High in the Blue Mountains of Jamaica, in the rich soils north of Kingston, grow some of the world’s finest coffee beans. Every year these beans are hand-picked, sun-dried on bamboo racks, and roasted over wood fires before being shipped around the world, much of it to Japan, where it is coveted for its mild flavor and sweet aroma.
Almost 3,000 miles away in a very different set of hills – Beverly Hills – the young directors of Jammin Java Corp must be celebrating the opening of the US stock markets with a cup of their own signature Lion’s Blend coffee. It is Monday May 9, 2011, and shares of Jammin Java Corp (JAMN.OB) have catapulted to $3.20 per share and the company they oversee now has a market capitalization of over $220 Million.
And why not?
The company has released a string of good news, including distribution deals in California and Canada, an announcement that its product sold out in just an hour on an Amazon lighting deal promotion, and the appointment of several board members with track records in the coffee industry.
Yet there is a bitter taste to this story, because something darker and more sinister than coffee beans seems to be brewing.
Recycling, Reggae Music, and Pornography
The company’s colorful history has its unexpected beginnings in 2004 when “Global Electronic Recovery Corp” was incorporated in the state of Nevada.
The original directors, and only employees, were David O’Neill and Brian Martel. Early SEC filings described their vision of an electronics recycling business. While no actual business existed (their offices were in Mr. O’Neill’s Los Angeles residence), Mr. O’Neill set out to raise money by selling shares to friends and family.
The recycling never took off, and on Aug 22, 2007, the company announced that it was appointing a gentleman named Shane Whittle as a director.
The SEC filing introduced Whittle as the CEO of Privatekits.com and also President of Whittle Investments, a real estate development company, but I would later learn that he had a notable rap sheet of stock promoting as well.
Two months later the company completed a ~23:1 stock split, meaning the company went from having 3,660,100 shares outstanding (which were worth nothing) to having 83,171,486 shares of stock outstanding (still worth nothing.) It was a very strange transaction for the sleepy start up.
And with Whittle’s appointment came other changes.
Companies often repeat large chunks of their quarterly disclosures in their SEC filings – particularly static items such as description of business and general risk factors. So it is not surprising that the same text appeared in each of its previous filings under “Business History:”
“Our plan of operations is to commence a business specializing in electronic waste collection, electronic waste recycling, and resource recovery.”
After Whittle’s appointment, the company added the following sentence:
“If we determine that this business plan is not feasible we may consider other business opportunities.”
And apparently they did discover it was not feasible because in a surprising twist, on March 12, 2008 the company announced that is was:
- Appointing Rohan Marley, son of legendary Reggae artist Bob Marley, as a company director, and
- Changing its name to “Marley Coffee” after merging its subsidiary, Marley Coffee, Inc into the company
This second piece of news was particularly surprising as the company had never mentioned anything about a subsidiary called Marley Coffee, and the articles of merger list Shane Whittle as the President, Secretary, Treasurer, and Director of Marley Coffee.
But the next 10-KSB (annual report for small business) filing would provide the following timeline:
- On Feb 8, 2008 “we incorporated a subsidiary named Marley Coffee, Inc.”
- Effective Feb 15, 2008, Marley Coffee entered into an 8-year lease of 52 acres of coffee farmland in the Jamaican Blue Mountains. The lease called for annual payments of $1,000. The filing further notes that only 12 acres were identified for coffee farmland but that would increase to 30 acres
- On Feb 25, 2008, the Global Electronic Recovery Corp merged with this subsidiary and took on the name Marley Coffee, Inc.
We’ll return to the farm lease, but it is worth noting now that the lease is with a company controlled by a director and his family (Marley).
This above transaction is called a reverse-merger because the subsidiary is the surviving entity. It is a legal transaction, but it is also a common start to a pump and dump, because it allows you to make the company you want to pump up public without having to complete the SEC registration process.
Another notable addition was the hiring of the audit firm LBB & Associates Ltd., LLP to sign off on their annual reports.
On September 30, 2008, the Public Company Accounting Oversight Board (PCAOB), the regulatory entity created by the Sarbanes-Oxley Act that is tasked with overseeing auditors of public companies, issued a report describing auditing deficiencies at LBB:
“The deficiencies identified in one of the audits reviewed included a deficiency of such significance that it appeared to the inspection team that the Firm did not obtain sufficient competent evidential matter to support its opinion on the issuer’s financial statements.”
It is also interesting that on October 30, 2009, Marley Coffee received a letter from the SEC with comments on their 2009 10-K filing. Among the comments (emphasis added):
“It appears that the report provided by your independent registered public accounting firm IS NOT SIGNED.”
I wondered if they did a review at all or just sent over a standard audit letter for a fee.
Back at Global Electronic Recovery, now known as Marley Coffee, the original founder David O’Neill would resign as president and director in July 2008. All the while shares in the company are being transferred at a dizzying rate between directors and affiliates at prices clearly betraying their lack of value:
“During the period ended July 31, 2008, David O’Neill transferred 13,660,099 common shares to Rohan Marley for no consideration, and transferred 3,000,000 common shares to Shane Whittle for cash consideration of $20,000. During the same period Rohan Marley transferred 1,026,507 shares to Jonathan Forster for no consideration. Also during the period ended July 31, 2008, David O’Neill returned 54,511,389 common shares to the treasury of the Company for no consideration.”
On July 13, 2009, the company announced it would change its name again to Jammin Java Corp.
Then on April 22, 2010, Shane Whittle resigned as president to be replaced by Anh Tran.
Mr. Tran is described as a “management consultant and the former President of Greencine.com.” Greencine.com is an online video-on-demand company and some google searching revealed that Mr. Tran is also a cofounder of WantedList.com – a Netflix of sorts for pornography.
The Coffee Business
While the aforementioned paper shuffling was keeping everyone busy, the operating business itself didn’t have much to report.
Here are some actual disclosures from the 10-Q for the period ending 10/31/10, just a 13 page document (keep in mind the company closed the day 5/9/11 with a market cap of over $220 million:
- Aside from its 3 directors, the company has no employees, nor does it anticipate hiring employees in the next 3 months
- The company has generated ZERO revenues since inception
- An actual quote from the 10-Q: “We will not be able to continue our business operations for the next six (6) months with the current cash we have on hand. We anticipate the need for approximately $135,000 in the next twelve (12) months to continue our business operations and begin the marketing of our products throughout the internet. We have not made any sales of our products to date, and can make no assurances that material sales will develop in the future, if at all. Moving forward, we hope to build awareness of our website, www.jamminjavacoffee.com and in turn create demand for our products and sales, of which there can be no assurance.”
Below are the company’s assets, as reported on the 10/31/10 balance sheet:
It only listed 2 assets on the balance sheet – $739 of property and equipment (yes, that is $739, NOT in thousands), and a license agreement to use the name Marley Coffee.
This license agreement was purchased in March 2010 from Marley Coffee LLC, a separate, private company controlled by Rohan Marley and members of his family. This asset, the “non-exclusive transferable sub-license for the worldwide rights to use the Trademarks” is carried on the balance sheet for $640,000.
In consideration for this license the company compensated Marley Coffee LLC (the private company controlled by director Rohan Marley) as follows:
- Turning over all of its interests in the development of its previous branding and business plan (whatever that was… the recycling business? Previous coffee branding with zero sales?)
- Assigned to Marley Coffee LLC (the private company) the lease of farm land in Jamaica. Note that this is the very same lease that the company previously entered with a company affiliated with Rohan Marley – so effectively it gave Marley Coffee LLC a lease with itself while conveniently ridding itself of the lease obligation and simultaneously grouping this transfer in as an investment in trademark assets
- 10 Million shares of the company to be paid in 1,000,000 installments over 10 years
The company then valued these 3 items of “compensation” at $640,000.
There were additional puzzling disclosures such as this one listed under transactions with related parties:
“During the nine months ended October 31, 2010, the Company paid $9,396 to a family member of a Director of the Company for website design costs. As of October 31, 2010, the Company owed $665 to this person.”
Why would a company bother disclosing something this small? It occurred to me that this may have been one of the only actual transactions that took place.
The preparation of this filing conjures up pictures of a high school student at the beginning of class, frantically scrambling to put down some answers on a homework assignment he forgot all about.
Stock Market(ing) – The Pump
Before December 2010, essentially no shares of Jammin Java Corp changed hands (aside from the previously mentioned insider transfers). In fact the company itself discloses in its 10-Q as a risk factor,
“Although we have been approved to quote our securities on the Over-The-Counter Bulletin Board, there is not currently a public market for our securities.”
But shortly thereafter, shares suddenly started changing hands at an alarming rate.
And during this time the stock rose from $0 to over $3 per share.
A coordinated and fraudulent promotional effort.
One of the most visible promoters was a website HackTheStockMarket.com.
For months this website ran banner advertisements on Yahoo Finance.
After collecting your email address, these banners led you to a video sales letter for an investment strategy manual complete with outrageous claims, brazen exaggeration, and the story of a purported “John Bell” who was going to teach you how to make $10,000 a month trading stocks.
I obtained a copy of the manual. The main strategy it recommends is investing in spin-offs, and the manual included wholesale plagiarism from an excellent investment book “You Can Be A Stock Market Genius” by Joel Greenblatt.
I watched the sales presentation with incredulous amusement, much like the way you might watch that colon cleanse infomercial that seems to be forever airing on 6 channels.
In the months that followed I would receive the expected follow up emails from Hack the Stock Market promoting the same investment manual.
Then on March 15 I got a new sort of pitch.
I was told that John Bell had been researching a stock pick that he was becoming increasingly excited about. That he wasn’t positive, but it would probably be released in the next 4 weeks.
From there the hype continued to come in.
One day they sent a 60 second promotional “movie trailer” that would make Hollywood producers jealous. It claimed about the pending stock pick, “Never before has a single piece of information been so valuable.”
The ensuing sequence of emails is what I would describe as the awkward balance of trying to hype a stock as much as possible while simultaneously providing just enough legal disclosures to have plausible deniability.
When the stock pick itself arrived it came as an email “report.” The report itself would have condensed to 3 regularly-typed paragraphs, and at the bottom of the email, in tiny print, was this not so tiny disclosure:
“htsm [hack the stock market] has been contracted to receive no more than fifteen thousand five hundred usd by a third-party shareholder of jamn for six months. centurian ventures and htsm and their affiliates have purchased and sold, are purchasing and selling and will purchase and sell shares of jamn common stock without notice to the reader. centurion ventures and htsm purchases and sales of shares of jamn common stock will affect the value of your ownership of shares of jamn common stock”
These disclosures are required of paid stock promoters, but here we can see how the disclosure does not really identify who is paying for the promotion. Centurian/Centurion Ventures is alternately spelled and we are not provided an address or organizational structure to find more information.
I received my pick on May 2nd, 2011, but at the time I am writing this:
are each active websites features the exact identical text (the JAMN stock report). A google search of the hackthestockmarket.com website also reveals addresses corresponding to additional days as early as Feb 6.
It seems clear that Hack the Stock Market has built a massive email list to which it has been promoting JAMN gradually over this period to create a consistent group of buyers.
Hack The Stock Market was not the only site promoting the stock.
Another virtually identical site called thelautnerletter.com would soon begin advertising on Yahoo Finance with an identical promotion (ad shown at right). It was either Hack The Stock Market with a new brand or another pumper too lazy to write his own promotion.
Among the challenges of pulling off a pump and dump are restrictions put into place by the SEC on selling certain types of stock.
These rules govern the resale of securities that are bought directly from the company. Specifically, one cannot buy shares directly from a company and then immediately sell them on the open market. There is a 6-month holding period, and restrictions that those sales cannot exceed 1% of the total trading volume. But there are also exemptions from the rules – one of which includes sale of securities in a private placement to non-affiliated foreign entities.
The SEC discusses the use of foreign entities on its website:
“The Off-Shore Scam – Under a rule known as “Regulation S,” companies do not have to register stock they sell outside the United States to foreign or “off-shore” investors. In the typical off-shore scam, an unscrupulous microcap company sells unregistered Reg S stock at a deep discount to fraudsters posing as foreign investors. These fraudsters then sell the stock to U.S. investors at inflated prices, pocketing huge profits that they share with the microcap company insiders. The flood of unregistered stock into the U.S. eventually causes the price to plummet, leaving unsuspecting U.S. investors with enormous losses.”
On December 22, 2010, Jammin Java entered an agreement with a UK company called Straight Path Capital. The agreement gave Straight Path the right, at its sole discretion, to invest $2.5 MM (with an option to increase this to $3 MM later) in exchange for shares of the company.
The agreement was very curiously worded. Specifically, it gave Straight Path the right but not the obligation to acquire shares at a price of $0.40 per share, but limited daily investments to $40,000.
Why would you structure an investment this way?
Well I am just speculating here, but it sure would be an ingenious (although illegal) way to incentivize someone to:
- Pump the stock price as high as possible
- Keep it high for an extended period
- Cap the amount they can trade to allow someone else (company insiders?) to sell their own shares
Regarding use of the investment funds, the document required only that “The Company shall use all Investments to fund operating expenses, acquisitions, working capital and general corporate activities.” Aside from this one sentence, the body of the document focused almost exclusively on Straight Arrow’s exemption from the Securities Act of 1933 through Regulation S.
And of course, much like the “disclosure” about Centurion/Centurian Ventures, the document failed to provide a legal name, address, phone number, or other information that could trace back to the Straight Path Capital.
Who is at the Helm?
With so many either incompetent or complicit actors, it is difficult to assign blame. But a key character seems to be Shane Whittle, a 35-year-old Canadian with ties to several other pump and dump schemes.
Take Big Bear Mining Corp. Although he is never officially listed as an affiliate of Big Bear Mining Corp, the company’s earliest SEC filings list 1728 Yew St in Vancouver as its headquarters. Separate SEC filings, including Interactive Television Networks and Radium Ventures, list the same Shane Whittle, with a personal address of – 1728 Yew St in Vancouver.
The chart below shows the 2010 pump and dump of Big Bear – with a dramatic surge in volume and price lasting for 2 months.
Big Bear has a striking number of similarities with Jammin Java Corp.
- The stock completed a 50 for 1 split in Jan 2010
- Had earned zero total revenue and had essentially zero in assets immediately prior to the “pump”
- Used the same dubious auditing firm LBB & Associates
- Had paid promoters with disclosures that they had been contracted by a 3rd party to report on and cover the company
- Structured a private placement “investment” with characteristics specifically designed to avoid limitations about restricted securities, specifically it was:
- A foreign entity
- The “investor” has the right to purchase addition stock at maximum daily amounts
- The foreign entity is not clearly disclosed
Time will tell if this is Jammin Java’s fate or not, but don’t say you weren’t warned.
Author Disclosure: Author will have short position… if he can find shares to borrow! (No luck so far)