According to The Financial News website, Toronto-based Graycliff, which trades on the Canadian Securities Exchange (CSE), was sitting on $500-million worth of gold reserves, and its stock was set to skyrocket by 800 per cent. The post on Graycliff was almost identically worded to one Mr. Caines saw in February that had motivated him and his father-in-law to buy shares in Crestview Exploration Inc. , another CSE-listed stock. After they had held Crestview for a few weeks, the stock crashed for no apparent reason.
“All of a sudden, around 10:30 that day, it just dropped from $2.45 to $1.30 in a matter of 10 minutes. ‘Oh my God, how can this go down so much,’” Mr. Caines said.
He now believes he bought shares in a company that was the target of a “pump and dump.” In such schemes, scammers acquire shares in a thinly traded stock, then spread false information that pumps up the price and trading volume. Taking advantage of the artificially high price and volume, the con artists then dump huge amounts of stock, leaving legions of honest investors with stocks that are worth far less than they paid. The Caines family cashed out of Crestview with a $16,000 loss.
This week, Graycliff and another CSE-listed company, Valorem Resources Inc. , were targeted on the same website that promoted Crestview in February in a near identically worded post. On Monday morning, after The Financial News said Graycliff was poised to explode by 800 per cent, and was sitting on $500-million in reserves, its shares ran up by 50 per cent. Around midday, The Financial News suddenly dropped its promotional push on Graycliff, and shifted its efforts to Valorem. Almost right away, Graycliff shares started tanking, and Valorem went parabolic. Valorem ended the session up 48 per cent, and Graycliff closed down by 29 per cent.
“They’re really scamming people, taking everyone’s money,” Mr. Caines said of whoever is behind the promotions. “The RCMP should know about this.”
The publicly available information about the-financialnews.com appears to be bogus. The site is registered to an individual called Carl Smith, who has a street address in London, but a Ukrainian postal code. The Globe and Mail tried to call the listed phone number for Mr. Smith, but it wasn’t in service.
James McIntosh, the chief executive officer of Graycliff, said no material news item could account for the giant swings in the company’s shares on Monday, and added that he had nothing to do with the promotion on The Financial News.
Valorem’s CEO, Tony Louie, did not respond to a request for comment, but the company said in a news release it was “not aware of any material, undisclosed information” that explained the recent jump in volume and prices of its shares.
Terry Lynch, the CEO of Chilean Metals, which is listed on the TSX Venture Exchange, said he was contacted around that time by The Investment Industry Regulatory Organization of Canada (IIROC). The market watchdog wanted to know why shares in the company were skyrocketing for no reason. Mr. Lynch told The Globe this week he had nothing to do with the “insane” post on The Financial News, and wasn’t even aware it existed. “The challenge with the internet is there’s a lot of lying buggers out there that are opportunistic and willing to take advantage of anyone,” he said.
The rinse-repeat nature of the promotions shows how powerless Canadian mining companies can be to protect themselves, and how ineffective regulators and market surveillance teams are at spotting them before they do damage, and stopping them once they are under way.
Mr. Caines, a general contractor who lives in Toronto, watched with a mix of horror and curiosity as the post that motivated him to buy shares in Crestview in February later morphed into promotions for Chilean Metal, Graycliff and Valorem: still alive on the internet, with Canadian regulators seeming to be unable to have it removed.
Richard Carleton, the CEO of CSE, which has been targeted by dubious stock campaigns more than any other exchange in Canada, said that trying to get a handle on problematic promotions has become a major focus.
“Going back at least a year, we have been working with, on a fairly regular basis, both IIROC and the responsible securities commission,” Mr. Carleton said, “on trying to peel the layers back on the promotional activities which are showing up mostly on social media and online, but as we saw occasionally, in old-fashioned print.”
But it is frustratingly difficult to get a handle on the problem, he said, especially when the materials originate overseas and the perpetrators can use encryption to conceal their identities. Mr. Carleton said CSE has jurisdiction to question only the officers of the company targeted. If a third party is responsible, it is up to the regulator to make enquiries.
The British Columbia Securities Commission (BCSC), the principal regulator for Graycliff, Valorem and Chilean Metals, declined to answer questions about the recent misleading stock promotion campaigns. “To protect the integrity of the investigative process, the B.C. Securities Commission does not confirm or deny the existence of an investigation, and does not provide details,” spokesperson Brian Kladko wrote in an e-mail to The Globe.
BCSC is already involved in an investigation centered on Crestview Exploration. About a year ago, the RCMP, in conjunction with B.C.’s security regulator and the Alberta Securities Commission (ASC) started a probe into possible securities market violations after letters were distributed across the country claiming Crestview was sitting on “billions of dollars of precious metals.”
Calgary-based Crestview, like Graycliff, Valorem and Chilean Metals, is an exploration company with no precious metals reserves, and therefore sitting on $0 in metals. Crestview CEO Glen Watson told The Globe last year that nobody at the company had anything to do with the letters.
IIROC on several occasions halted trading this week in both Graycliff and Valorem amid the frenzy. In an e-mail to The Globe, spokesperson Sean Hamilton said IIROC doesn’t comment on any investigations that may be under way.
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