ValueWiki Blog

If you’re buying a low-volume stock, always place a limit order. Look at Friday’s IDWD chart (from Yahoo Finance). There were only 50,000 shares traded. Right around 1pm some poor sap placed a market order and overpaid 12%. See that spike? Somewhere out there, a rookie is crying.

Two weeks ago, Google shed $5 Billion in market cap on Barrons’ article claiming Google is overvalued. Google’s current P/E is 61, or around 37 times FY 2007 earnings estimates. Google’s price has been stalled ever since.

Barrons has a history of predicting Google’s crash. And Google stock has a history of going up. For example, in February Barrons predicting Google would crash to as low as $175, and in November Google topped $500.

Does anyone at Barrons use the internet? Let’s not pretend, Google’s running the show. No search engine competes with Google. And Google Adsense pretty much single-handedly revitalized the internet, spurring the current Web 2.0 boom. Gmail revolutionized email, and may have just got perfect. What other company comes close to Google’s internet innovations of the past five years? Microsoft? Yahoo? Is a forward P/E of 37 really so expensive?

Okay fine, maybe it’s time for Google’s stock to rest for a few months from its steady ascent, but Barrons’ gloomy predictions strike me as a bit overblown.

Consumer Affairs has announced their Top 10 Scams of 2006, and number 6 is the classic Pump and Dump. Consumer Affairs sites a penny stock called Texhoma Energy that was email spammed in October. Daily volume grew from 53,000 shares to more than 5 million before the stock crashed.

Aside from gullible investors, the real victims in these situations are often the underlying companies. The ValueWiki community can help prevent these scams and protect investors by immediately reporting stock spam to ValueWiki. As soon as you receive stock spam, list the company on ValueWiki’s Top 10 Stock Spam Victims and make a note on that company’s article page. This will help alert investors that a small volume stock is being manipulated.

Conversion Solutions Holding Group is a classic penny stock pump-and-dump that went from 10 cents to four dollars to an SEC lawsuit. Not to put to fine a point on it, but stock message boards are the breeding grounds that allow scams like this to grow and thrive. CSHD CEO Paul Rufus Harris himself had an account on HotStockMarket.com and regularly posted to the CSHD forum, instructing users to “buy the s— out of CSHD.”

Note: HotStockMarket has since deleted this link, and deleted all links to ValueWiki from their site.

The Saga of CSHD

What follows is a timeline from when the pump began (in August), to the fever pitch (the $4 spike in October) to the SEC trading halt (that gap in November) to its current pre-litigation collapse on the grey market.

From its August inception, CEO Paul Rufus Harris, now under SEC litigation, claimed that CSHD had received major financing from several major institutions. These growing claims culminated on Monday, October 16, when CSHD issued this 10-K claiming an asset portfolio worth $7.2 Billion.

CSHD’s 10-K claimed to own Lehman Brothers Holdings PLC Bonds worth $564,092,494.32, Republic of Finland Sovereign Bonds worth $939,000,348.90, and Caracas Group Bonds worth $5,000,000,000. In the 10-K, CSHD boldly states “the corporation currently has an asset portfolio of $7,292,601,135.22″ and claimed a current book value of $70/share.

By October, the CSHD Message Board on HotStockMarket.com was exploding with hundreds of messages per hour. A massive cheerleading section emerged among message board regulars, some of whom may have made 4,000% on the rise from 10 cents to 4 dollars. As is standard policy, any desenters to appear on the message board were quickly reported to HotStockMarket.com’s moderators and banned for being “bashers.”

Meanwhile, there was ample and growing room for skepticism. On September 28, CSHD skipped a much anticipated interview on Market News First. According to Market News, CSHD’s CEO didn’t show up to the interview and no one in CSHD’s office answered phones all day. Watchdog websites StockLemon.com and Stockwatch.com issued frantic warnings to investors about CSHD’s shady operations. TDAmeritrade blocked investors from buying the company, causing Paul Rufus Harris to level accusations that TDAmeritrade was carrying a huge short position on CSHD.

October 24, the SEC steps in

By October 24th, the SEC decided enough was enough. The SEC filed this restraining order against CSHD and Paul Rufus Harris and halted trading under rule 15c2-11. Neither CSHD nor Paul Rufus Harris filed replies to the SEC lawsuit. This has allowed the SEC to file entries of default judgement.

In a remarkable display of investor psychology, CSHD continues to enjoy a massive fanbase on HotStockMarket.com. The CSHD forum continues to be HSM’s most highly-posted forum. Investors have bonded together to create the Conversion Solutions Shareholder Committee to help in the restructuring and resurrection of what is essentially a corporate shell that defrauded investors of millions of dollars.

In November, Paul Rufus Harris was fired, re-hired, and fired again by the CSHD board of directors. The CSHD board has shuffled through various replacements, currently settling on Vancouver trader John Arlitt as CEO. Stockwatch.com has provided enormous and devastating coverage of John Arlitt, painting a picture of a former penny stock broker who is shady and underqualified at best.

The moral of the story

We are a long way from the days when the pinksheet stocks were actually listed on pink sheets of paper. And one would imagine that with the information-sharing power of the internet, scams like CSHD would no longer be possible. But unfortunately it is the information-sharing power of the internet that allows these cons to spread farther and wider than ever before. More uninformed investors were pulled into CSHD than could ever have been possible in the days of the pink sheets.

The saga of CSHD is exactly why Zach and I are starting ValueWiki. By keeping ValueWiki articles neutral and referenced, we are working to build a reliable forum for pooling investment information. By setting a Wikipedia-level of objectivity, we can counteract Message Board hype. Any investor who read the research and coverage on our CSHD page would have no excuse for losing money in that scheme.

In the end, what did Paul Rufus Harris stand to gain? Whatever his share-dilution was between August and October, was it really worth the jail time he will face? Did he really expect to keep his winnings, after publicly touting a $7 Billion asset value for his ten cent company? Yet people are drawn into these schemes every time.

My advice to CSHD bag-holders…learn better due diligence and start using ValueWiki!