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Posted: September 5, 2007

Beware The Nano Penny Stocks

(Nanowerk) The New York Times today is running an article – Breathless Pitches for Penny Stocks, Now in Newspapers – on how get-rich-quick offers to buy a hot stock in a tiny, unknown company increasingly appear as full-page ads in major newspapers. One example the article lists is from a company called Nano Chemical Systems Holdings, which last April bought a full-page ad in the business section of The New York Times, replete with frothy lines like "Don’t miss this incredible investment opportunity!"
In the ad, Nano Chemical Systems Holdings of Seaford, Del., a former publisher of history textbooks, described its plans to become a leading biofuel maker and compared itself to Intel and Microsoft. “These two industry giants made early investors rich beyond their wildest dreams,“ reads the copy, adding that in “in much the same way, Nano Chemical Systems Holdings is positioning itself as one of the companies that can help make the Alternative Energy revolution possible!”
Neither the ad nor Nano Chemical’s Web site discloses that the company’s main business is manufacturing industrial waxes and lubricants. And there were other gaps. The ad made no mention of the fact that in January 2006, the Securities and Exchange Commission issued subpoenas to Nano Chemical related to its issuance of press releases, among other things. The company has said it is cooperating with the S.E.C.’s investigation.
The fine print at the bottom of the Nano Chemical Systems Holdings ad did disclose that a company named GIA Consulting had been paid over $232,000 by an unnamed third party to prepare and place the ad as well as “other informational advertisements.” While the ad said that GIA Consulting did not own any shares in Nano Chemical Systems Holdings, it gave no contact details for GIA Consulting or specific mention of the third party.
Alex H. Edwards III, the interim chief executive of Nano Chemical Systems Holdings, said he thought GIA Consulting was “a shareholder who placed the ad because they thought the company was undervalued.” He said he did not know where GIA Consulting was based or that the ad was coming out. Attempts to locate GIA Consulting were unsuccessful. Asked about the ad, Abbe R. Serphos, a spokeswoman for The Times, said that “it has been the longstanding policy of The New York Times to accept advertisements that promote stocks or securities as long as those securities are registered with the Securities and Exchange Commission or the attorney general of New York State.” She added: “In a few rare instances companies with unregulated securities have managed to place ads in the paper. When we learned of them, we took steps to make sure their ads do not appear in the paper again.”
Nano Chemical Systems had registered its securities offerings, according to filings; the stock trades on the Pink Sheets for around 5 cents a share.
Pat Huddleston, a former enforcement official with the S.E.C. who now runs Investor’s Watchdog, a consumer advocacy organization, said that “it’s a sign of how optimistic of success these scam artists are that they are turning to papers like The New York Times.”
It can't be repeated often enough: Don't fall for a "great investment opportunity" just because there is "nano" in the company name. Do your homework.
Source: The New York Times