Jammin Java (JAMN): Hot Stock ... Bitter Aftertaste?

by Janice Shell - 6/2/2011 10:30:25 AM

It’s time to wake up and smell the coffee! That’s exactly what Jammin Java (OTC: JAMN.OB), a heavily promotedcoffee company, and – for very different reasons – TheStreetSweeper would like investors to do.

Since the beginning of the year, JAMN has miraculously risen from the ashes of the “Grey Market” graveyard to become one of the liveliest – and richest – stocks in the entire microcap arena. JAMN has seen its stock shoot straight toward heaven, soaring from 55 cents to peak above $6 a share on massive daily volume, with its market value nowtopping $355 million despite the company’s limited resources and operating history. (As covered in more detail below, two of the Internet tout sheets pushing JAMN the hardest effectively vanished -- disabled by their Internet servers -- on the day the stock’s trading volume exploded past 20 million shares.) 

JAMN stands out for its powerful connections, the first loudly celebrated by the company and the second – involving a notorious stock promoter – carefully hidden from view.

For starters, as the company well knows, JAMN comes complete with a very seductive story. JAMN counts Rohan Marley – one of seven children fathered by iconic Jamaican musician Bob Marley – as both current chairman and original cofounder of the company. Thanks to Marley’s son, JAMN has found itself with an attention-grabbing asset.

Through a private firm known as Marley Coffee LLC, corporate filings show, Rohan Marley has granted JAMN an “exclusive, transferrable, worldwide license” to use the “Marley Coffee” name to market the expensive coffee it apparently began selling just a few months ago. JAMN imports its coffee beans from Africa and Central and South America (rather than Jamaica itself), the company said, and then roasts them right here in North America before ultimately marketing the finished product – retailing for up to $72 (for a variety pack) before discounts -- with help from the beloved Marley name.

Since JAMN was still classified as a “shell” corporation when it filed its latest financial statements in December, reporting no revenue or cash in the bank at all, investors have been bidding up the stock based on mere faith – as opposed to actual evidence – that the company can drum up huge demand for its high-priced coffee. If the multiplesassigned to industry powerhouse Starbucks (Nasdaq: SBUX) serve as any guide, investors are basically treating JAMN like a company that sells almost $150 million worth of coffee a year already and boasts healthy profit margins (approaching 10%) on those sales to boot. 

At this point, in fact, JAMN actually looks more valuable on paper than the past “winner” that stock promoters like to tout when predicting just how successful the company could ultimately become. Through frequent and potentially expensive advertisements on Yahoo Finance (now gone), promoters have teased investors with sexy pitches about the “next Diedrich Coffee” -- which turns out to be none other than JAMN itself. Diedrich wound up bankrupt before recovering and selling itself to Green Mountain Coffee Roasters (Nasdaq: GMCR) for $300 million, records show, fetching a price that’s some $56.7 million LOWER than the market value assigned to JAMN despite its long-established presence in the coffee industry.

Even the powerful Marley name cannot fully explain the astounding market value enjoyed by this fledgling coffee company. As indicated above, JAMN can also be linked to another – less illustrious – name as well. 

Vancouver stock promoter Shane Whittle has been connected to the company for years. He served as a director of JAMN from August 2007 to May 2010, corporate filings show, while filling key executive posts -- including CEO, president, secretary and treasurer -- throughout much of that same time period. Whittle also doubles as CEO of a Canadian version of Marley Coffee, filings indicate, and ranks as a controlling player at U.S.-based Marley Coffee LLC – which provided JAMN with its most valuable asset (the Marley name) – as well. 

Whittle also ranks as a major shareholder of JAMN itself. He owned almost 10 million shares of JAMN stock last fall,records indicate, before selling 2 million shares – at just 2 cents apiece – in October and giving another 4.89 million shares away. Whittle smartly held onto 2.49 million of his JAMN shares, however, which are now worth almost $13 million following an incredible four-month run.

Whittle originally caught the attention of TheStreetSweeper a year ago because of his apparent connection to Big Bear Mining (OTC: BGBR.OB), a heavily promoted penny stock that flew above $1.50 but has long since crashed below 10 cents a share. Despite convincing evidence to the contrary, Whittle angrily denied any ties to BGBR and famouslythreatened TheStreetSweeper, tacking on a memorable curse – “Take your phone call and shove it up your ass!” – before hanging up the phone.

Whittle took the opposite approach, pouring on the charm, when contacted by a different reporter fromTheStreetSweeper this time around. He agreed to at least review questions emailed by TheStreetSweeper and then responded by offering some high-end Marley coffee -- “free of charge, of course” – and pitching coffee service forTheStreetSweeper office as well. (TheStreetSweeper declined that gift.)

Whittle never actually answered any of the softball questions he received, however, so TheStreetSweeper never bothered sending him more pressing questions – like those that had triggered his earlier outburst – after that time.

Waking up from the Dead

The ties between JAMN and Whittle appear to be as old as the company itself.

The company originally went public under the Marley Coffee name through a reverse merger with a recycling outfit, known as Global Electronic Recovery (GERV), about three years ago. GERV actually welcomed Whittle to its board the previous summer, records show, and soon followed up by executing a 23:1 stock split that increased the company’s outstanding shares from 3.66 million to 83.2 million – and its authorized shares to 1.7 billion – ahead of the reverse-merger deal. With that merger complete, the company began trading under the symbol MYCF – soon tapping Whittle as its president -- and became a brand-new coffee stock.

When MYCF adopted its new name in 2008, records show, the company also struck a deal with Whittle’s big-name cofounder that allowed it to enter the coffee business. Specifically, MYCF arranged to lease a small Jamaican coffee farm owned by Rohan Marley -- identified as an old soccer buddy of Whittle’s – for a mere $1,000 a year. The farm did not actually secure a license to sell Jamaican coffee (despite a decade of trying), The Jamaica Observer later revealed, until the year after that transaction took place. 

The very next year, records indicate, the company – now operating as JAMN – transferred that lease to a privately held version of Marley Coffee in exchange for its current license to use the Marley name and sweetened the deal by pledging huge chunks of its publicly traded stock to boot. All told, records show, JAMN agreed to issue Marley Coffee 10 million shares of stock (1 million shares annually over the course of 10 years) in a deal valued at just $640,000 on its books. Based on those figures, JAMN essentially placed the value of its stock at just 6.4 cents a share for the duration of that decade-long agreement.

JAMN inked that deal in March of 2010, with Whittle resigning from his executive and boardroom posts at the company to focus his attention on Marley Coffee – while still holding onto a big pile of JAMN stock – in the months that followed. Whittle oversaw a second stock split before he departed, however, leaving behind a company with almost 100 million shares outstanding and the authorization to issue 5 BILLION more. (The founder of GERV, who resurfaces occasionally to shift around stock, has since canceled and sold a big chunk of stock to bring the share count down to itscurrent level of 69 million shares.)

JAMN clearly had a rich abundance of stock after that second split, but nobody seemed terribly interested in buying it. Six months after that dramatic expansion in its share count, in fact, JAMN found itself bumped to the dreaded Grey Market -- a nightmare of illiquidity -- because market makers had apparently lost total interest in quoting the thinly traded stock.

JAMN finally began to take some action last December, three months into its exile, when the company negotiated a financing deal that promised to deposit some much-needed cash into its barren bank account. Specifically, filings indicate, JAMN inked a “share issuance agreement” with Straight Path Capital – identified as a United Kingdom firm – that would enable JAMN to raise up to $2.5 million (capped at $40,000 a day) by selling its stock to Straight Path for 40 cents a share. The original agreement lasts through Dec. 22 of this year, filings show, but can be extended further – or canceled entirely – under the terms of that deal.

On the surface, at least, Straight Path looks like a valuable financing partner that could transform JAMN into more than a colorful pipe dream. On the record books compiled by Companies House in the U.K. (which oversees corporation registrations), however, Straight Path does not exist

JAMN looks richer regardless. The company promptly returned to the OTC Bulletin Board two weeks after executing that curious deal, records show, with its stock poised to catch on fire. Pulling off a miraculous resurrection, JAMN quickly exploded in popularity to become one of the hottest – and most wildly promoted – stocks in the entire microcap space.

Sounding Alarms along the Way

Based on emails reviewed by TheStreetSweeper, the promotions apparently started in January – just as JAMN began actively trading again -- with a tantalizing teaser.

Around that time, records indicate, a promoter operating under the name “John Bell” through a website called hackthestockmarket.com began promising a hot stock tip to investors lured to his site by flashy ads on Yahoo Finance. Bell came across as far more selective than most stock promoters (generally eager to stuff mailboxes with as many paid touts as they can afford), however, by reserving his advice only for those investors smart enough to pass a mandatory financial quiz first.

“Look, I don’t want to be rude,” Bell stated on his website before it suddenly went dark last week. “But I’m looking for a small group of intelligent investors to be taught my stock market loophole” … and ultimately learn about an incredible stock tip.

The quiz included a total of five remarkably simple questions that, regardless of the responses, always landed investors in that “select” group as long as they provided the real information that Bell seemed to want in the first place: their email addresses. “Chosen” investors then found themselves whisked to a new page with a special “presentation,” records indicate, which proudly announced that – unlike 90% of those who took the quiz – they had managed to get every single question right. Even those who deliberately missed some questions, or changed their answers when taking the quiz again, somehow wound up with perfect scores. 

At that point, records indicate, Bell informed the crowd that they could learn the secret to his “loophole” by paying the cut-rate price of $129 – slashed from $497 originally! – for a 65-page “book” detailing his magical formula. As the author of that booklet, Internet records show, Bell portrayed himself as a rare genius suffering from Asperger’s syndrome – the same obsessive condition that (coincidentally?) afflicted the brilliant fund manager in The Big Short – who feels compelled to share the valuable fruits resulting from his disorder.

Nathan Busch, a Minneapolis-based patent attorney, caught on quickly. He uncovered Bell’s charade months ago and has meticulously documented his experience on his personal blog since that time. 

Busch clicked on the Yahoo Finance ad, passed the simple quiz (of course) and then fielded multiple emails from Bell promising a fantastic stock pick every few months for the modest sum of $97 a year. Busch also received an unintentional clue from Bell, signaling a likely scam, along the way.

At least one of Bell’s emails actually included a specific business name and street address: Stock Market Magic, Inc., 1132 Mercer Street, Green Bay, WI 54303. Busch dutifully did his homework and soon discovered that address does not exist. Quite simply, he found, there is not a Mercer Street located anywhere in the entire state of Wisconsin. According to the Better Business Bureau (BBB), Stock Market Magic is really located at 2818 Main Street in Vancouver – hometown to Whittle and a crowd of other stock promoters – and its address actually corresponds to a UPS store.

Bell may have learned about that BBB report himself, records suggest, because he has since adopted a slightly different name and an equally fictional address (Market Magic at 3473 Bay Street in Toronto) for his company.

Meanwhile, others who took Bell’s quiz (also acing it!) and later stumbled across Busch’s blog have passed along the emails they received. By mid-January, those emails indicate, Bell was already promising a hot pick on a stock that would rapidly triple in price. He continued to tease the crowd of investors who had studiously passed his test, however, by delaying the release of that magical stock on multiple occasions before finally coming through in late March.

On March 3, for example, Bell informed some of his anxious followers that he had decided to postpone his big news for a bit because the secret company had just “partnered with” Amazon – triggering a big jump in its share price – so he was waiting for a pullback to provide investors with a better entry point for the stock. Indeed, just one day earlier, JAMN had announced the appointment of an Amazon sales broker to place its products on the retailer’s popular website. JAMN’s stock ended that day precisely where it started, at 93 cents a share, but went on to hit $1.25 by the time Bell began emailing his pick and $1.50 by the time he actually posted that pick on his now-defunct website.

There, in hyperbolic prose, Bell proclaimed that “the Marley name … is synonymous with coffee” (not reggae, or even weed?) and pegged his discovery of JAMN sometime around the Christmas holidays. But JAMN was still tied up with “all the boring logistical stuff” back then (like resurrecting its stock from the ghostly Grey Market so it could really trade again?), he explained, so he waited through those housekeeping chores to spring his big news. He finally saw his perfect chance, he indicated, with JAMN “pushing a major roll out of (its) product across North America” and its stock still selling at ridiculously dirt-cheap prices.  

Only later did most of Bell’s followers learn that he had sent out email alerts to a select few back in mid-February, recommending JAMN at a much lower entry price – of just 80 cents a share – and thus enabling those early buyers to cash in hefty gains after he finally began touting his hot pick before the masses.

Pulling the Plug on the Power Source

Bell was never some charitable genius, bursting to share his valuable discovery, as his touching “presentation” implied. He is a paid stock promoter, of course. As noted in the tiny fine-print disclaimer at the end of his JAMN report, he received up to $15,000 from a mysterious firm – carrying the vague name Centurion Ventures – for a six-month promotion of the stock.

Bell apparently spawned a twin or two along the way. His report also surfaced on a second website,thelautnerletter.com, complete with the same pointless quiz that had teased his own followers for months. His bullish message showed up on a third website known as bullishbankers.com, dressed up with more sophisticated language and a fancier presentation, as well. Like Bell’s own website, both thelautnerletter.com and bullishbankers.com disclosed payments from an obscure firm carrying some version of the Centurion name.

Centurion Ventures Fund (identified in one disclaimer as the full name of that firm) serves virtually no purpose, Internet records suggest, beyond acting as a funding source for those paid promotions. It almost disappeared entirely last week, when the web-hosting servers for two of those Internet tout sites – hackthestockmarket.com and thelautnerletter.com – abruptly suspended their operations on the day that JAMN hit the peak of its frenetic trading activity.

By then, JAMN had finally awakened itself (with help from its high-end coffee?) and decided to officially distance itself from the powerful publicity campaign. On May 9, with its stock already pushed above $3 a share on paid touts, JAMNfiled an 8-K crammed with entire paragraphs denying any connection to the promotions. Taking a decidedly responsible tone, JAMN then urged the public to rely only on its press releases and regulatory filings – which last described the company as a shell corporation with no revenue or cash – when weighing investments in its stock instead.

That report, while more gripping than many regulatory filings, seemed to carry less punch than the flashy ads on Yahoo Finance promising riches to fellow masters of the financial markets. JAMN’s stock went on to double, hitting an all-time high of $6.35 a share, before the week came to an end.

That pattern – the aggressive publicity campaign first, the delayed company response second, the radical stock chartthroughout – bears an eerie resemblance to the jarring path blazed by another penny stock, Lithium Exploration Group (OTC: LEXG.OB), right before JAMN took its place as the favored microcap name. Fueled by one of the most expensive (if not the most expensive) stock promotions on record, LEXG flew from 12 cents to an astounding $10.68 a share – peaking one day after the company officially distanced itself from the promoters – before finally losing steam and collapsing

TheStreetSweeper published a detailed investigative report on LEXG, warning investors of a potential crash, during the midst of that wild ride. While LEXG boldly pushed the limits in the days that followed, soaring from $4 past $10 a share, the stock cracked soon after that and – just three weeks later -- now fetches less than half the price it commanded when TheStreetSweeper first sounded its alarm.

To longtime followers of overhyped penny stocks, JAMN looks like it has neared (or even reached) its tipping point as well. On a tear for the past month, interrupted by only a handful of down days along the way, JAMN finally started totake some meaningful hits late last week. The stock gyrated wildly on Thursday, swinging from an all-time high of $6.34 to an intraday low of $4.14 before closing above the midpoint of that wide spread. In that case, at least, JAMN still managed to trade above its previous closing price throughout the session and ultimately closed with a handsome 35% gain.

JAMN fared worse on Friday, however. Although the stock hit $6 once again that day, it soon reversed course and found itself closer to the $5 mark – actually down for a change – by the time that the closing bell rang.

To some, JAMN looks a lot like a movie that just hit the screens a month or two ago. If they’re right – with LEXG ranking as the original blockbuster and JAMN following as the popular sequel – then investors better like horror stories with bloody endings. Bluntly put, critics feel, this hot little stock could soon deliver a wake-up call with the fire-power of coffee – even the smoothest of brews – at full boil.

* Important Disclosure: Prior to the publication of this article, TheStreetSweeper (through its members) effected a “short sale” of 30,000 shares of the stock of JAMN, beginning on May 4, 2011, at an average price of $2.98 a share, with the intent of profiting from decreases in the price of the stock. TheStreetSweeper covered its entire position on May 18 at $1.51 a share.

* Update: TheStreetSweeper established a new short position in JAMN on May 20, when it sold 10,000 shares of the company's stock short at $2.58 a share. It increased its short position to 40,500 shares, at an average price of $2.13 a share, on May 23. It may choose to further adjust the size of this investment -- increasing, decreasing or covering its short position in the stock -- and will fully disclose the details of those trades as they occur.

* Update:  Due to the threat of a "forced buy-in," TheStreetSweeper covered its short position of 40,500 shares at an average price of 2.08.

* Update: TheStreetSweeper established a new position in JAMN on June 7, when it sold 55,825 shares of the company's stock short at $1.98 a share. It increased its short position by 5,000 shares on June 8 and has now sold a total of 60,825 shares short at an average price of $2 a share. TheStreetSweeper covered that short position, under a "forced buy-in," on June 13 at $1.99 a share.

As a matter of policy, TheStreetSweeper prohibits its editors and reporters from taking financial positions in any stocks that they cover. To contact Janice Shell, the author of this story, please send an email to [email protected] or directly to [email protected]

Share





For Previous Stories Click Here!


| More