by Dan Burrows | July 25, 2014 2:21 pm
CYNK Technology (CYNK) resumed trading Friday, and plenty of shareholders probably wish it hadn’t as they watched CYNK stock plunge nearly 85%.
In what’s been the scandal of the summer, CYNK — a penny stock trading over-the-counter — shot up 25,000% in a matter of days in early July. Then the Securities and Exchange Commission stepped in.
Never mind that the Belize company has no revenue, no assets and one employee. For a short time, CYNK stock had a market cap of $6 billion, which is bigger than about a tenth of all companies in the S&P 500.
That was bound to get the attention of regulators even when it comes to the OTC market, which is largely left to its own and therefore home to all sorts of dodgy companies. The SEC halted trading in CYNK stock on July 11 to investigate “potentially manipulative transactions” and the “accuracy and adequacy of information in the marketplace.”
That’s the same boilerplate language issued by the regulator when it halted trading in some medical marijuana stocks — such as Grow Life (PHOT) and Advanced Cannabis Solutions (CANN) — earlier this year.
CYNK was heavily promoted in social media like Twitter, which helped fuel its growth … as well as concerns that it could be a pump-and-dump scheme. Although there’s no proof CYNK stock is a scam, its rise and fall should still serve as a warning to anyone playing in the penny stock market.
Even if a company is on the up-and-up, a trading halt will absolutely wreck its shares. CYNK fell from $13.90 to $2.50 within 30 minutes after the market opened. PHOT was trading at 50 cents when it was halted. Today it fetches less than 9 cents per share. CANN goes for $4.50, when it used to get $30 per share.
None of this proves that these stocks are pump-and-dump schemes. But that’s what the chart of a pump-and-dump stock sure would look like.
There are so many reasons to run from stocks trading in the OTC market: A lack of liquidity and regulatory oversight; unaudited or absent financial statements; the potential for scams. After a busy summer for the SEC scrutinizing penny stocks, you can add regulatory risk to that list. When the feds put a trading halt on a stock, well … it’s cooked.
CYNK proves yet again that despite the allure of stratospheric gains, the OTC market is really just a casino. And when it comes to casinos, the house always wins.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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