finger at CYNK’s “auditor,” Palm Harbor, Florida-based Messineo & Co, CPA LLC, and then lists out the three-dozen or so other clients affiliated with this firm. Twitter too has been abuzz with discussions of the crazy stock roller-coaster, with most people asking questions like "who invests in this garbage?" You might ask the same question about potato salad kickstarter campaigns (h/t @DustinFarivar).
Given all of the above, it seems unlikely that anyone will ever have an IntroBizz account or be able to download a corresponding app on their smartphone. Maybe Sanchez is going for name confusion over the aforementioned IntroBiz. Either way, this is a stock that investors should avoid like the plague. Don’t be surprised if the SEC steps in in the very near future, likely first to halt trading and then to investigate the circumstances of this ridiculous run up in stock price.
In the meantime, get your popcorn and let’s see how high this thing goes.
[UPDATE: See Pando's follow-up on subsequent SEC action against this company.]