December 31, 2012: From time to time, we receive usually empty threats of litigation from a company featured in one of our advisories or listed on our Watch List. These soreheads take offense at being identified as the subject of a Pump & Dump scheme, using their status as current SEC reporting companies to trumpet their legitimacy.
To date, only one such company has filed litigation against us, but they quickly dismissed once they got wind of our intent to file a Motion to Dismiss under the protection of anti-SLAPP (Strategic Lawsuit A Public Participation) statutes, designed to protect free speech and which would have entitled us to our attorneys fees from the litigating party.
On December 21, 2012, we received a letter demanding that we cease and desist from continuing our "defamatory conduct" against Fuse Science, Inc (DROP), a company that has appeared on our Watch List four times in the last 17 months and is currently listed. The letter was written by Attorney Robert Thornburg of the law firm of ALLEN, DYER, DOPPELT, MILBRATH & GILCHRIST, P.A., intellectual property attorneys based out of Florida.
Within his letter, Mr. Thornburg, determined that our website, "addresses purported stocks which are not legitimate and/or involved in certain marketing campaigns designed to improperly elevate their stock pricing". We partly agree with Mr. Thronburg. We identify companies that are involved with marketing campaigns designed to artificially elevate their stock price. Some of these companies are not legitimate. At no time did we identify DROP as being illegitimate. We have no idea of the legitimacy of this company. Nor do we care.
Whether the (temporary) elevation of the share price (or volume for that matter) is improper, is a question for the regulators and/or authorities. What we do know is that the artificial elevation of price and volume is a recipe for investor disaster. We will add the characterization that the campaigns of all of these companies create enormous losses for the general public and that, over time, the share price of these companies almost always ends up close to zero.
Mr. Thornburg goes on to state that, 'Upon further review of your site, the home page includes a "watch list", that "denotes [the] number of times stock has been involved in a Pump & Dump campaign."' Mr. Thornburg claims that, "All of these statements are materially false and designed to interfere with Fuse Science business relationships as well as prospective investors." We are not sure as to what "statements" Mr. Thornburg is referring to, as until now, we have only included DROP on our Watch List for ongoing Pump & Dump campaigns. Furthermore, we have not "designed" our website to interfere with any company's business. Our website is "designed" to limit the number of people hurt by Pump & Dump campaigns, which create huge losses 100% of the time. Judging from the emails of gratitude we receive, this "design" has been very successful.
Mr. Thronburg's letter goes on to deliver the usual empty threats of litigation, blah, blah, blah.
So is DROP the subject of a Pump & Dump? Let's see.
As stated earlier, DROP has been promoted within four separate email campaigns. Three of those campaigns took place (one is still taking place) over extended periods of time and were conducted by Direct Global Media, the publisher of the Xtreme Picks, Our Hot Stock Picks and Punter Stock Picks newsletters. While Direct Global Media occasionally gets paid for their promotion services, they (or their masters) are famous for acquiring stock on the cheap from insiders (which may include financiers) of the companies they promote, and then selling that stock into the hype they create at a nice markup. (You didn't really think that those promotions were not of a benefit to Direct Global, did ya?) One of Direct Global's prolonged promotions over the summer of 2012, regarded Aerius International, Inc. (AERS). We have strong evidence that the stock that was dumped onto to the market during that campaign was acquired directly from AERS President Bill Luxon, who is involved in prolonged battles with key shareholders for control of the company. As Direct Global Media claims it has not been compensated for its promotions of DROP, we expect that discounted stock was also acquired from some insider ahead of the promotion. We don't know whom that person(s) may be, but we find it interesting that the first promotion of DROP began when the stock was still trading under the symbol DEGH, shortly after the reverse merger with Fuse Science was first announced.
A one day email campaign was also conducted by newsletter, Shazam Stocks, on October 22, 2012. Within their disclaimer, and as required by SEC regulation, Shazam revealed that, "We expect to be compensated by a third party fifteen thousand dollars for profile coverage of DROP". Can anybody think of a reason to pay for a one day promotion if it is not for the purpose of dumping stock?
As could easily be predicted, the various DROP promotions were not kind to the general public. The first campaign, was conducted during July of 2011 when the stock was still trading under the symbol, DEGH and 90,112,039 common shares were issued and outstanding. The promotion elevated the share price from 15 cents to as high 76 cents. Millions of shares were bought between 30 and 60 cents. With the stock currently trading at around 19 cents, losses as high 75% were suffered. Following the promotion, the share price leveled off around 30 cents.
The next promotion went on for about four months beginning in mid October of 2011, during which time Fuse Science's symbol changed to DROP. The annual financials which were due in September, were not filed until the following January, by which time there were 110,162,036 common shares issued and outstanding, an increase of about 20 million. One would have to have a great imagination to believe that it was just a coincidence that this promotion occurred at the time the financials were significantly delayed and revealed this increase in stock. The financial news was not good either, as cash position was cut almost in half while liabilities doubled. The promotion was a big success for sellers, however, as the share price rose steadily to as high as $1.05 on tens of millions of shares of volume. Large amounts of stock was bought in the $.80 to $1.00 range during December. The stock however quickly found its level back in the 30 cent range and many had lost as much as 70% of their investment in short order. As nothing went on in the way of campaigning during the spring and summer of 2012, and volumes diminished, the share price managed to find new lows in the area of ten cents.
The third promotion took place on Monday, October 22, 2012, a one day job predicated by the Shazam Stocks emails previously mentioned, created a huge increase in volume as well as share price. Somebody knew that this promotion was coming too, as reflect by the previous Friday's significant increase in volume and price. The share price rose to 20 cents, not nearly enough to placate those that were stuck in higher prices up to a dollar. Alas, that increase was also temporary, as within two weeks DROP shares were back to the 12 cent area. Notably, by this time the number of shares issued and outstanding had increased to 145,548,876, meaning that another 35.4 million shares would be looking for a new home.
Which brings us to the current promotion, already three weeks old. We don't really know how many shares are now issued and outstanding as the last financials were filed with the SEC for the period ended six months ago, rendering Mr. Thornburg's claims that the "company maintains regular, routine and appropriate filings...", rather dubious. We'd bet that there is another significant increase in the number of shares of DROP out there. The share price spiked at the start of the current promotion, but almost immediately fell off, maintaining a range of about 18 to 20 cents. Still, I think we can all predict what will happen to the share price once the current campaign is concluded.
Judging by the frequency of the promotion campaigns, the stock's price action during the promotion campaigns, the continuing and significant dilution of shares, and the financials performance of the company, there can be little doubt that DROP has been the subject of several Pump & Dump campaigns. We have no way of knowing whether the company is directly involved or complicit in these campaigns, but then again, does it really matter? Furthermore, the company's implied claim (by Mr. Thornburg) of non-complicity is in question at best. DROP has done nothing to disavow these promotion campaigns, which have thus far cost unsuspecting investors millions of dollars.
There is no way that DROP can justify even the current market cap of $27 million, never mind the past super-inflated values. The company lists $1,747,511 in assets, including its intellectual property, and $1,559,900 in liabilities. The picture is not likely to brighten any time soon, as the company last reported quarterly net revenues of only $35,872. Without the P & D campaigns to elevate the share price, this could easily be trading at small fractions of its current level. We would guess that it eventually will. We suggest that perhaps Fuse Science and its attorneys should be more concerned with the perpetrator of these Pump & Dump schemes (if the company itself is really not involved), rather than on the reporting of them.
We continue to stand by our position that all companies, including DROP, that are promoted by the mainstream newsletters, spam emails, hard mailers or cold calls, are subjects (willingly or otherwise) of Pump & Dump schemes, and that these stocks will end up creating huge losses 100% of the time.