Cynk Restriction on Broker Share Transactions Set to Lift Today

Jul 25, 2014 2:41 am ET

July 25 (Bloomberg) -- One of the restrictions keeping Cynk Technology Corp. shares from trading is scheduled to lift today, freeing them potentially to change hands among brokers away from exchanges.

The new status doesn’t guarantee the shares will trade since buyers and sellers may not agree on prices following an 10-day halt. Individual brokers who are governed by the Securities and Exchange Commission will be able to exchange the stock over the phone in the so-called grey market, according to Cromwell Coulson, chief executive officer of OTC Markets Group Inc. Cynk won’t be traded on venues run by OTC Markets, he said in a phone interview on July 23.

“If history is any precedent, based on the allegations, the likely resumption price, if any, will be under a penny,” Jacob Frenkel, a securities attorney at Shulman Rogers Gandal Pordy & Ecker PA and former SEC enforcement official, said in a phone interview yesterday from Potomac, Maryland. “The end of the trading suspension does not guarantee that there’s going to be a trading market.”

The SEC stopped trading in Cynk two weeks ago citing “concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions.” The rally in Cynk, a supposed social-network operator with no revenue or assets, sent the company’s market value to more than $6 billion before the suspension. The stock, which was less than one cent in February 2013, last closed at $13.90 on July 10.

Widespread Scrutiny

For market makers to quote bids and offers for Cynk shares, they would have to submit a filing with the Financial Industry Regulatory Authority. Brokers are unlikely to do that given the suspension and widespread scrutiny surrounding this company, Coulson said.

A broker would need current and accurate information about the company to make a market in the stock, according to Frenkel. In filings with the SEC, Cynk lists its offices as Suite 400 in the Matalon building in Belize City, Belize. There is no Suite 400, and the building manager has said the company has never had an office there.

Brokers may add their own restrictions for trading the stock and limit it to investors liquidating holdings or covering short positions, Coulson said. Cynk will still be branded on OTC’s website with the skull-and-crossbones icon denoting a “buyer beware” warning.

Toward Zero

“The trading will be opaque and inefficient,” Coulson said. “What happens usually with these is there’s a little bit of trading to cover short positions, and they slowly make their way toward zero.”

The company’s stock price movement caught the attention of business blogs and Twitter pundits, from Business Insider to the Wall Street Journal and Zero Hedge, which has called Cynk’s moves “pure madness.” Shares started to surge in June, rising to as high as $21.95 from 6 cents, the closing price on May 15. Cynk appears to have one employee and no revenue, no assets, and no members on its social network.

“There was probably a lot of money made and lost in this,” said Michael Block, chief strategist at New York-based Rhino Trading Partners LLC, in a July 23 phone interview. “It’s going to be a cautionary tale of people manipulating stocks and participating in run-ups.”