Cynk Technology's Valuation Defied Gravity Without Revenue, Rousing SEC
How can a social network that no one has ever heard of suddenly be valued at more than $6 billion? The SEC wants answers and has suspended trading in onetime penny stock Cynk Technologies. Erik Holm joins MoneyBeat.
The Securities and Exchange Commission is investigating how Cynk Technology Corp. CYNK -5.51% , a social network that reports zero assets, no revenue and one employee, soared to a $6 billion valuation, according to people close to the probe.
The SEC on Friday halted trading in Cynk—whose price had shot up more than 100-fold since mid-June—because of concerns about "potentially manipulative transactions" in the stock, the regulator said.
The sole employee Cynk has listed couldn't be reached for comment.
The SEC's move comes as prosecutors and regulators ramp up efforts to tackle possible fraud in the penny-stock markets, where thousands of tiny companies trade with little, if any, formal scrutiny of their financial health or operations.
As part of this effort, the SEC has suspended trading in more than 1,300 companies in the past two years. The government also is increasing its use of sting operations to catch alleged fraudsters.
In the case of Cynk, SEC officials think they shut down trading before large numbers of investors were harmed, according to people close to the investigation of the meteoric stock rise.
Cynk shares, after not trading for about a month, on June 17 suddenly jumped to $2.25 from 6 cents.
That day, various stock promoters on Twitter raved about the stock, saying it "keeps surging higher!!" and "this could be EPIC!!!"
The stock climbed over the next several weeks before nearly tripling to $14.71 on Wednesday.
Volumes, though up sharply, were still relatively low, with 386,000 shares traded Thursday. The SEC believes it stopped trading before any attempt could be made to unload the inflated shares to retail investors via possible spam emails or press releases, said the people close to the probe.
The regulators acted in part because of a plethora of red flags, the people added.
Cromwell Coulson, president and chief executive of OTC Markets Group Inc., which owns the platform on which Cynk traded alongside thousands of other companies, said the "information was there for any investor to know they should avoid" Cynk.
He added that the limited supply of Cynk shares, along with brokerage firms' restrictions on large sellers of the stock may have helped any manipulators drive the price up.
Cynk, a Nevada-based company with a business address in Belize City, Belize, is based on the premise that "people will pay for introductions that are meaningful," its federal filings say. As of its quarterly report in November, it had yet to generate any revenue. The address in its regulatory filing is inaccurate and the business plan vague. The company itself said in its annual report in May 2013 that it lacked effective internal controls.
Cynk has had four chief executives since 2008. The latest—the sole employee—is Javier Romero, whose address is listed as in Belize. Mr. Romero bought 210 million shares in February, giving his stake a "notional value" of more than $3.5 billion when the stock price peaked Thursday. He couldn't be reached for comment.
According to Cynk's regulatory filings, the company was founded in Las Vegas by John Kueber in 2008 in Las Vegas with the name Introbuzz and six million shares outstanding. Mr. Kueber, who is chief operating officer of Tiger Oak Media in Seattle, said in an interview Friday he no longer has a connection with the company. "I read about it on the news," he said.
The company in its filings said it planned to launch a website called Introbizz.com in the second quarter of 2012. That site doesn't appear to have ever launched, but Cynk operates a site called Introbiz.com with the banner headline The Social Marketplace.
The site says it allows users to receive contact information of celebrities such as Leonardo DiCaprio for $50 or to connect with professionals in various areas of business for a larger fee. It isn't clear when Introbiz.com launched.
Over six years, the company's shares have been transferred three separate times. The four people involved all served as the lone employee and chief executive.
Kenneth Carter became the company's sole employee and CEO in October 2011 after buying six million shares for $600, according to a filing, which said he bought them from Mr. Kueber. Mr. Carter said in an interview Wednesday that he had the initial idea for the social network and received support from outside investors, whom he declined to specify. He said the investors took the company in a different direction from what he had in mind, so he quit and sold all his shares. "My lawyer said, 'You better get out now,' " he said.
Mr. Carter resigned in March 2013 and his shares were canceled, Cynk said in a filing. A month later, Marlon Luis Sanchez was granted 2.8 million shares, a 72% stake, and took over as CEO.
According to the filings, Mr. Sanchez is a partner in Sanchez Medical Services providing medical services to the Southern California market. He is also listed there as the "primary spokesperson" for the Medical Tourism Industry council in Tijuana, Mexico.
Reached by phone on Thursday, Mr. Sanchez said he left the company several months ago. "I worked my magic for a year, my friend, and now you can see the results," he said, adding that he couldn't speak further at this time.
Mr. Sanchez sold 210 million shares to Mr. Romero, the current CEO, according to a letter sent by a lawyer in Las Vegas to OTC Markets Group.
The June 11 letter—sent by Harold P. Gewerter six days before Cynk's stock began taking off—stated that he had been hired by Cynk to review all of the company's corporate records, such as disclosure statements, financial reports and bylaws, and that such records were adequate under SEC rules.
Mr. Gewerter wrote that he personally met with Mr. Romero and confirmed his address as one being in a business center in Belize City.
That address, which also appears in Cynk's quarterly reports from 2013 when Mr. Sanchez was CEO, isn't valid, according to the manager of that building in Belize.
The building manager asked Cynk by email why it listed that address. The company apologized and said it was a mistake.
Mr. Gewerter said in an email that he no longer represents the company.
—Michael Calia and Scott Austin contributed to this article.
Write to Jean Eaglesham at jean.ea...@wsj.com and Jeff Elder at jeff....@wsj.com