I received a glossy, 12-page advertisement in the mail last week from Elliott Dobbs at Stock Market Authority. The cover had some interesting quotes. Things like: “A global hunt is underway for the NEXT Oil.” And: “This essential rare earth metal could soon replace 148 billion barrels of oil… worth $11.5 TRILLION in revenues.”
Inside were 11 pages of praise for a tiny company called the Lithium Exploration Group (OTC:LEXG). The mailer was well-produced and included some generic quotes on lithium from some of the world’s biggest news organizations. “The gas engine made petroleum the world’s biggest commodity,” Forbes purportedly writes. “The electric car could do the same for the third element on the periodic table [lithium].”
At the bottom of Page 10, I found the newsletter’s disclaimer in tiny type: “This featured company sponsored advertising issue of Stock Market Authority (SMA) does not purport to provide an analysis of any company’s financial position, operations or prospects and this is not to be construed as a recommendation by SMA or an offer or solicitation to buy or sell any security.”
Interesting, I thought, as every page has SMA’s name plastered on it, and there’s a “signed” letter from SMA’s editor on Page 11 arguing the virtues of LEXG. Reading the disclaimer further, I found this: “Lithium Exploration Group, (LEXG), the company featured in this issue, appear as paid advertising, paid by Gekko Industries to provide public awareness for LEXG. Gekko Industries holds restricted shares of common stock of LEXG.”
Hmmm… I thought. Gekko just might be making a nice stack of cash off this little mailer if they’re offloading their shares on the publicity bump. Then, I saw that SMA’s making a nice chunk of change, too.
“SMA is paid $50,000 as an editorial fee from CM (Circuit Media) and also expects to receive new subscribers as a result of this advertising effort,” the disclaimer continued.
My curiosity piqued, I decided to see how LEXG’s shares were doing on the OTCBB. Shares were up 4,800 percent from $0.10 on March 21 to $4.95 at the close of trading on Friday! That means a $100 investment on March 21 would have been worth $4,950 barely two months later, and a $10,000 investment would have been worth nearly half a million dollars!
Looks like the ploy by Gekko Industries is working out perfectly. It just saddens me to think of all the investors out there who might end up losing lots of cash investing in a dead-end company. Even the OTC Markets Group is worried. They’ve slapped a “Caveat Emptor” or “Buyer Beware” warning on LEXG’s quote page.
The writers over at Stockhouse.com did some digging on Gekko Industries, which purchased the advertising, and found that its a Panama-registered company that bought 5 million shares in LEXG on January 12, 2011, at a cost of $5,000. They then dumped $3.3 million into a widespread marketing campaign for the company.
If Gekko played their cards right, they likely off-loaded those shares at or around $10 each when they spiked on April 28. That would be good for nearly $47 million in profits even after shelling out $3.3 million on the penny stock’s marketing campaign!
The day before shares in LEXG shot over $10, Lithium Exploration’s president, Alex Walsh, issued a letter to shareholders warning them that outsiders had been promoting the company’s stock.
“We seek to clarify that we have not engaged in any such activity, and have no connections to, or relationships with, anyone who would be engaging in the promotion of our stock,’’ Walsh wrote.
If Walsh was smart, he would have been selling any shares he held, too. After all, his company hasn’t generated a penny in revenue since its inception in Nevada in May 2006 (per Stockhouse).
If you’re holding LEXG shares, it’s probably time to jump ship. The stock’s lost more than 41 percent of its value in two trading days. Get out before the blood-letting starts. If you managed to make any money in the run-up, check out my post on the Top five penny lithium stocks of 2010 (EFL, OROCF, AVL, GXY, CLQ) for some lithium mining stocks that might actually make some money mining lithium.
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Tags: LEXG, lithium, lithium mining stocks, lithium-ion stocks
