Is This Shaquille O’Neal Penny Stock A Pump & Dump? Help Me Decide!

So yesterday I got a cease and desist letter from Shaq’s attorney saying they wanted me to remove my February 7th blog post entitled “Shaquille O’Neal’s Pump & Dump Is Up Nearly 100% Due To This $320,000 Promotional Mailer” because “pump & dump” by definition is a fraudulent activity, consequently my (your) public statements are false and defamatory, and greatly damage to Mr. O’Neal’s reputation”

So trust me when I say if you get a threatening letter (the first you’ve ever received in 2+ years writing this blog) from one of the richest and most powerful athletes in the world, no matter how true your statements are, you think about taking your little blog post down ASAP.

But as I reread my post I was reminded again of the importance of publically exposing pump and dumps and that I was providing my readers with information that was 100% true and supported by the publicly available sources which I quoted…after all, it’s not my fault that Shaq and/or his attorneys don’t understand that NXT Nutritionals Holdings Inc. (NXTH) looks very much like a pump & dump…perhaps if I educate them, while educating everyone else through this blog, perhaps then, the threats would disappear and Shaq and his attorneys, would not threaten me, but instead thank and congratulate me for teaching them, as everyone else does….so here’s what we’re gonna do.

I’ve changed the title on the old post to state Shaq’s “alleged pump & dump” and I’m gonna present the facts of the case below…after you finish reading, you can vote in the poll and you tell me what you conclude…based on my readers’ opinions, we’ll see….also please send this post to friends and family not only to educate them but so we can give Shaq and his lawyer a better public consensus.

Read below and please answer this poll:

Is This A Pump And Dump?
Yes
No
  
pollcode.com free polls

OK, here we go:

1. NXTH FITS THE DEFINITION OF A PUMP & DUMP: The term “pump & dump” is defined by Wikipedia as:

“Pump and dump” is a form of microcap stock fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operators of the scheme “dump” their overvalued shares, the price falls and investors lose their money. Stocks that are the subject of pump-and-dump schemes are sometimes called “chop stocks”. [1]

While fraudsters in the past relied on cold calls, the Internet now offers a cheaper and easier way of reaching large numbers of potential investors

Well, NXTH is a microcap stock whose price has been inflated by the 2 email and hardcopy mailers I posted in this blog post which uses phrases like “you could see a 275% gain”, “turn $10,000 into $60,000 in 9 months or less”, “earn you potential 100%, 250% even 400%” and my personal favorite “even in the worst-case scenario, you could at least double your investment” (wow, if only all my worst-case trades doubled my investments!!)

So the question is are those positive statements “artificial and misleading”?

2: CONTRARY TO THE INCREDIBLY POSITIVE PROMOTIONAL MAILERS, NXTH’S BUSINESS STINKS: Well: “NXTH’s latest financial statements paint a much bleaker picture, however. During the first nine months of 2009, NXTH’s sales actually plummeted by almost 60% — and its gross profits fell substantially – as the company fielded smaller orders from two of its major distributors, while offering generous discounts and higher “slotting fees” to those who continued to stock its products. The company wound up recording a $16.1 million loss for the third quarter alone, partly due to its weak operational performance but primarily caused by a massive charge for extinguishing old debt instruments and replacing them with new ones worth far more to its noteholders.”

….and as TheStreetSweeper points out further, Shaq isn’t the only one with a ton of shares to sell that they received at hugely discounted prices:

3. PEOPLE HAVE LOTS OF SHARES AT DISCOUNT PRICES: NXTH suffers from weak internal controls that threaten the validity of the company’s financial statements. Like CLRH, NXTH also relies heavily on stock sales to finance its operations since it has recorded losses every year since its inception. In fact, NXTH posted a net loss of $16.1 million for its most recent quarter alone. Most of that resulted from the early extinguishment of debt in August, when note holders began to exchange their debt instruments under “substantially different terms.” Those investors now hold warrants – allowing them to purchase NXTH stock for as little as 40 cents a share – that are worth about $15 million more than the modest sums they actually loaned to the company.

The total intrinsic value of warrants outstanding, exercisable for 22 million shares of NXTH stock at an average price of 50 cents apiece, came to $27.8 million at the end of September. Since the stock has since risen, those warrants are now worth about $40 million – almost half of the current market value for the entire company. Meanwhile, with just $163,263 left in the bank, NXTH has already warned shareholders that its resources “may be insufficient to meet its cash needs for the near future” without additional fundraising. Berman & Co., the Boca Raton firm that serves as NXTH’s independent auditor, has raised substantial doubts about the company’s ability to continue operating as a going concern (page 22 of this SEC filing) in the meantime.

…and as independent investigator TheStreetSweeper.org points out, Shaq did receive a ton of stock just for agreeing to promote the brand:

According to a deal struck in late November, Shaq has already received 1 million shares of NXTH stock – and has been promised 2 million more – for lending his name to the company. With NXTH trading at $1.40 a share, that deal is currently worth $4.2 million. Shaq can begin selling his NXTH stock, shedding up to 100,000 shares a month, on the first day of February. If the stock falls sharply after that time, he can suspend – or even terminate — the deal.

So it would appear to me that those positive statements are misleading and logic suggests that it’s likely some shareholder in at discount prices who paid $800,000+ for the distribution of 2 promotional mailers, but you decide.

4. SHAQ HAS BEEN ASSOCIATED WITH CORPORATE SCAMS IN THE PAST: Shaq’s attorney letter states “pump & dump” by definition is a fraudulent activity, consequently your public statements are false and defamatory” but that assumes that Shaq would never enter into any fraudulent activity…hmmmm, is anyone really above the law like that? Especially someone with a history of using their celebrity status to endorse frauds, as independent investigators TheStreetSweeper.org showed:

Meanwhile, a company once endorsed by Shaq has already left a dark smudge on the basketball player’s name.

Back in 2001, news reports show, Shaq emerged as a prominent spokesman for a Seattle-area fitness company known as Znetix. The basketball star even sported a Znetix hat after his team won the national championship in June of that year, past news reports note, even as state regulators began cracking down on Znetix founder Kevin Lawrence for allegedly violating securities laws.

Seven months after that game, the Associated Press reported, the Securities and Exchange Commission formally filed charges against Znetix and Lawrence for bilking thousands of investors out of $80 million (a sum that would approach $100 million in the end). One year later, the Seattle Post-Intelligencer noted, the receiver overseeing Znetix’s assets filed a lawsuit against several big-name professional athletes – including Kareem Abdul-Jabbar and Eric Dickerson – who were identified as negligent officers or directors of the defunct company.

“They continued to serve and accept compensation from Znetix,” the lawsuit covered in the Post-Intelligencer article stated, “all the while burying their heads in the sand and ignoring flagrant wrongful acts going on around them.”

Although Shaq was not among the athletes sued, his name would remain attached to the scandal for years. It popped up in early 2005, for example, as three Znetix stock salesmen headed off to jail for their role in the massive scam. By then, the Post-Intelligencer reported, Lawrence himself had already received a 20-year prison sentence – setting a record in the state of Washington – after pleading guilty to securities fraud charges for masterminding the huge white-collar crime.

The media was still highlighting Znetix, along with the company’s star-studded publicity campaign, as a cautionary tale for investors just a few short years ago.

“Znetix recruited sports stars – including Shaquille O’Neal and Tiger Woods – for endorsement deals, and promised fabulous returns for investors,” The Columbian, a Washington-based newspaper, reminded in mid-2007. But “as the U.S. attorney’s office in Seattle succinctly put it in March 2005, ‘The advertising campaign was designed only to sell more stock, as Znetix had no products or services to offer, and little or no revenue.’”

5. PROMOTIONAL MAILERS MAKING ABSURD CLAIMS: NXTH’s stock price spiked form the 1s to 3s not once but TWICE, only after some unnamed shareholder paid $500,000+ and $320,000+ for two separate promotional mailers…this second advertising-induced-runup began the very week that Shaq could start selling 100,000 shares/week…and yes, I posted pics of those mailers in my original post.…when there are no mailers being sent out, NXTH’s stock price is lackluster to say the least.

6. QUESTIONABLE CEO BACKGROUND: NXTH’s CEO’s bio claims “McCarthy built Pepsi’s “Juice Creations” line into a $63 million business over the course of a single year. In addition, the bio states, McCarthy played an instrumental role in integrating Hawaiian Punch into the Pepsi Cola system.” But “At Pepsi Cola itself, however, McCarthy apparently left no lasting impression at all. “We are not familiar with a Michael McCarthy at Pepsi headquarters,” Nicole Bradley, an official spokesperson for Pepsi, stated when asked to verify the contents of McCarthy’s bio. “There are VPs at the bottling companies, but none of this is sounding familiar.” Moreover, Bradley added, “to my knowledge, Pepsi has never owned Hawaiian Punch, which is mentioned as one of the products he managed … I think Michael McCarthy will have to give you more information. Sorry I can’t be of more help.” The Street Sweeper asked NXTH for a detailed bio for McCarthy – including the specific titles and dates for positions he has held in the past – but the company ignored that request.”

7. PAID STOCK PROMOTERS LIKE CHARLES PAYNE HAVE HISTORY OF SEC VIOLATIONS: NXTH has been promoted by Charles Payne, as I’ve written about several times and whose firm was fined $400,000+ by the SEC in the past for penny stock promotion violationsTheStreetSweeper discovered was paid $50,000+ to promote NXTH:

Payne now publishes an official disclaimer at the end of his newsletter. In that disclaimer, he stated that he received no “direct compensation” for his report on NXTH. Instead, he said that he chose to profile NXTH based on his due diligence on the company. After that, however, Payne revealed that he had received almost $54,000 from an outfit known as Dynamic Global Media LLC to cover the costs of generating and distributing his report. Nevertheless, when asked for details about Dynamic Global Media, Payne told The Street Sweeper that he’s “not involved with the company.”

8. THE CHART FITS THE PUMP & DUMP PATTERN: Shaq’s attorney hasn’t had the pleasure of watching my PennyStocking Part Deux DVD or TIMfundamentals Part Deux DVD, but if he had, he’d have audibly said “Oh, shit” because NXTH’s hugely manipulated chart is the EXACT pattern of prototypical pump and dumps that I have been educating the public about for the past 2+ years…there is a reason I was able to correctly predict NXTH’s 50% intraday collapse TWICE, even though I couldn’t find shares to short the first time around and luckily got filled this time around (unfortunately my alert to TIMalert subscribers wasn’t sent out until the stock had already fallen 20%+ this time around, see the whole story and how we made $22,000+ shorting this pig…in short, how the heck does a stock drop 50%+ within a few hours not once but twice right when there are absurdly positive mailers being sent around…all I know is that one market maker BMAS was holding up the bid this entire runup and when they dropped out, the price plummeted…I wish the SEC weren’t so lazy and actually did their jobs (perhaps a star-studded trial between Shaq and I would help them focus?)

That’s my case as to why I believe NXTH looks like a pump & dump…given all those facts and considering Shaq could start selling 100,000 shares/week the first week of February, right when this latest $320,000+ mailer was being sent out, well, it just seems awfully questionable…perhaps Shaq doesn’t even know about stock and his advisors just absolutely suck…I dunno, you tell me…the one thing we don’t know yet is if Shaq sold any shares this past week…if he did, then that raises even more question, but maybe he didn’t…gotta wait for the SEC filings (speaking of, isn’t NXTH behind on reporting quarterly numbers? LOL)

Here’s the poll again:

Is This A Pump And Dump?
Yes
No
  
pollcode.com free polls

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  • Anonymous

    Gotta say: for someone who constantly points out the fact that he trades scared and takes his gains way too early, you’ve got balls of steel when it comes to standing behind what you say, which I definitely respect.

    That being said, I hope you have all your bases covered legally. I’m sure that Shaq’s people know how important maintaining the integrity of his “brand” is going forward, what with his playing days (and $20+ mill. a year pay days) almost at an end, and realize that any type of scandal/negative press could greatly damage his future earning power. For all his limitations, Shaq (and/or his people) have proven fairly adept at spotting emerging trends in media/entertainment (in the early/mid 90s, his release of Shaq-fu into the burgeoning video-game market, his adoption of hip-hop during its movement into the mainstream, his leading roles in a number of poorly received action/children’s movies; in the ’00s, his attempt to capitalize on the reality TV show craze, and, most recently, his wholehearted adoption of Twitter).

    As a result, I’m sure Shaq (and /or his people) realize the potential and widespread damage that any negative press on the internet could/can do to his image, and are likely to act fairly aggressively in an attempt to minimize any negative press, EVEN if he/they realize that the negativity and criticism are justified.

    Do I think Shaq got himself involved with a company that’s more concerned with increasing its stock price than its bottom-line? Given all of the facts, and, most importantly, the recent behavior of the stock price, it would be hard to not to answer in the affirmative.

    Is it likely that Shaq or his representatives, intentionally or unintentionally, benefited from the recent run-up (read: likely manipulation) in the company’s stock? If Shaq disposed of his shares as soon as they vested (i.e. as the price was being run-up), then I think you’d have to say ‘yes’ to that, too.

    Do I think that Shaq or his people played a direct role in the pumping and subsequent dumping of the stock? Other than lending his name, and thus, some credibility, to NXTH’s product (its stock), I find it highly unlikely, if not improbable. I know this isn’t what you’re trying to suggest, but I fear his high-priced lawyers would have no qualms about advancing that argument in a court of law, even if they know full well that that wasn’t your intent. I think adding “alleged” to the title of your first post is a good start, and hope you continue to be as exact as possible in your language when describing Shaq’s role in this whole sordid ordeal.

    I think your crusade to bring more transparency to the industry as a whole is important, and, to a certain extent, even noble (though obviously you wouldn’t be doing this if it weren’t also profitable), but would hate to see this whole thing blow up in your face over semantics.

    Good luck.

  • http://www.timothysykes.com Anonymous

    thanks best comment of the year

  • curtly

    Wow Tim, thats not what you were saying in chat. You were all gung ho with your little peeps obviously trying to impress them.

    So what if its a pump & dump. Its not Shaq’s, you f**ked up there.

  • Jay Biddy Trader

    These statements alone make it a pump & dump:

    “you could see a 275% gain”, “turn $10,000 into $60,000 in 9 months or less”, “earn you potential 100%, 250% even 400%” and my personal favorite “even in the worst-case scenario, you could at least double your investment”

    It sounds like Amway. Most attorneys are worthless. Don’t back down.

  • curtly

    BTW, how is this different to you sending out trade alerts to your subs in illiquid stocks and destroying its stock price?

    Or ANY other of the thousands of manipulated stocks?

    Your a fool for trying to swim with big boys who have the means to crush you should they choose. Your not reaching / impressing anyone other than fiscally and mentally poor idiots who trade penny stocks.

  • http://www.timothysykes.com Anonymous

    they are promoting the stock and product with shaq’s name and image…shaq gives them respectability….notice the post they complained about, all i did was say shaq could begin selling shares

  • http://www.timothysykes.com Anonymous

    what r u talking about dude, NXTH is not illiquid, i dont send out alerts on illiquid stocks

  • curtly

    I didnt realise i was talking about NXTH

  • alex

    Tim, I think you should pull this post because we want them to keep up their good work. We don’t want them to get scared and stop promoting their stock. I see from your spreadsheet you banked $12k which I’m guessing is one of your best profits yet. And you had been more patient, oh man that would’ve been sweet. Oh, well (hindsight is easy), I would’ve covered at the same point (I actually bought the bounce there). Too bad I couldn’t get shares to short…I need to get a Sogo acct. Anyhow, It would be a shame if they SEC catches wind of all of this and decides to shut down their little “pump and dump” operation. They did a damn good job of it.

  • Cassou

    Timothy you ROCK!

    Don’t let them impress you. You ain’t doing anything wrong but underlying what can be accessed by anyone! Good job!

  • Dd

    Good work…..looks like a scam and Shaq knows it’s fraud…….But, he’ll play the thing out like “I’m just a dumb jock”!