"[H&H Imports] Stock went from 5 cent to 10 in one day. You can double your money right now. Just get what you can afford."
Think you are reading the script of Boiler Room? You probably are not that far off. These are actually statements, according to Guardian, broadcasted by rapper 50 Cent on twitter, the social media site, where 50 Cent has over 3.8 million followers. (The original tweets have been removed from 50 Cent's Twitter account.)
[H & H Imports has]…15 products this year. If you get in technically I work for you. BIG MONEY."
290% Pump = $8.7 million Paper Profit
H&H Imports is a penny stock traded on Pink Sheets under the ticker HNHI. Apparently, 50 Cent’s 3.8 million followers heeded his tweets, as HNHI shares saw a 290% jump in one day on Jan. 10, 2011 (See Chart). This is not one of those paid promotions that celebrities sometime do, and by NY Post’s account, that pop also translates into $8.7 million paper profit for 50 Cent. That means 50 Cent owns about 30 million shares of the stock.
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|Chart Source: Yahoo Finance|
There are some aspects of this event that could attract interests from the SEC. For example, 50 Cent did not disclose that he purchased about 13% of H&H Imports, consisting of shares and warrants, in a private placement back in November, 2010.
According to another article at Hotstocked.com, the price per unit was $0.10 and thus the total investment made by the rapper amounted for $750,000. But the article went on to say "It looks like the warrants have also been already exercised," and the actual number of shares owned could as many as 30 million, which is the number cited by the NY Post article.
From $412k Loss to $8.7 Million Profit?
Using just the $0.10 per share and $750,000 as the cost base, the stock’s 4.5 cents price on Thursday Jan. 6—right before the pump tweets—could represent a paper loss of $412,500 to 50 Cent, at the minimum.
Yes, this is loose change to the rapper mogul, as 50 Cent net worth is estimated to be $480 million, but Martha Stewart had served time for far less. Furthermore, making claims like “double your money right now” to investors is simply a big no no.
"Alternative Exchange"...For Good Reason
However, what really boggles my mind is the fact that 9.24 million shares were traded in two days flocking to a high risk penny stock largely on celebrity tweets!
I’m not sure if anybody invested in the stock has bothered to do any due diligence homework. First of all, there’s a reason these Pink Sheets stocks are listed on the “alternative exchange” – they are not exactly financially sound and highly speculative.
Then, there’s this small matter that H&H Imports does not even have an official company website. Of course, the various and extremely vague business descriptions from Yahoo Finance, and Google Finance only further affirm one of the typical penny stock's characteristics.
NY Post also reported that as of Sept. 30, the company has accumulated a deficit of $3.3 million and in March its auditor raised questions about its ability "to continue as a going concern," the company has said in financial documents.
Ok, ‘nough said.
Pump, But Not Sure About Dump
The stock, after peaking at 39 cents on Jan. 10, has since dropped almost 31% to close at $0.27 on Friday, Jan.13. So, apparently there’s some dumping going on. Nevertheless, I personally am quite flabbergasted at the apparent faith behind the stock as it is still way above its low of 4.5 cents.
Anyway, for now, there’s no indication that 50 Cent has sold his holdings to complete the “pump and dump” cycle as some have suspected him of. I guess we will leave it to the SEC and other regulatory agencies to sort it all out.
Meanwhile, there seems to be some PR coaching coming through in the more recent tweets by 50 Cent such as this one:
Dian L. Chu, Jan. 15, 2011
"I own HNHI stock thoughts on it are my opinion. Talk to financial advisor about it."