The Dark Side of MicroCap Investor Relations [Guest Post]
Guest Post By: Tom Allinder
What the heck is IR? I ask myself this question every day. I know what IR should not be – it should not be former brokers who lost their licenses through SEC or FINRA actions getting between you and your shareholders. Of course, not all IR firms are bad, but many of them are, and you should do your due diligence before you hire a microcap IR firm.
Why? Because, bad firms use the same ‘Stratton-Oakmont boiler-room’ (some of them actually former Stratton Oakmont Brokers) sales tactics on OTC CEO’s as they did when they were brokers looking for clients. To them this is exactly the same game where they can use the same skills to develop and attract business, but play both ends of the fence (trade), so to speak. The unfortunate thing is that most OTC CEO’s are fairly desperate to create “awareness” (a term a lot of IR groups use) and are usually sucked in to the trap of bad IR firms.
Now, I always found it interesting when selling a CEO on their services, IR firms point to;
1) the scope and size of their email lists,
2) their ability to “highlight” your company in a 1 page “tear Sheet”,
3) how they can produce “CEO Interviews” and then blast them out to email subscribers and how they can arrange for you to “present” your company to potential investors and,
4) pointing to other symbols where you can see certain spikes when they initiated campaigns, and the ridiculous list goes on.
All of the “services” above come at a substantial cost to an OTC company, and for what, a few short-lived spikes?
I get some of the reasons why a microcap CEO would do this. It could be a toxic convertible note that’s about to age and convert at a steep discount, an equity line of credit (ELOC) that needs to place “puts” to trickle in some money for operations, and/or the need to raise money so the increase in stock price may lure in direct investment via a PPM.
Whatever the reason, the costs of working with a bad microcap IR firm is high. In addition to actual financial costs there are long term market costs and personal costs for CEOs and management teams.
Let’s address the money issues first. These “campaigns” cost money, and a LOT of money. Anywhere from $5K to $25K a month, PLUS either S8 or restricted stock, and run between 3 months and 6 months.
The sales pitch usually goes like this – “we provide an array of investment relations services that we can get your company in front of 10’s of thousands of investors who would be interested in hearing your story and possibly buy your stock in the market and we charge a monthly fee but will also work for stock.” YIKES! The agreements
are for multiple months, and they do not guarantee anything, including actually working on your “campaigns” after you sign up with them. However, many OTC CEO’s sign up, because the pressure is overwhelming to make your stock perform in the market.
Market Costs (the Dump):
What ends up happening is that you are not experiencing a natural market, you are now involved in a pump. What’s worse, 99% of the perception of a pump is followed by a perceived upcoming dump. The guys on IHUB will kill the stock off faster than you can shake a stick at it by slamming the company, management and you.
Not only will your stock price and reputation with retail investors take a hit but, if you expect to apply for an up-list to NASDAQ, forget it for about a year. The listing committee will not entertain a listing application if your company paid for any IR services because no matter the reason and/or result, that’s viewed as an unnatural market. You need to stop ALL IR for a year, before you can even entertain an uplist.
Working with bad IR firms can be BIG TROUBLE, and I mean absolutely BIG TROUBLE for microcap CEOs personally. Recently, The SEC got a guilty plea from the CEO of Forcefield Energy, Inc. as well as a “stock promoter” (code for bad IR Firm) for market manipulation and kickbacks to that Long Island based IR firm that had both a cold-calling center (sound familiar?) as well as two established publications that touted new stocks sent via email. The problem is that in situations like this, bad IR firms try to get their hands on money in both directions, payment for the services they purport to perform and kickbacks from the company based on perceived performance. That’s just sheer greed on top of greed.
So, a word of caution, you really need to do your due diligence when deciding upon, and choosing an “IR firm” to help your company with legitimate market awareness. If you are having issues with your IR Firm of any kind, please contact me to discuss.
About Tom Allinder:
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