Suspicions of Manipulation and an SEC Halt for a $35 Billion Stock

Due to “potentially manipulative transactions” and concerns about the “identity of the persons in control” the Securities and Exchange Commission halted its shares, which trade on over-the-counter markets in the U.S.

Over the years, there were red flags. After Neuromama Ltd’s paper value more than quadrupled to $35 billion on scant volume, it began to draw more scrutiny this year. Neuromama has ambitions to license “heavy ion fusion technology patents” among its many projects. The market cap of Neuromama was greater than even Tesla Motors Inc before its suspension. It was based in southwest Siberia before moving to a beach community near Tijuana, Mexico.

An all-too-familiar tale in the murky, largely unregulated OTC market is how an obscure search engine with no reported financials since 2013 was able to become a multi-billion-dollar company. It’s long been a place ripe for exploitation by fraudsters, who manipulate shares of shell companies to make illegal profits through “pump-and-dump” schemes. The company has mostly penny stocks that don’t meet listing requirements of the New York Stock Exchange or the Nasdaq Stock Market. The SEC cited false statements from the company that it had applied to list on Nasdaq when it halted Neuromama this week.

“Shell companies have been a problem for decades because the agency has lacked the resources to police them. It’s absolutely something that needs attention,” said Stephen Crimmins, a former SEC enforcement lawyer who now works for Murphy & McGonigle.

While hundreds of such companies still trade, the SEC has pushed to remove more than 800 such companies over the last few years in an operation dubbed “Shell Expel.” Several companies like Neuromama have billions in market value even though they have reported little or no sales.

A little-known company called Cynk Technology Corp has the echoes of Neuromama’s situation. In what U.S. authorities said was a pump-and-dump scheme, the Belize-based firm briefly surged past $6 billion in market value in 2014 even though it had virtually no assets or revenue. In May, Gregg Mulholland, the man behind it all, pleaded guilty to money laundering conspiracy.

There has however been no formal acquisition of wrongdoing by Neuromama. Since the company’s stock volumes is less than 500 shares a day, on the day it trades, few investors are probably affected.

A history of run-ins with the law exists for Steven Zubkis, the chief marketer according to the company’s website. In relation to a $1.8 million forgery scheme through misrepresentations tied to the renovation of a Las Vegas casino, Steven Zubkis, also known as Steven Schwartzbard, was sentenced in 2007 to five years in prison. For orchestrating a $12 million penny stock scam, the Ukrainian immigrant was sued by the SEC in the 1990s. More than $21.6 million in disgorgement and penalties were ordered by the SEC to be paid by him.

There are several other OTC-listed companies like Neuromama that have billions in market value but have reported little or no sales.

Valued at $5.3 billion, AJ Greentech Holdings Ltd. says it’s a green energy company. TRHF Co. says it has a $5.1 billion market cap and is “a provider of platforms supporting relaxed and replenishing life in a beautiful ecological countryside.” Image Chain Group Ltd. is currently worth $4 billion and changed its business plan from reality television to the branded tea business. It was formerly known as “Have Gun Will Travel Entertainment Inc.” All of these companies are incorporated in Nevada, which allows companies to be created anonymously.

(Adapted from Bloomberg)

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