”Pump and Dump” & ”Short and Distort”

Following last week’s tumble in the Ekso Bionics stock, it turned out to have been subject for a short and distort-case by The Pump Stopper who published a vicious case against Ekso on the webpage Seeking Alpha. In an article by Keith Fitz-Gerald’s, a frequent guest on CNBC and Fox Business according to his website, he lays down the bullet points of how to spot a ”short and distort” case as it shows up. It’s a good article so I recommend you to read it.

Pump and Dump according to Wikipedia:

””Pump and dump” (P&D) is a form of microcap stock fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operators of the scheme ”dump” sell their overvalued shares, the price falls and investors lose their money. Stocks that are the subject of pump and dump schemes are sometimes called ”chop stocks”.”

Short and Distort according to Wikipedia:

””Short and distort” is a type of securities fraud in which Internet investors short sell a stock and then spread negative rumors about the company in an attempt to drive down stock prices. Cell phones and text-based messaging are the primary tools for the people committing ”short and distort” as they tend to hide the source of the information.”

Lesson in Due Diligence

Today, a prominent play took place on the US OTC market around the exo-skeleton company Ekso Bionics (EKSOwww.eksobionics.com. It reminded me of the importance of conducting my own due diligence before I invest in a company. This case shows what you can miss should you solely rely on a company’s own view. It also proved what instant impact a thorough public analysis can have on a stock.

By the time the markets opened today an author called The Pump Stopper published his bearish analysis on Ekso with his price target $0,13 per share. The stock went from $1,70 to $1,04 in half an hour. Worth mentioning is that the author had his disclaimer right under the headline, saying he has a short position in the stock, meaning he’s very biased.

I myself have been following this company for the past one year via subscriptions to the company press releases, Google Alerts, Yahoo Finance and Twitter. They have regularly posted positive news concerning new partnerships, new patents and positive media attention, by for instance CNBC. All these media outlets gave me positive insights of the company.

After I had read the whole article, I started to verify the various facts and claims the author had stated. The author provides legit sources for basically all his claims, such as SEC filings, public year-end reports, and other government websites. Some arguments he inferred by compiling his own empirical statistics by browsing public LinkedIn profiles. Around here things are starting to get a bit shaky and his bias is starting to show. He is picking the data which speaks for his cause, such as what clinics nowadays promote the competitors and not Ekso anymore. Looking at the comments, someone says he leaves out some other clinics who now promotes Ekso. When he claims a convicted Lawyer is connected to possible Ekso pump-and-dump-schemes, commentary says Ekso is never mentioned in those particular criminal charges.

Anyway, to cut this short, always do your own Due Diligence. Run the numbers yourself, look at the original documents yourself, verify others’ conclusions by turning to the source. This way, you will minimize standing there in the end, looking like a fool.

By the time I finished this writing, the Ekso stock is trading around $1,40.