In an article by the New York Post published today, Timothy Sykes is quoted declaring SPNG “a blatant pump and dump.” Regardless of any personal distaste I may have about a lifestyle supported almost exclusively by betting against the success of American business, I am still amazed by his apparent refusal to understand SPNG’s current business as well as their financial structure. His central accusation seems to be that Spongetech management is engaging in share structure dilution at the expense of shareholders. Tim Sykes is wrong.
As I’ve recently been called a pumper that is ‘biased’, let’s look at this from a standpoint strictly relying on confirmed factual information.
Sykes, bashers, and those ignorant of Spongetech as an anomaly in the penny stock world assume that management has dumped massive amounts of shares onto the open market. If Sykes is right, then the market is flooded with hundreds of millions, and possibly billions of unannounced shares. Yet, of thousands of OTC and Nasdaq stocks, SPNG is just one of only 31 symbols on the SEC’s Regulation SHO list. Regulation SHO measures and reports the number of Failures to Deliver for any given symbol. Failures to deliver that are reported by Regulation SHO can indicate that more shares are being traded than actually exist, making matching buyers to sellers incredibly difficult. Spongetech has consistently been reported on the Reg SHO list over the past month, possibly indicating a heavy naked short position. Regardless, even I can tell it is not a normal market scenario.
This, however, is not what is so essentially important to SPNG’s posting on Reg SHO. What SPNG’s listing indicates is that the share structure is not large enough to support the amount of shares trading hands. After all, how do hundreds of millions of failures to deliver (over ten million in just two weeks of August!) occur in a diluted share structure? The answer is they don’t. The more reasonable conclusion to arrive at is that the outstanding shares count is too low to support the amount of fails. So, say what they will, bashers cannot claim that Metter and Moskowitz have diluted the share structure into the ground. The observable evidence just does not support that claim.
Why this is so important
Spongetech’s inclusion on the Reg SHO list is indisputable fact. Unfortunately for the dilution theory, normal market mechanics do not allow for 10 million legitimate failures to deliver in just two weeks in a severely diluted share-structure. So, say what you will about management, call them promoters and scammers, but if they are trying to rip investors off like other shell companies, they must be doing it in a way that does not involve diluting the share count. Put it another way, the New York Post can quote Sykes all they want, but that neither makes him an expert or correct. That isn’t to say that this stock does not have its problems. I detailed some of them in my last post. But being an “obvious pump and dump” needs to be justified by proof that the share structure has been diluted. Proof can be filings, skyrocketing volume (use a 10, 30, and 60 day avg. volume indicator), PPS decline proportional to claimed dilution, etc. Anything legally binding and/or observable (aka not gut instinct and rhetoric).
Tim Sykes, you are wrong. Unlike many OTCBB shells, this company has a clean record, marketing geniuses that sell a great product (I have bought and used their sponges), and a growing distribution base. Perhaps their greatest mistake (aside from late filing) is being a publically traded company in a financial system with little or no enforcement of fraud, collusion, or libel.
Spongetech’s advertisement and sales will continue. They are selling a product that works, people are buying (as demonstrated by QVC & HSN among others) and that is what the market will ultimately value. Regardless of what anyone says, the market will accurately determine the price when filings are complete and/or the artificially diluted share structure is corrected.
Perhaps I’m wrong. Maybe the PPS will collapse and I’ll lose the few hundred dollars I invested in SPNG a few months ago. However, I do know one thing: the share-structure is not being diluted as Sykes says. His only evidence is his aggressive rhetoric and frightful logic. If he (or anyone) can show up with clear evidence of dilution, or explain how SPNG’s Reg SHO listing is a result of natural market mechanics, I will reconsider my position. After all, I don’t like losing money any more than the next guy. What I refuse to accept, however, is arguments relying on sophistry and misinformation.
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Comments are welcome.
This is the worst Pump yet. You have failed to address the massive PR campaign by the company while in the midst of filing issues that prevent shareholders from understanding the stock structure. You fail to address the fact that the insiders and their financial arm in RM Enterprises have never filed beneficial ownership and changes in beneficial ownership with the SEC despite RM Enterprises being controlled by SPNG insiders and despite the fact that ME was issued 80% of all shares issued. you likewise fail to address CEO Metter’s sudden denial that he is not a principle in ME to the NY Post despite publishing a bio claiming he is a President since 2001 and CEO since 2004.
The executives running SPNG run as many as 4 other penny stocks and each invests in the same entities and receives all their funding from RME. Why not from an independent third party? Why not publicly disclose the selling patterns of RME?
As for sales and revenues, there are significant questions regarding the orders they say they shipped and so far their fist auditor lost their license on performance and their initial replacement is in similar hot water. investors do not have a quality audit on this company and the concerns that destroyed their last auditor are the vey accusations leveled against SPNG.
nice article except for the fact that SPNg being a pump & dump isnt even up for debate…stock promoters were hired at the tune of hundreds of thousands of dollars and 1 million free trading shares to get the stock price up (pump) and then the stock cracked 50% when stock promoters sold (dump). education over…u can try to fall back on revenues, profits, PRs, advertising, blah, blah blah misinformation misinformation…and now it looks like SPNG’s #s arent even accurate, big surprise
all the stock promotion and dilution is evidence enough…PS SPNG’s management invested in GFGU, why no SEC filing as to the price they paid? this stinks worse than a value investor’s 5-year returns
Correct HedgeCrusher but suckers and promoters dont give up…u’ll learn as I have…nothing wrong with that, just wish they had more intelligence to make it more of a fair fight…as it is, its like debating forrest gump, they can’t even spell the words “stock promotion”
And I guess its just a coincidence that SPNG’s 2 accountants failed and now the SEc is supposedly investigating…anonymous blogger, on behalf of all suckers and promoters, i say u must be right, it is i tim sykes, the SEC and standard acocunting principles who are wrong LOL
I look forward to the 10K filing from SPNG management and will decide if you are really good or are a sham@
Forgot, how do fails occur in the millions? They occur when people issued shares in physical certs from a transfer agent have to sell them in the open market. The delay is in getting paper to electronic and meeting settlement dates. Since the fails far and away exceed the short sales in the stock, the fails are most likely LONG fails and not short sales. Logically who, other than insiders, would have the share ownership in paper certs, at these levels, that could create such fails.
reported short position — 500,000 shares. Reported fails – over 20 Million. Doesn’t take a genius to figure it out.
Actually, share dilution by management through illegal channels has been shown to create fails to deliver. Just look at Universal Express. So the Reg SHO information means either that people are naked shorting the stock or that management is illegally selling unregistered stock. In other words, it proves nothing. SPNG is a pump, pure and simple.
Management has used forged opinion letters to dump shares and some have realized this and will not clear their paper, hence the fails. SPNG is a scam through and through which will become known as one of the largest OTCBB frauds ever. If not the largest.
Balance Sheet
Total Cash (mrq): 34.57K
Total Cash Per Share (mrq): 0
Total Debt (mrq): 0
Total Debt/Equity (mrq): N/A
Current Ratio (mrq): 11.76
Book Value Per Share (mrq): 0.016
I am not excited about this company.
No dilution?
Read the last sec report, 1.249 billion shares issued, about 1000% increase in one year but who knows how many are shuffled around each week
I say spongebob is a good poster boy for penny stock fruad
Like Markopolos in Madoff, all you have to do is talk to Spongetech competitors to understand their financials can’t be met without cooking the books. In this case, it is easy money laundering.
What you are forgetting Tim Sykes is that all of the companies that Drakeford accounting dealt with will have to do the same thing Spongetech is doing – restating their earnings. As Mr. Metter stated in the NY POST, “This has nothing to do with Spongetech.” So, lay off already. If you don’t like the stock, don’t buy it. You must like the free publicity about it only. But, in a week or two, when the 10K comes out, you will be very embarrassed.
I think Clockwork means well, but is just plain naive to the world of pennies. Instead of being a believer and optimist by default, in the world of pennies you’d be well-served to be a skeptic, almost to the point of “shady till proven legit” vs the normal “benefit of the doubt.” This approach would allow you to be more critical and the ones you’re left actually believing in will be higher quality bets. Finding (and exposing and sometimes profiting off of) these sheisters is what Sykes does; if anything his take is assumed to be right until proven otherwise; his track record has given him that credibility. Sponge on brother.
Sykes threw a couple darts in the dot.com era with his Bar Mitzvah and made some money…who couldn’t?
During 2006 and 2007, in the strongest bull run in U.S. history, the dumbazz was shorting and lost his azz. My understanding is not a lot of the investors in his penny-ante hedge fund were real thrilled.
So now he writes books about how screwed up his investing has been and makes ridiculous videos. Ummm…not exactly a credible source in my opinion.
Are you kidding me- Timmy Sykes has credibility? Is that because he ran his hedge fund into the ground or because he has a play money account with covestor. Not impressed at all.
[...] Sykes is Still Wrong: My Response to Tim Sykes and other SPNG(E) Skeptics 18 09 2009 Below is my response to Tim Sykes and other SPNGE skeptics who posted numerous criticisms on another of my blog posts yesterday. You can find their posts here. [...]
How do you respond to those allegations of forged lawyer opinion letters today? You ship is sinking guy
Now you should have a blog post “why tim sykes was dead on with spongetech but i was too naive to understand” your welcome