An aerial view of the brine pools and processing areas at a lithium mine in the Atacama desert of northern Chile on Jan. 10, 2013.Ivan Alvarado/Reuters
The electric-vehicle revolution is propelling impressive gains in commodity and equity prices around the world, few more dizzying than Liberty One Lithium Corp.
The penny stock, which has changed its name twice since 2016 and is years away from an operating mine, surged 250 per cent in October, when both the price of lithium and a benchmark of producers posted single-digit returns.
Along with receiving permits to drill in Argentina and rising commodity prices, Liberty One has been boosted by Pyronix Media, one of a number of companies paid in cash and stock to sing the praises of clients through e-mail, websites and social media. Such online promotions have led at least one U.S. exchange to change its disclosure rules.
"There's a lot of hype and expectation that probably will never be realized, and it's very hard for small investors to sort those out," Joe Lowry, a lithium industry consultant and former FMC Corp. executive, said by telephone, without referring to specific companies. "Drilling a few holes doesn't constitute an ore body. But that doesn't stop them pumping the stock."
Canadian and U.S. securities rules prohibit issuers from making misleading or untrue statements. As long as they're true and properly disclosed, paid promotions are fine.
One piece published on Stock.Report raised concerns at OTC Markets Group Inc., the U.S. over-the-counter exchange on which Liberty One trades. Entitled "Liberty One Lithium Delivers For Members!" it was published online in October and referenced steep gains by three other lithium companies, predicting: "Liberty One Lithium could be ready to join those ranks especially after what we've seen so far!" The article, which includes a pay-to-publish disclaimer in small print, has since been deleted from the Stock.Report website, along with another titled "Huge Opportunity Ahead With Liberty One Lithium."
The company was among several that OTC Markets had asked to issue statements to address the promotions. "The lessons learned led to us recently updating our recommendations around promotional disclosure," OTC Markets chief executive officer R. Cromwell Coulson said in a Dec. 12 e-mailed response to questions.
The exchange declined to provide details of OTC Markets' concerns regarding the Liberty One articles, and Mr. Coulson didn't accuse the company of wrongdoing in interviews and an e-mail exchange.
Liberty One, which didn't respond to repeated requests for comment, has attributed most of its October share surge to other factors, such as obtaining drilling permits and the broader lithium rally. It acknowledged in a news release, issued in response to OTC Markets' concerns, that online promotions also may have helped. The company said it first hired Pyronix Media Inc. for an undisclosed sum a year earlier, but that it had no involvement in the editorial content of the articles published by Stock.Report.
Liberty One's address in Vancouver corresponds with an office labelled Venture First Capital Partners Inc. On two visits, a receptionist there said that while Liberty One is located at the premises, no one was available to speak to a reporter. Messages weren't returned.
In the same Oct. 30 statement in which it disclosed the work done by Pyronix, Liberty One said two of its directors exercised options to buy 500,000 shares in the past 90 days and then sold 489,900 of those shares.
One of those directors, chief financial officer Morgan Tincher, exercised 350,000 options on Oct. 24 and disposed of 380,000 shares on Oct. 24 and Oct. 25, filings show. The latter date marked the shares peak, handing Mr. Tincher proceeds of more than $400,000 (U.S.) net of the cost of exercising the options. A similar amount was pocketed by another director, Patrick Whibley, on trades between Oct. 20 and Oct. 26, filings show. The article that concerned OTC Markets was e-mailed to investors on Oct. 23, but also appeared on the website with an Oct. 13 date stamp.
Filings on Canada's System for Electronic Disclosure show Mr. Tincher received 500,000 options on April 27, but didn't disclose he'd received them until Oct. 27. Neither Mr. Tincher nor Mr Whibley responded to requests for comment made through the company.
In 2016, Pyronix Media Corp. acquired a stake in a Liberty One subsidiary that has since been spun off. A filing with the British Columbia Securities Commission lists Archie Roa as the contact person for Pyronix Media Corp., with an address in Bacolod City, Philippines.
The listed address for the company is a cream-colored bungalow in a gated community beside an empty lot of wild grass and banana trees. Staff at the address said the house belongs to Mr. Roa's sister, who didn't answer calls. Bacolod city officials in charge of business permits didn't respond to a request for comment.
Stock.Report couldn't be reached for comment. The site is owned by MAD Media Publishing LLC, a company listed in a Nevada database as being registered in February, 2017. According to its own online disclaimer, Stock.Report was paid $250,000 by Pyronix between April and August to provide coverage of Liberty One.
Stock.Report describes itself as a paid advertiser that publishes favourable information about publicly traded companies. "Investors should consider the information to be one sided and not balanced, complete, accurate, truthful or reliable," it says in the disclaimer. "If an investor relies on the information in making an investment decision it is highly probable that the investor will lose most, if not, all of his or her investment."
Since it responded to OTC Markets' inquiry, Liberty One's stock has fallen about 50 per cent. It has still more than doubled in the past year, or about 10 times the gain of the S&P/TSX Venture Composite index. Other lithium juniors have also surged in the past year.
OTC Markets Group is lobbying for tougher U.S. rules to ensure the people behind stock promotions are visible to regulators and investors.
The U.S. Securities and Exchange Commission declined to comment on Liberty One. A spokeswoman for the Ontario Securities Commission referred questions to the British Columbia Securities Commission, which declined to comment, as did TMX Group Ltd., which operates the TSX Venture Exchange.
Pyronix promotes other companies in Canada and the United States. In 2015, it bought stock in Breathtec BioMedical Inc. months before the two companies signed a marketing arrangement, filings show. In the same year, Breathtec completed a plan of arrangement with Liberty One, when the latter was an oil junior known as Petro Basin Energy Corp.
A spokesman for Breathtec, Alfred Wong, confirmed that Pyronix purchased a million units of the company in 2015. Mr. Wong said he was unaware of the promotional agreement as he recently joined the company.