Bugatti-Driving 26-Year-Old Tied to Penny-Stock We
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Bugatti-Driving 26-Year-Old Tied to Penny-Stock Website
Photographer: Jin Lee/Bloomberg
Short-sellers and stock promoters have puzzled for years over who operated one of the largest penny-stock websites. A U.S. lawsuit points to a Bugatti-driving 26-year-old from Montreal .
John Babikian used an e-mail list called AwesomePennyStocks to tout a coal company’s stock while dumping his own shares, the Securities and Exchange Commission said last week in a civil complaint . AwesomePennyStocks’ messages about that firm and 38 others, sent over five years, helped fuel spikes in share prices that boosted the combined value of the stocks by as much as $3 billion, according to data compiled by Bloomberg.
Bulk e-mails have long-since supplanted the boiler rooms of the 1990s as the most effective way to hype shares of little-known companies. The value of a prescription-drug distributor that AwesomePennyStocks promoted in 2012 ballooned by more than $700 million within two months. After the messages stopped, the shares collapsed.
“Compared to the ones I ran into, that’s big,” Tom Sporkin, the SEC’s former chief of market intelligence, said of the website after Bloomberg News shared the data with him. “It’s the biggest one I’ve heard of.”
The SEC said Babikian left Canada in 2012 in the wake of tax-evasion allegations and that his whereabouts aren’t known. Babikian moved to Monaco , according to Anne-France Goldwater, a lawyer who represented his wife in a 2013 divorce case.
Photographer: Scott Eells/Bloomberg
Babikian didn’t respond to letters sent last year to five addresses associated with him around the world. Stanley Morris, a lawyer in Santa Monica , California , who said last year he represented Babikian, declined to comment after the SEC’s case.
Fast Car
Babikian owned a Bugatti Veyron -- the cars cost more than $1 million and take 2.5 seconds to hit 60 miles (96.6 kilometers) per hour -- as well as a Bentley and Lamborghini, according to documents from Revenue Quebec, the province’s tax authority. It obtained a judgment allowing seizure of some of his assets last year, after he left the country, relating to its claim that he owed C$4.6 million ($4.1 million) in unpaid taxes.
The SEC is freezing Babikian’s assets, including two homes and the proceeds of selling a fractional interest in a plane, the agency said in a March 13 statement . Babikian bought a boxy, modern Los Angeles house in 2010 for $2.2 million, according to real estate website Blockshopper.com .
While promoting stocks is legal -- Wall Street ’s biggest banks send reports daily advising investors on what to buy, often in companies that are clients -- U.S. securities law prohibits market manipulation.
Stratton Oakmont
OTC Markets Group Inc. (OTCM) , which runs venues on which penny stocks trade, tracks the promoters and marks stocks it deems suspicious with skull-and-crossbones icons on its website, according to Chief Executive Officer Cromwell Coulson. AwesomePennyStocks was “one of the biggest promoters,” he said in a phone interview last year.
“The traditional Stratton Oakmont has been replaced by the opt-in newsletter,” Coulson said, referring to the boiler room depicted in “The Wolf of Wall Street,” the 2013 movie directed by Martin Scorsese . “People just get an e-mail and they buy these things without doing any fundamental analysis.”
The SEC routinely sanctions promoters for buying cheap stock, hyping it to investors, then secretly selling their holdings, according to Sporkin, who’s now a lawyer at BuckleySandler LLP in Washington . The scheme is called a pump-and-dump, or scalping, he said.
“It’s what I call the street crime of securities,” Sporkin said. “The world of pump-and-dumps occurs in the shadows.”
Keyser Soze
The SEC began its latest crackdown on penny-stock fraud in 2010 and had sued 40 individuals and 24 companies as of August, according to its website . In July, the agency formed a microcap-fraud task force .
Short-sellers and rival stock promoters said in interviews that AwesomePennyStocks was the biggest and most successful of the penny-stock websites and that they had tried for years to figure out who was behind it. One promoter, who asked for anonymity because he’s facing SEC market-manipulation claims, likened AwesomePennyStocks to Keyser Soze -- the character portrayed by actor Kevin Spacey in the 1995 film “The Usual Suspects” whose power is legendary and identity a secret.
“It was always kind of a mystery,” Peter Nicosia, who runs a stock-promotion site called Bull in Advantage LLC, said late last year. “They had the market cornered.”
AwesomePennyStocks built a list of subscribers with keyword advertising on search engines , bidding up the price of phrases like “penny stocks” to more than $2 a click, Nicosia said. Its e-mails generated the most stock buying in the industry, he said.
Bag Holders
“The sheep that buy end up holding the bag and losing everything,” said Randall Place, a lawyer who used to investigate penny stocks for a predecessor of the Financial Industry Regulatory Authority.
AwesomePennyStocks promoted at least 39 companies since 2009, according to e-mails sent to investors and reviewed by Bloomberg News . They included Calgary-based mining firms and a company in Scottsdale, Arizona , that owned medical-marijuana dispensaries. Another company in Boca Raton , Florida , sought to “redefine human donor organ procurement,” according to a 2011 statement.
The value of the 39 stocks increased by more than $3 billion during the days AwesomePennyStocks was promoting them. Most of the shares now trade for less than 1 cent each. The SEC accused Babikian of inflating the value of one of those stocks.
‘Awesome Run’
AwesomePennyStocks has closed after “an AWESOME run over the last few years,” according to the website . “We have seen multiple picks soar dramatically from our initial alerts, and we have seen our members reap the profits.”
The promotion cited by the SEC involved America West Resources Inc. (AWSRQ) , a Salt Lake City-based coal company. AwesomePennyStocks and another list called PennyStocksUniverse sent messages promoting the company’s shares on Feb. 23, 2012, according to the SEC.
The stock rose as high as $1.80 from 29 cents as more than 7.8 million shares were traded, more than double the total volume in the prior year, the agency said. Babikian sold at least 1.3 million shares for $1.9 million, according to the SEC. America West filed for bankruptcy protection last year.
To contact the reporter on this story: Zeke Faux in New York at zfaux@bloomberg.net
To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net Joshua Gallu