In regards to that case, you can witness the incredible power of the Internet in order to do harm. In the penny stock arena it is tough to get a hold of information in which somebody gets penalized for lying. If an auditor lies on a 10-K he could be in deep doo-doo. The readers of 10 Ks know that and trust the contents. Development stage corporations in the U.S. have access to a 12-g exemption from both filing 10 Ks and the various registration requirements.

This exemption is there because of the onerous financial burden on yet to be cash flow positive development stage issuers that would have to sell shares to pay these bills. Bashers, on the other hand, will proffer that all nonreporting companies are run by crooks with something to hide. From a shareholder point of view the question becomes would you rather own “X”% of a nonreporting company that didn’t have to pay for audits and other registration expenses or perhaps 70% of “X”% of the company if it were to voluntarily become fully reporting even though by law it doesn’t have to. In other words, would you be willing to hand an auditor a whack of your shares in order to sleep better at night.

Enter the Internet, this informational void in which liars will get penalized for lying gets filled by “shareholder advocates” with nothing to lose for lying. Those that host the IHUBs of the world can take advantage of this informational void where liars aren’t punished and pre-place either positive or negative bets (naked short sales) and only present or allow the presentation of material favorable to the bet they previously placed. The lack of audited financials and periodic 8 K filings drives investors trying to do meaningful due diligence to these forums where their brains are there ripe for the brainwashing.

What was interesting in regards to this case is it was a “pump and dump” case and not the far more common “short and distort” case involving abusive naked short selling that these venues are usually used for in order to aid and abet these frauds. These forums play an integral role in these crimes as it is much easier to induce fear, uncertainty and doubt in order to dissuade buying and induce selling than it is to appeal to a person’s sense of greed in order to induce buying.