For four months between November 2010 and February 2011 the shares of Deer Consumer Products, a Chinese manufacturer of household applicances, remained ironbound in a range between $11 and $12. It’s notable for several reasons, not the least of which is that a widespread rout was then well underway among Chinese reverse merger stocks. Yet as the chart shows, DEER’s share price barely wavered even as short-sellers began to increasingly bet against it and the market for similar high-fliers collapsed.

Rather than supposing DEER had a uniquely loyal shareholder base who refused to sell because of an evangelical belief in the value of their investment–similar to those holding Berkshire Hathaway–a more likely explanation is that DEER is alleged to have paid $350,000 to a Manhattan penny stock brokerage to peddle its shares during this period. DEER is essentially running up a massive red flag: On Wall Street, a company that pays a brokerage to sell its shares is considered even more desperate a move than than hiring a firm to provide research coverage. It is a virtual acknowledgment that its shares cannot be sold through traditional means and as such, has long been relegated to the far fringes of even the penny stock world.

The payment was revealed in the Financial Industry Regulatory Authority Broker Check report of Talman Anthony Harris, a penny stock salesman then at First Merger Capital, a defunct firm of the distinctly boiler room variety. [The payment does not appear to have been disclosed in any SEC documents.]

Harris’ FINRA report suggests a host of troubling details about the interconnection of Chinese reverse merger stocks, boiler rooms and shadowy promoters. In DEER’s case, a series of linkages points to the promoter being Benjamin Wey, a familiar figure to The Financial Investigator’s readers.  

Per the FINRA report, Harris did not disclose to his clients that “Beginning in February 2010” DEER paid his firm $350,000 to market its shares to its clients, nor that an unnamed “Third Party”–identified only as someone who “Promoted DEER and HEAT” (SmartHeat Inc.)–had given his branch office “discounted rent.” The payment was described as a “Financial Services Consulting Agreement.”

Harris, reached at his new firm, Cambridge Alliance Capital said he was unfairly victimized by the FINRA report since he hadn’t received “A single penny” from DEER and “All of ‘that’ [The DEER payment] had been handled by [First Merger Capital’s] management, Mark Simonetti, John Stalanski and branch manager Maureen Gearty.” He declined to discuss the origins of the payment and what–if any–role New York Global Group’s Wey had played in the matter. His protests that he is a victim and has never had a [FINRA] complaint lodged against him before these issues aside, Harris certainly has worked at some legendarily abusive brokerages.

All three of the First Merger Capital officials Harris cited, especially Simonetti and Gearty, have a deep and varied history in the frequently ethically challenged margins of the penny stock world, according to their FINRA reports. Gearty’s FINRA report seems to substantiate Harris’ claim that the DEER payment went to her, alleging that she “Generated misleading or inaccurate books” in concealing the payment and that she split the commissions with another First Merger Capital employee, Ronen Zakai. [The Financial Investigator made numerous attempts to contact Gearty via phone at her Queens, N.Y. residence but was unable to reach her.]

Zakai cuts an interesting figure. Though Gearty’s FINRA record says Zakai was unregistered at First Merger Capital, his own FINRA filing describes him as the firm’s managing partner. His FINRA record points to some epic violations of industry practice but he has apparently landed on his feet and now holds himself out as the managing partner of RSM Capital Partners’ Social Innovation fund. [Zakai did not respond to numerous messages left at his job and on his cell-phone.]

The connection to Benjamin Wey begins with the fact that he arranged the reverse mergers of DEER and HEAT and helped them secure U.S. market listings and has been a very aggressive proponent of DEER, as he noted in this E-mail to his trading desk contacts in September 2010, announcing his sister’s purchase of a block of shares. [Wey did not respond to repeated requests for comment.]

In addition to First Merger Capital’s sharing a 40 Wall Street address–they were located on the 34th floor, four floors below New York Global Group–Wey had used the firm to peddle his last deal, a financial wonder named CleanTech Innovations that NASDAQ began delisting proceedings on six weeks after listing it.

Great Eastern Securities, Zakai’s former employer, also helped peddle Bodisen Biotech, the first deal Wey obtained notoriety with. Great Eastern, unsurprisingly, is no stranger to regulatory woes.

The trading behavior of DEER stock certainly warrants closer scrutiny.

Beginning February 22, 2010 DEER’s stock price ramped from $9 to $12.94 in about eight trading days. The ramp coincided with a release announcing that, “DEER has initiated product sales to Wal-Mart Stores in China.”

A little over two months later, the stock sank back to the $8 range where it stayed for four months until Wey’s sister filed a SC-13D disclosing her purchase of 2.1 million shares. The stock ran to above $11 over the next month or so where it stayed until March 21, 2011 when the stock mysteriously broke, despite the release of three separate reports from Alfred Little, a short-seller and investigator with an office in China, who was deeply skeptical of DEER’s prospects.

March 21 is three days before the “Notice Date” on Harris’ FINRA report.

DEER, which is suing Little and the Seeking Alpha website alleging their participation in an illegal shorting scheme, did not respond to an E-mail request for comment as to why it apparently paid penny stock brokers to pump its stock. Robert Knuts, the former SEC enforcement division attorney DEER hired to sue Little, did not reply to an E-mail and two phone calls seeking comment.

Comments

11 Responses to “How They Did It: The Promoter, The Payoff, The Pump And The Dump”

  1. D W on December 16th, 2011 1:19 am

    It’s amazing the SEC and DOJ still let such shady companies and criminals stand.

  2. D W on December 16th, 2011 1:42 am

    Roddy, great work. There’s one fact your report didn’t mention that, during the 6+ months DEER stock magically held up at $11, Benjamin Wey had been openly telling people “he was buying at $11″.

    It’s interesting that the regulators couldn’t figure out the fact that up to this day all of DEER’s public press releases and investor emails were still written by none but the “pump and dump” master Benjamin Wey himself. All we have to do is to compile a series of public press releases from FEED, HEAT, CTEK.PK and DEER, then even a high school junior can see how similar or identical the styles/formats (sometimes even the contents) of each press releases are. When one promoter pumps multiple questionable stocks at the same time, he surely leaves a trace.

  3. Larry on December 16th, 2011 3:53 am

    AUTC has got DEER beat.

    First they created a short squeeze, then they delayed their 20-F for *months*, finally the NASDAQ delisted them, and then the stock price went *up* after moving to OTC!!!

  4. BuyersStrike! on December 16th, 2011 4:46 am

    Great piece, the DEER chart from Nov 10 to March 11 was, all by itself, a near foolproof indicator of a scam.

  5. China Readings for December 17th | Sinocism on December 16th, 2011 4:02 pm

    [...] How They Did It: The Promoter, The Payoff, The Pump And The Dump : The Financial Investigator – For four months between November 2010 and February 2011 the shares of Deer Consumer Products, a Chinese manufacturer of household applicances, remained ironbound in a range between $11 and $12. It’s notable for several reasons, not the least of which is that a widespread rout was then well underway among Chinese reverse merger stocks. Yet as the chart shows, DEER’s share price barely wavered even as short-sellers began to increasingly bet against it and the market for similar high-fliers collapsed… Harris’ FINRA report suggests a host of troubling details about the interconnection of Chinese reverse merger stocks, boiler rooms and shadowy promoters. In DEER’s case, a series of linkages points to the promoter being Benjamin Wey, a familiar figure to The Financial Investigator’s readers… Zakai cuts an interesting figure. Though Gearty’s FINRA record says Zakai was unregistered at First Merger Capital, his own FINRA filing describes him as the firm’s managing partner. His FINRA record points to some epic violations of industry practice but he has apparently landed on his feet and now holds himself out as the managing partner of RSM Capital Partners’ Social Innovation fund. [Zakai did not respond to numerous messages left at his job and on his cell-phone.] The connection to Benjamin Wey begins with the fact that he arranged the reverse mergers of DEER and HEAT and helped them secure U.S. market listings and has been a very aggressive proponent of DEER, as he noted in this E-mail to his trading desk contacts in September 2010, announcing his sister’s purchase of a block of shares. [Wey did not respond to repeated requests for comment.] [...]

  6. Lesenswertes – Wochenrückblick « valueandopportunity on December 17th, 2011 2:58 pm

    [...] Background Artikel bei Roddy Boyd zum China Scam DEER Gefällt mir:LikeSei der Erste, dem dieser post gefällt. [...]

  7. killshort on December 18th, 2011 7:44 pm

    another failed short seller attack
    SEC really should investigate those front-run short sellers now.

  8. China Digital Media Readings for December 19th | DigiCha on December 19th, 2011 2:34 am

    [...] How They Did It: The Promoter, The Payoff, The Pump And The Dump : The Financial Investigator – For four months between November 2010 and February 2011 the shares of Deer Consumer Products, a Chinese manufacturer of household applicances, remained ironbound in a range between $11 and $12. It’s notable for several reasons, not the least of which is that a widespread rout was then well underway among Chinese reverse merger stocks. Yet as the chart shows, DEER’s share price barely wavered even as short-sellers began to increasingly bet against it and the market for similar high-fliers collapsed… Harris’ FINRA report suggests a host of troubling details about the interconnection of Chinese reverse merger stocks, boiler rooms and shadowy promoters. In DEER’s case, a series of linkages points to the promoter being Benjamin Wey, a familiar figure to The Financial Investigator’s readers… Zakai cuts an interesting figure. Though Gearty’s FINRA record says Zakai was unregistered at First Merger Capital, his own FINRA filing describes him as the firm’s managing partner. His FINRA record points to some epic violations of industry practice but he has apparently landed on his feet and now holds himself out as the managing partner of RSM Capital Partners’ Social Innovation fund. [Zakai did not respond to numerous messages left at his job and on his cell-phone.] The connection to Benjamin Wey begins with the fact that he arranged the reverse mergers of DEER and HEAT and helped them secure U.S. market listings and has been a very aggressive proponent of DEER, as he noted in this E-mail to his trading desk contacts in September 2010, announcing his sister’s purchase of a block of shares. [Wey did not respond to repeated requests for comment.] [...]

  9. Chris on December 19th, 2011 9:16 am

    Sir, I’d encourage you to share your findings to the SEC. I doubt the SEC is even aware of such investigation at FINRA. This is surely going to add a lot of value to its own investigation in DEER and Wey.

  10. Valerie Beaty on February 21st, 2012 8:41 am

    Awesome article post.Really looking forward to read more. Really Cool.

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