Email Investor Relations

Substance over Style: Buying Hype

Exclusive to IPOdesktop.com

The pitch is nearly always the same…
"You gotta get the word out about this company and we’ve got a zillion email addresses. We’re gonna make this stock ROCK!!!"

And the CEO of company ABC, sitting at a desk full of evidence of the hard work that it took to get the company where it is today, gazes over at the monitor and sees his stock price well south of where he thought it would be at this point in their business plan.

Meanwhile, the bills keep coming, the whiny investor calls won’t stop, and shorts and surly finance guys can smell blood in the water.

So, the IR/PR version of the get-rich-quick scheme sounds tempting, lucrative even to our talented CEO… and it’s all legal, right? The guy on the phone says they’ve been around for years and have handled a hundred deals this year. They’ve got sources in Vancouver, Boca Raton… maybe even get you listed on the Hamburg Exchange. WOW!

So, our hopeful CEO engages said "firm" and throws caution to the wind, issuing shares to the fella on the other end of the phone and away we go. Remember, they’ve got a zillion emails so this has got to work.

And tomorrow all our CEO’s problems will be solved. The stock price will be high enough that investors are sending Hickory Farms appreciation packages to the main office and Investment Bankers are pushing offers to raise cash at above market prices.

Life is good… he hopes. Soon he’ll come out of the massive block of shares he’s working 16 hours a day for and the house in the Hamptons will pacify a wife tired of eating alone.

Then the mail goes out to that massive email database.

And the stock goes up indeed.

It’s great that first day, our CEO is tempted to re-up with these guys and send even more shares out for more of this great service. He doesn’t have to do a reverse now. Shares are worth something again.

Then something happens.
The next day the stock volume is still up but it’s trading down. As the hours pass in the market day the sell-off gets worse. Shares seem to be hitting the market in massive blocks… methodically released as any offer hits the box.

Our CEO calls a few of his buddies who were gathered together just a day before waiting for those magic emails to the investing world like guys anticipating the kick-off of the Super Bowl. No, they’re not selling their stock and they too want to know what’s happened. The stock was sooooo hot yesterday, and today… well, they’re not giving their shares away at this price and joining the bloodbath.

So the CEO decides to head to the message boards where the denizens generally disparage the company while one long investor sings it’s praises to all who’ll listen. Even amid the blather, sometimes there’s a morsel or two that gives our CEO perspective… insight.

One post reads… ABC: Pump-N-Dump Stock Scam.

Another reads: Damn SPAMMERS. I’m Reporting to the FCC/SEC!

A third shouts: ABC CEO GOING TO JAIL! ENRON!!!

"What in blue blazes is going on,?" wonders our CEO. "What’s happening?"

He hired the wrong guys is what happened.

Oh yeah, they said they had a zillion emails… actually the number in their pitch is usually 5-10 million from these outfits. But the 2000 Census lists the U.S. TOTAL population at 280 million which makes our email company’s claim to have 1/28^th of the U.S. pretty impressive, especially when you consider the fact that only a small fraction of the U.S. public have an email address and an even small group are online investors.

This begs the serious question: To whom are they mailing?

If the total number of declared "investors" in their database is egregiously high then it may be safe to assume that they’re working from a bulk email list that’s no more investor-based than it is knitting-oriented.

It’s just a list of emails sponged from some bulk email hawker or a disk they bought on eBay for $19.99 per million records.

You know the sort. Just check your Hotmail, Cox, Yahoo or AOL account. Remember that "Hot Stock Pick" email you got three times over the weekend? That’s the kind of list the "10 Million Investor" boys are using.

They can’t be opt-in

which by the way, became a legal requirement for email communication with the CAN-SPAM Act of 2003, even though most reputable mailers were acting as such long before.

Ever notice how you can’t really opt-out of those rogue spam emails? That’s because they’re mailed from a place that has to technologically pick up and run after the email is sent to stay a step ahead of the law so your opt-out bounces back like a bad check.

Our CEO didn’t know all this. He just kept hearing the voice on the other end chanting hypnotically "Volume. Volume. Volume."

And we haven’t even gotten to the content part yet and our CEO is already worried that he’s facing fines and reprimands for his involvement with the off-shore bulk email crowd.

But there’s also the SEC to worry about. That disclaimer at the bottom didn’t bother to mention who paid them (the mailers) the shares nor the amount of shares they got.

Loosely referenced was a gentlemen named Third Party who seems to have his hand in most of these Pump-N-Dumps and is rumored to be sought by the SEC. The SEC just loves deals with insufficient disclaimers. It gives them a sense of purpose.

The email piece promised that ABC would soon be the subject of "enormous newsletter coverage" and was poised to explode despite the lack of gainful contracts and an embryonic business plan.

The text virtually shouts assurances of impending profits… "How could the stock be going down so fast?" asks our troubled CEO, never mind the SEC trouble in store.

Remember that block of shares our generous CEO gave them?

The first day, the email sucked in enough spam reading rubes for the 10 Million Email boys to dump a load of those shares our CEO paid them.

The next day the hype well ran dry and the day traders who flocked to the volume are riding it down like a two-dollar horse. This won’t stop the 10 Million Email crew from continuing to part out their block to any buyer dumb enough to think he can stave off this slide.

Remember, their cost basis in the stock is NADA. Any sale is a profit and they’re not into long term investments. The stock closes below where it was before the "campaign" started.

Our CEO now has a board meeting next Thursday at which he’ll have to explain the stock he gave away, a call on Line 1 from the SEC, a letter from the web host for his corporate site which says "We will not host spammed sites" and 1,687 emails from angry spam recipients.

"What a deal," he thinks. "All this trouble, my stock is worse than if I’d never done a thing, our reputation is in the toilet, and best yet… I paid them for the privilege."

Welcome to the Pump-N-Dump

By the way, if the 10 Million Email team is paid in cash the only difference is that they use part of the CEO’s money to buy a ton of stock in the early morning to give the stock a bullish presence and then sell their stock into the run-up while keeping a safe margin on the side.

A real IR/PR program endeavors to put the right investor in your stock, to expose the company to the right audience with tactical distribution and well-written, reasonable description of the company and its attributes.

The kind of investor desired in a deal cannot be forced or duped. He must be persuaded reasonably, compelled intellectually and have a grip on the big picture.

This is the investor you want. This is not the stuff of hype and stock spikes and record volume days. This is a vitamin not a steroid for your stock and as with that analogy in the long term your company is far healthier.

An email campaign must be comprised of opt-in investors for reasons of efficacy and integrity and the mailing party should be a known commodity with a history in investor relations AND email distribution.

To engage anything less, as illustrated by the poor CEO in our model, is to marry your corporate (and personal) fortunes to shady types built to hit and run.

Any CEO intent on engaging email, perhaps the most effective / inexpensive media program ever known, should ask their potential surrogate the following:

How long have you been mailing and how long from this IP address?

Spammers will have no reliable history and cannot maintain one fixed IP address for a litany of hit-and-run reasons.

What enables your company to write effective text about public companies?

Anyone can buy a disk of names and send out a stock spam. Real programs are written by investment professionals who know the market and have a history of integrity and service. How long has the firm been around? Where is their office? Run the principals and company name through a search at SEC.gov to check for past enforcement actions.

Where did your database come from?

The right answer is that they were acquired organically and are pure opt-in. Remember to be wary of lists that boast to be above a couple million. "I got them from a friend in the business" is not a good answer. Also, keep in mind that lists deteriorate at least 20% a year so be wary of dot com investor based lists guys are pitching these days.

How do I know that the email even went out?

A real IR/PR firm should have a site location where you can seed the list yourself anonymously, thus guaranteeing that if the piece does go out you’ll get it. If they’ve got a site for their newsletter, UNDER THE SAME NAME AS THEIR PUBLICATION, it’s a good sign as spammers’ sites don’t stay up long. The Web site should also note who owns the site, company name and the proprietor.

Do you hype stocks?

Hype should be defined as a paid opinion about the stock that states or suggests price appreciation for the investor. Though legal if properly disclaimed, this type of statement does not bring the right type of investor and can lead to legal harangues.

The right kind of IR/PR simply brings public information about a company to a willing audience who may not have seen the company otherwise. It’s a billboard, not a used car dealer lot.