Conversion Solutions Holding Group is a classic penny stock pump-and-dump that went from 10 cents to four dollars to an SEC lawsuit. Not to put to fine a point on it, but stock message boards are the breeding grounds that allow scams like this to grow and thrive. CSHD CEO Paul Rufus Harris himself had an account on HotStockMarket.com and regularly posted to the CSHD forum, instructing users to “buy the s— out of CSHD.”
Note: HotStockMarket has since deleted this link, and deleted all links to ValueWiki from their site.
The Saga of CSHD
What follows is a timeline from when the pump began (in August), to the fever pitch (the $4 spike in October) to the SEC trading halt (that gap in November) to its current pre-litigation collapse on the grey market.
From its August inception, CEO Paul Rufus Harris, now under SEC litigation, claimed that CSHD had received major financing from several major institutions. These growing claims culminated on Monday, October 16, when CSHD issued this 10-K claiming an asset portfolio worth $7.2 Billion.
CSHD’s 10-K claimed to own Lehman Brothers Holdings PLC Bonds worth $564,092,494.32, Republic of Finland Sovereign Bonds worth $939,000,348.90, and Caracas Group Bonds worth $5,000,000,000. In the 10-K, CSHD boldly states “the corporation currently has an asset portfolio of $7,292,601,135.22” and claimed a current book value of $70/share.
By October, the CSHD Message Board on HotStockMarket.com was exploding with hundreds of messages per hour. A massive cheerleading section emerged among message board regulars, some of whom may have made 4,000% on the rise from 10 cents to 4 dollars. As is standard policy, any desenters to appear on the message board were quickly reported to HotStockMarket.com’s moderators and banned for being “bashers.”
Meanwhile, there was ample and growing room for skepticism. On September 28, CSHD skipped a much anticipated interview on Market News First. According to Market News, CSHD’s CEO didn’t show up to the interview and no one in CSHD’s office answered phones all day. Watchdog websites StockLemon.com and Stockwatch.com issued frantic warnings to investors about CSHD’s shady operations. TDAmeritrade blocked investors from buying the company, causing Paul Rufus Harris to level accusations that TDAmeritrade was carrying a huge short position on CSHD.
October 24, the SEC steps in
By October 24th, the SEC decided enough was enough. The SEC filed this restraining order against CSHD and Paul Rufus Harris and halted trading under rule 15c2-11. Neither CSHD nor Paul Rufus Harris filed replies to the SEC lawsuit. This has allowed the SEC to file entries of default judgement.
In a remarkable display of investor psychology, CSHD continues to enjoy a massive fanbase on HotStockMarket.com. The CSHD forum continues to be HSM’s most highly-posted forum. Investors have bonded together to create the Conversion Solutions Shareholder Committee to help in the restructuring and resurrection of what is essentially a corporate shell that defrauded investors of millions of dollars.
In November, Paul Rufus Harris was fired, re-hired, and fired again by the CSHD board of directors. The CSHD board has shuffled through various replacements, currently settling on Vancouver trader John Arlitt as CEO. Stockwatch.com has provided enormous and devastating coverage of John Arlitt, painting a picture of a former penny stock broker who is shady and underqualified at best.
The moral of the story
We are a long way from the days when the pinksheet stocks were actually listed on pink sheets of paper. And one would imagine that with the information-sharing power of the internet, scams like CSHD would no longer be possible. But unfortunately it is the information-sharing power of the internet that allows these cons to spread farther and wider than ever before. More uninformed investors were pulled into CSHD than could ever have been possible in the days of the pink sheets.
The saga of CSHD is exactly why Zach and I are starting ValueWiki. By keeping ValueWiki articles neutral and referenced, we are working to build a reliable forum for pooling investment information. By setting a Wikipedia-level of objectivity, we can counteract Message Board hype. Any investor who read the research and coverage on our CSHD page would have no excuse for losing money in that scheme.
In the end, what did Paul Rufus Harris stand to gain? Whatever his share-dilution was between August and October, was it really worth the jail time he will face? Did he really expect to keep his winnings, after publicly touting a $7 Billion asset value for his ten cent company? Yet people are drawn into these schemes every time.
My advice to CSHD bag-holders…learn better due diligence and start using ValueWiki!