Blog : Weekend Rogues' Gallery: Scalpers, Bitcoins and a Caring Father

by Ed Zwirn on March 22nd, 2014

Call this one pump-and-dump on steroids: The Securities and Exchange Commission has succeeded in getting a court order to freeze the assets of one John Babikan for committing a brand of securities fraud they call "scalping."

According to fraud charges filed by the SEC last week, Babikam used the websites AwesomePennyStocks.com and PennyStocksUniverse.com to promote stocks in which he had an interest. While this is unfortunately not a rare occurrence in the penny stock world, what is striking is the rapidity with which Babikan allegedly reaped his ill-gotten gains.

To take the example cited by the SEC: Shortly after 2:30 p.m. New York time on the afternoon of Feb. 23, 2012, the websites disseminated emails to about 700,000 people touting a dog known as American West Resources. What the emails failed to disclose was that their originator owned more than 1.4 million shares of AWSRQ, which, according to the SEC, "he had already positioned and intended to sell immediately through a Swiss bank."

As would be expected, the emails immediately triggered massive increases in America West's share price and trading volume. A glance at the Yahoo! Finance price record for the stock shows it opening at 28 cents on the morning before the email. The stock traded over 7.8 million shares that day (up from 5,600 the day before), to reach as high as $1.80 that afternoon, a 543% uptick. The way the SEC puts it: "Babikan exploited [this uptick] by unloading shares of America West's stock over the remaining 90 minutes of the trading day for his ill-gotten gains of more than $1.9 million." (Not bad for 90 minutes of "work."). The following day, the stock traded over 9.8 million shares and went down to $0.65.

The moral to the story: AWSRQ is currently quoted at $0.0012 (if you can get it). It last released a balance sheet for Q2 2012.

When I worked at another financial publication some years ago I remember being castigated by a boss who was not particularly fond of me (you know who you are): The reason for this criticism was that I had been simplistic enough to try to define Enron as an "energy" company. My simple-minded characterization of this innovative company, I was told, was an indication of the extent to which I had failed to grasp not only the complexities of energy trading, but also the way financing would work in the future.

Since then, I have made it a rule to try to avoid writing about something I can't get my head around.

The Bitcoin is one of these topics. Of course, I did try to write about this so-called crypto-currency late in one of my penny stock blogs late last year. I pointed out that the extreme volatility of Bitcoins would make them unsuitable for anybody trying to treat them as a medium of savings or exchange. It may be fun to watch your Bitcoins go up and down, but this volatility may prove inconvenient to a merchant or anybody being asked to take the stuff.

But that's as far as the criticism went, mainly because I felt unequal then (and still do) to the task of explaining the whole monetary theory behind Bitcoin and its "mining."  The smartest guys in the room are always smarter than me, or so they act, and it is safer for one's ego to feign understanding.

So somebody explain this one to me: Bankrupt virtual currency dealer Mt. Gox announced that it had some good news for customers who had seen 750,000 Bitcoins lost from their accounts. According to the beleaguered company, some 200,000 of these missing "coins," or about $120 million worth, were found on a forgotten hard drive somewhere.

"On March 7, 2014, MtGox Co., Ltd. confirmed that an old format wallet which was used prior to June 2011 held a balance of approximately 200,000 BTC," the company said in a statement released Friday. Maybe I have an old format wallet like that lying around the house.

I like stories with moral ambiguity, so here goes:

According to the SEC's allegations, you could call Frank "Perk" Hixon Jr. a lot of bad things, but not a "deadbeat dad." According to his rap sheet, Hixon Jr. regularly logged into the brokerage account of the "mother of his young child" when he worked on Wall Street, based upon confidential information he received on the job, sometimes within minutes of learning of it. Illegal trades were also allegedly made in his father's brokerage account.

When his firm confronted him about this activity, Hixon Jr. "pretended not to recognize the names of his father or his child's mother" (now that hurts). "Text messages between Hixon Jr. and [the woman] suggest he was generating the illegal proceeds in lieu of formal child support payments," the SEC charges. After all, he probably thought it was the least he could do.