They can still be promoted and played, of course, as veterans of the shady penny-stock world well know. And companies promising to search for lithium, which powers the batteries used in new and increasingly popular electric cars, rank among the clear favorites in this risky space.
Today, LEXG stands out as the biggest star by far. The company generates no revenue, corporate filings show, and will likely need years to do so if it manages to survive that long. It had no cash on hand at the end of 2010, either, and it managed to raise a mere $250,000 through a private placement deal earlier this year. But thanks to a $3.3 millionpublicity campaign – possibly record-breaking in price – LEXG has skyrocketed from 12 cents to almost $4 a share in barely a month and now boasts a market value that’s approaching $200 million.
If history serves as any guide, however, LEXG will fail to hold onto even a fraction of those remarkable gains. A year ago, TheStreetSweeper scrutinized three similar companies in a detailed report entitled “Can the Batteries Last on Overcharged Lithium Stocks?” That question has long since been answered, alas, with all three stocks sinking from impressive highs to increasingly miserable lows.
Even so, notoriously optimistic junior mining companies seem as enthusiastic about lithium as ever. So do paid promoters who pump the lifeblood into – and almost invariably out of – penny-stock plays of all kinds.
LEXG arrived on the scene in late 2010, but the stock went largely ignored until it suddenly caught fire about a month ago. That’s when LEXG, immediately followed by promoters, started broadcasting the company.
Although LEXG became a fully reporting company late last year, it waited until March 24 to issue its first press release. With remarkable timing, an outfit known as “PrePromoStocks” took note of LEXG that same day and brought the company to the attention of its Twitter followers.
“My back hurts,” the tweet declared, “from all these 3rd tier stock promoters piggybacking my $LEXG trade.”
At that point, however, no promoters had even started talking about the stock. But they were well prepared to do just that and, in short order, would soon begin shouting the name.
LEXG failed to respond to a detailed list of questions for this story.
‘The Next Exxon’
On March 29 -- after a few more days and press releases – the campaign began in earnest, as QualityStocks profiled the company in its Daily Newsletter and put out an alert on its QualityStocks Twits site. QualityStocks is an extremely active promotional firm located in Scottsdale, Ariz., where – by some handy coincidence -- LEXG operates as well. Both firms even share an address on the same street, North Hayden Road, about a block or two apart.
QualityStocks publishes multiple tout sheets, holds conferences, makes videos and offers a variety of other services. The firm boasts a large “team,” only four of whom appear to have surnames. That small group includes Michael McCarthy, the managing director, who presumably controls the firm’s self-proclaimed “multimillion-dollar brand.” Although QualityStocks discloses compensation payments, it reported none from LEXG.
"We have not been paid a penny by LEXG or any third party for the articles or posts we did on LEXG," McCarthy has since confirmed.
The really big LEXG promotion began right after QualityStocks first touted the name. The very next day, a website called TheStockDetective.com produced a long and elaborate “report” boldly entitled “The Next Exxon.” The report’s overblown rhetoric proved misleading from the start, stating that “a massive reserve of what may be the new ‘super fuel’ to replace ordinary gasoline – lithium – has been discovered in America.” Investors would need to read all the way to page four before learning that you don’t put lithium in your tanks; you put it in your batteries.
That’s obviously not the main point, of course. The bigger point comes on page 10, when investors – by now desperate to score some LEXG stock – discover how simply they can do that: “Go to your online account,” the report states, “and place an order for shares of Lithium Exploration Group, OTCBB: LEXG.”
The report then sets a $10 price target for LEXG after highlighting other lithium stocks that have risen hundreds – even thousands – of percentage points in the space of months.
In typical fashion, the report uses a disclaimer buried on the final page to reveal arguably the most important information of all. That fine-print notice vaguely explains that The Stock Detective is working with and for “Circuit Media,” which has received a “total production budget” in the amount of $3,296,800 – a stunningly high figure for a promotional campaign – and has paid The Stock Detective $50,000 of that as an “editorial fee.”
The moneybags that bankrolled that seven-figure campaign is uselessly identified as “Gekko Industries,” a mysterious firm that holds restricted LEXG stock. While plenty of companies share that name, none of them seems like the type that would take a deep interest in some junior lithium miner let alone spend millions promoting its stock.
In fact, both Circuit Media and Gekko Industries appear to have no meaningful existence outside of that report and its disclaimer.
On April Fool’s Day, a second and very similar promotion – its disclaimer almost exactly the same – then followed, this one on a website impressively called “Stock Market Authority.” Though a bit shorter and more restrained in design than the original tout, the message remained consistent. Publisher Elliott Dobbs (who resembles a twentysomething trying hard to look older) declared lithium a “wonder element” and poured on the hype from there. He went on to make the confident if puzzling claim that “ONE company sits on a multibillion-dollar bonanza… (because) this dynamo firm controls a considerable portion of the world market for lithium.”
Treasure or Trash?
LEXG was originally established in 2006 as Mariposa Resources, filings show, which billed itself as an “exploration stage company to be engaged in the search for mineral deposits or reserves.” Over the course of the next few years, Mariposa did a little exploration and obtained an option to acquire an interest in some claims in the Clinton Mining District of British Columbia. For the most part, however, Mariposa was basically just a public shell.
Late last year, Mariposa suddenly reinvented itself. On Nov. 17, it merged with Lithium Exploration Group – a brand-new company incorporated that same day – and began trading under its current name and symbol a few weeks later.
Meanwhile, on the same day as that merger, a Canadian by the name of Guy Robineau also incorporated a brand-new company called Lithium Exploration VIII. LEXG struck a deal with that new outfit, which would provide the company with one of its core assets, one month later. Specifically, corporate filings reveal, LEXG acquired an option to purchase “certain mineral permits” to some lithium mines in Canada from the second similarly named company.
Lithium Exploration VIII had just purchased that option itself from a Vancouver company known as First Lithium Resources (OTC: FLNTF.PK) a couple of months earlier. Although LEXG has yet to supply that option agreement in its corporate filings, First Lithium has disclosed enough information in a past quarterly report to offer some clues about the value of those assets.
First Lithium sold that option for an upfront cash payment of $90,000 and the promise of additional payments every year – except this one – through 2014. In addition, it mandated that the new owner keep making “such property payments as may be required to maintain the mineral permits in good standing.”
First Lithium owned a total of 41 permits granting it access to lithium mines collectively known as the “Valleyview properties” before it negotiated that deal. The company held onto all but five of those, which represent those that LEXG now controls.
If either company scores big on Valleyview’s lithium, logic suggests, First Lithium – not LEXG – stands the far better chance. It holds eight times as many permits as LEXG does, but its stock (with a similar share count) trades at a fraction of the price.
First Lithium sells for just 9 cents a share on the Pink Sheets and the TSX Venture Exchange, giving the company a market value of less than $5 million. LEXG opened for just a few cents more, with the market assigning it a slightly higher value, barely a month ago. But it instantly began soaring on massive volume – soon exploding on fuel from thesix-figure publicity campaign – and now boasts a $4.02 stock price and $191.5 million market value that looks downright enormous in comparison.
The promoters touting LEXG have portrayed those lithium claims in Canada, together with the company’s remaining claims in Argentina, as some of the richest in the entire world. But the exercise above makes the Canadian claims look almost worthless, while a review of the Argentine claims – based upon the limited information available – cannot even begin to support all the hype.
Early this year, filings show, LEXG signed a definitive agreement with a company called Salta Water to purchase 60% of the company’s “Salta Agua” claims located in the Salta province of Argentina. Under the terms of that deal, LEXG simply needed to pay $75,000 within 30 days – supplemented with 250,000 shares on its increasingly valuable stock – and then come up with another $300,000 and 750,000 restricted shares over the course of the next three years. If LEXG successfully satisfies those payments, the company can then acquire the remaining 40% interest in that property for $6 million.
Salta Water is based in the Cayman Islands, a location as well known for its shadowy financial deals as it is for its sun-drenched beaches, so it operates under its own set of rules. But it originally optioned those same mining claims to a North American company, which has dropped a potential hint or two about the value of the assets.
That Vancouver company, snappily named Electric Metals (TSX: EMI.V), struck a deal with Salta in late 2009 tooption the Argentine claims that LEXG now controls. Electric Metals evidently later called off that deal, however, andno longer includes the project among those now discussed on its website. The company could have simply lacked the required cash to move forward, in fairness, but it could have just as easily decided that the project looked unattractive instead.
Either way, those Argentine properties never seemed to spark the level of interest – let alone outright bidding war – one might expect for claims to some of the most valuable lithium mines in the world.
The Smartest Guys in the Room?
LEXG hardly looks like the sort of company that can outsmart big miners by finding prize assets that can be purchased for a song, either. In fact, neither the founder of the shell corporation that merged with LEXG nor the leader who now runs the company it became appears to have any relevant experience in the field.
Mariposa was established by Nanuk Warman, an accountant who works as a “self-employed consultant.” He resigned from the company on Nov. 4, two weeks before the merger, with Alexander Richard Walsh assuming the titles of president, secretary, treasurer and member of the board.
No miner himself, Walsh has instead spent his career working in sales, marketing and business development. In hisofficial bio on the LEXG website, he importantly packages himself as “a seasoned professional whose extensive experience on Wall Street included raising capital and forming strategic partnerships for young operating companies.”
According to brokerage records compiled by the Financial Industry Regulatory Authority (FINRA), however, Walsh’s real “Wall Street” career was rather brief. He passed the low-level Series 6 exam in 2004, giving him a license to sell mutual funds and insurance, and spent just four years working in the field. After that, records indicate, Walsh started a consulting company in the same state that LEXG – like its promoter down the block -- now happens to call home.
Two of the other firms promoting LEXG, The Stock Detective and Stock Market Authority, share some common traits of their own. Both websites were created last spring, for starters, but never featured any notable promotions until LEXG came along.
Other connections, though somewhat tangled and hidden from view, further link the pair. The Stock Detective isregistered to Agora Multimedia – a name resembling those taken by well-known promoters Agora Publications of Baltimore and Agoracom of Toronto -- while Stock Market Authority is registered under its own name but lists none other than Agora Multimedia as its technical contact. Both Agora Multimedia and Stock Market Authority are young limited liability companies incorporated in Delaware, records indicate, the first in May of 2010 and the second just eight months later right in time for the big LEXG publicity campaign.
Agora Multimedia’s own website helps complete the picture. On its homepage, the firm claims to be a “leader in online, broadcast, and corporate video productions.” On its disclaimer page, rendered almost illegible by the use of gray text on a black background, the firm goes on to make clear that its business is stock promotion. Based upon the evidence presented above, Agora apparently both created The Stock Detective and Stock Market Authority and used the sites to pump LEXG.
As the managing director of QualityStocks, McCarthy has been following publicity campaigns in the microcap arena for the past five years. During that period, he has never seen one as expensive or effective (based on dollar volume) as the LEXG promotion has been. Although he tracks a number of newsletters and financial websites, McCarthy has never heard of the mysterious players -- such as Agora Multimedia, Circuit Media, The Stock Detective and Stock Market Authority -- that surfaced along with the LEXG campaign, either.
Agora itself did not respond to a request from TheStreetSweeper seeking input for this story.
Progressive Jackpot Winners
The big LEXG promotion, organized and executed incredibly well, has worked wonders for the stock. Company management looks like it played an important role, too, by waiting months to issue its first press release just days before the promotion began and then suddenly opening the floodgates.
(Despite that striking pattern, Walsh reportedly informed a curious investor that he and his colleagues “have not hired nor are involved in any stock promotion campaigns at this time.” Notably, however, he stopped short of denying advance knowledge of the multimillion-dollar publicity campaign.)
Meanwhile, LEXG appointed two new directors – Brandon Colker and Jonathan Jazwinski – ahead of that big promotion. Colker operates several businesses near San Francisco, including one called Sustainable Venture Capital. That firm specializes in raising capital, a resource that LEXG will certainly need in the expensive mining arena if it expects to survive, let alone thrive. Colker has apparently raised no money for LEXG yet, but his firm could arguably land some business from the company – which has already heralded his access to capital as “instrumental” to its growth – on down the road.
Jazwinksi, the other director, stands out as an actual mining engineer. While LEXG clearly welcomed the arrival of its token miner, portraying him as a valuable player “in its global acquisition and exploration efforts,” Jazwinkski is awfully young – at 30 – to be considered a mining pro just yet. (He also secured his MBA from the University of Phoenix, a for-profit college derided by some as an online diploma mill.)
Neither Colker nor Jazwinski has received any cash or stock from LEXG, records indicate, but Walsh wound up with a mountain of shares in February that are worth a fortune on paper right now. According to corporate filings, Walsh acquired a total of 25 million shares – the same number that the company’s original founder held before him – which were transferred to him “pursuant to an assignment of debt.”
That LEXG stock, representing 52% of the shares outstanding, has soared in value to $100 million in a gravity-defying act rarely pulled off without the force of the most powerful – and expensive – of stock-promotion campaigns.
As noted earlier, before the press releases and the promotional hype, LEXG barely traded for months. That suddenly changed on March 22, two days before the initial tweet about LEXG appeared, when the stock more than quadrupled in price to 51 cents and an astounding 3.4 million shares changed hands. (Only five LEXG trades took place on that day, four very large ones at 12 cents and a final buy of just 1,000 shares that accounted for the big explosion in the company’s share price.) LEXG then jumped to open at 85 cents the following morning and has kept marching higher, recording only a handful of down days, on a virtually unbroken path straight north to $4 a share.
LEXG has so far acted like a jackpot stock, showering those who play it – and promote it – with a fortune in rewards. Walsh clearly ranks as the biggest winner right now, since he owns more than half of the company’s stock. But he can sell no more than 1% of the outstanding shares per quarter, due to market restrictions, so he can lock in only a fraction of his paper gains. If LEXG follows the pattern deeply engraved by past overhyped penny stocks, he will never get a chance to cash in most of the rest.
The promoters touting LEXG have already banked their fat rewards in the meantime, scoring a combined $3.3 millionfrom a single campaign. Even ordinary investors have managed to strike it rich for more than a week this time, without waking up to find the promotion over and winding up poorer than they had originally been.
The magic never lasts forever with any stock, however, and it tends to wear off of penny stocks with lightning speed. LEXG has enjoyed a more powerful spell than most, to be sure, but promoters invariably break the spells they cast whenever they leave the scene. If history repeats itself as usual, those well-paid cheerleaders will soon vanish – taking those miraculous LEXG gains right along with them – and show up with a new stock and a new fairy tale when they decide to reappear.
As a matter of fact, in a potentially dark sign for LEXG, the OTCMarkets website recently slapped a “Caveat Emptor” warning – the dreaded skull and crossbones – on the stock this week. When TheStreetSweeper called to ask OTCMarkets about the move, a representative there said that none other than “questionable stock promotion” had set off the alarm.
* No party affiliated with TheStreetSweeper -- including its principals, its editorial staff or members of its advisory board -- has taken a financial position in Lithium Exploration Group (LEXG.OB). 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]