Investor Warning: Proactive Investors LTD. Related tickers: CYDY, CODX, TLSA, GNPX, ORGS, PRLX, TCON, VNRX, SEEL, IUGNF, KZA, DYAI, QBIO, IPATF, ATBPF, HGEN, MTNB, AGRX, PDDPF, ACST, AIM, THOXF, CRTPF, HBPCF, AQSZF, MLSS, AVCO, TNXP, SMMT, MTP, PXSLY

• Proactive Investors LTD is an international stock promoter with clients and region specific websites in the US, the UK, Canada and Australia.
• Several of Proactive Investors’ most heavily promoted biotech/pharma clients, such as CYDY and CODX, have recently enjoyed substantial increases in their share price. These companies raise several red flags.
• Between January 1, 2020 and and May 26, 2020, Proactive Investors has published 410 promotional articles on 31 pharma/biotech US companies for which it has received close to $800,000 in compensation.

Intro:

In this sixth installment of our Investor Warnings series focused on so-called “dubious” third parties we will be taking a break from funds and creditors and instead turn our attention to a paid promoter. As most smallcap/penny stock traders should be well aware, paid promotion is oftentimes one of the main drivers of demand for this type of equities and thus a crucial factor behind many of the parabolic runs that have become somewhat pervasive in recent months. Consequently, promotion is one of the biggest red flags a publicly listed company can raise as it is more often than not an indication the company in question is struggling and needs to resort to paying for promotional material that paints them in a favourable light in order to stand a chance of attracting any sort of investment. Understanding paid stock promotion is a crucial tool for traders who seek to discern how “genuine” a stock’s price action is, which can prove invaluable when choosing and timing trades. For this reason we turn our attention to Proactive Investors. When it comes to paid promotion few outfits have the level of reach or output that Proactive Investors has had over the last few months, meaning that it provides a few recent examples of how “artificial” media coverage can be strongly “correlated” with the good fortune of a few publicly listed companies.

Proactive Investors LTD is a private UK company incorporated in 2005 by Ian William McLelland. Mr McLelland is a Canadian citizen who to this day had held the posts of director and CEO. The other key figure at Proactive Investors is an Englishman by the name of Craig Stephen Ribton, he has held the post of director at Proactive Investors since 2006 and along with Mr. McLelland, holds a controlling stake in the company. Proactive Investors Limited describes itself as “one of the fastest growing financial media portals in the world, providing breaking news, commentary and analysis on hundreds of listed companies and pre-IPO businesses across the globe, 24/7”  whose purpose is to “enable companies and investors to connect intelligently”. The content of Proactive Investors is fairly extensive, covering publicly listed companies in sectors ranging from Basic Materials to Health across the USA, the UK, Canada and Australia, with dedicated websites for each one of these countries. Furthermore, there are other websites that are also run by Proactive Investors and that are exclusively dedicated to specific sectors such as miningcapital.com and oilcapital.com.  The truth of the matter is that Proactive Investors is little more than a so-called “pump site”, an “information” outlet that is regularly employed by many so-called “dubious” publicly listed companies in order to put out paid for puff-pieces whose sole purpose is to drum up interest among retail investors for the shares of its clients.

In order to illustrate this point we will be taking a closer look at the content published on Proactive Investors’ USA website, more specifically at the Pharma and Biotech section since the beginning of the year until May 27, 2020. Focusing on Pharma and Biotech was done partly for the sake of conciseness and partly because it is currently relevant given the pandemic. Firstly, we will examine four different US publicly traded Biotechs who have paid for Proactive’s services, highlighting the other red flags they raise as well as how Proactive’s coverage of said tickers correlates with the tickers’ price action. Then we will look at a comprehensive list of all the companies that have been featured on Proactive USA’s Pharma and Biotech section to see how many of them have paid for Proactive’s paid promotional services. We will be excluding Cannabis companies from our analysis for the sake of focus and conciseness.

CYDY:

CytoDyn Inc (OTCQB: CYDY) has been extensively featured on Proactive Investors over the last few months, with as many as 58 different articles between January 6, 2020 adn May 26, 2020 (the most of any Pharma/Biotech over this time period). All these are paid for pieces as made clear on the disclaimer. (Note: the disclaimer shown on Proactive’s paid for content varies depending on the country of your IP address. The disclaimer will only specify the details such as the amount of money that has exchanged hands and the fact that the featured company itself has paid for the content, if it is accessed through a US IP address. Consequently, non-US traders/investors are less well informed than their American counterparts about the business relationship between Proactive and its clients).

CYDY is arguably one of the largest and most “unorthodox” publicly listed companies we have come across over the last couple of years. Its peculiar dealings are numerous and have been exposed by many members of the investment community. The market has not caught on quite yet as attested by the fact that CYDY is currently valued at more than $1.4 billion. This is largely predicated on highly questionable claims made by the company that its lead candidate, Leronlimab, is a highly effective treatment for COVID-19, a notion that has been propagated through Proactive Investors’ website (and many other similar outlets) since the pandemic started spreading across western countries.

The coincidence of  CYDY’s price and volume increases and Proactive’s promotional campaign over the last few months has also coincided with a massive increase in the company’s total number of outstanding shares (from 431 million to over 511 million since the beginning of the year) as well as the sale of tens of millions of shares by company insiders, a so-called “vulture funds” and other interesting entities.

The company CEO himself, Nader Pourhassan, has registered for sale 2 million shares, meaning that he will make a fortune over the current months as he sells these shares.  Mr. Pourhassan, a convicted felon ( he was convicted for selling Dream Catchers that he falsely claimed had been made by native Americans; was convicted for domestic violence in 2006 and for third-degree felony in 1986), is a Proactive Investors regular having appeared in over a dozen video interviews over the last few months.

On the same offering prospectus that Mr. Pourhassan registered the sale of his shares, Iliad Research and Trading registered the sale of 6.3 million shares. Iliad is a so-called “vulture fund” with a rather prolific track record. What is most concerning is how Iliad got hold of these shares. On June 26, 2018 and on January 30, 2019 issued CYDY $10.4 million worth of debt though two  $5.7 million convertible promissory notes. This debt can be converted at an average of $0.525 per share, meaning that Iliad, like Mr. Pourhassan, stands to make a significant “return on investment”.

Another entity that registered shares for sale on the same prospectus is Cool Blue Capital. As pointed out by Culper Research, Cool Blue Capital raises a few red flags, namely: It has actively participated in CYDY’s private offerings over the last year, obtaining millions of shares at below-market-prices; It has only been named in CYDY filings according to EDGAR meaning that it has no clear ties to any other company; It was apparently founded in Oklahoma only 10  days  prior  to  the  Company’s first S-3 offering that mentioned Cool Blue Capital, LLC.

CYDY raises many other red flags, so many that a short book could be written on the matter.

What we have here is a struggling company that is spending valuable resources on paid promotion while simultaneously issuing millions of shares and its CEO (with a colourful past) along with other other questionable entities sell their stock at very inflated prices.

CODX:

Co-Diagnostics Inc (NASDAQ: CODX) is another somewhat notorious publicly listed company that has been heavily featured on Proactive Investors’ USA website, with as many as 49 different articles between January 3, 2020 and May 26, 2020. As in CYDY’s case these are all paid for pieces as made clear on the disclaimer. (Note: the disclaimer shown on Proactive’s paid for content varies depending on the country of your IP address. The disclaimer will only specify the details such as the amount of money that has exchanged hands and the fact that the featured company itself has paid for the content, if it is accessed through a US IP address. Consequently, non-US traders/investors are less well informed than their American counterparts about the business relationship between Proactive and its clients).

CODX has enjoyed a remarkable turn of fortune (as far as its share price is concerned) since it started making claims that it is developing a COVID-19 test and later went on to state that it could produce 50,000 tests a day at a cost of $10 per patient. This notion has been propagated not only by Proactive Investors. Since late January 2020 CODX has been promoted through several email newsletters for thousands of dollars, with one of the most recent examples (shown below) quoting $110,000 in compensation.

As in CYDY’s case, CODX has issued a considerable number of shares (the number of outstanding shares has increased from less than 18 million on December 31, 2019 to more than 27 million) and some CODX insiders (with questionable track records) stand to make a fortune on the back of such claims. As Sharesleuth pointed out CODX ‘s CFO, Reed L. Benson, has ties to offshore boiler rooms and jointly held around 1.3 million shares in August 2019 and Vladamir Sklarov, who pleaded guilty in 1998 to conspiracy to commit Medicare fraud, controls two companies that own 2.26 million shares.

Once again we have a company with ties to several so-called “dubious” individuals and entities (some of which have been prosecuted and fined by regulators for committing various types of frauds) who happen to own large numbers of shares and who have heavily profited from the recent share price that has come as a result of claims relating to COVID-19 that have been propagated by several paid promotion outlets such as Proactive Investors.

TNXP:

Unlike CYDY and CODX,  Tonix Pharmaceuticals Inc (NASDAQ: TNXP) has been featured on Proactive Investors only a handful of times between January 1, 2020 and May 26, 2020, with 4 articles since the start of the year.  All these are paid for pieces as made clear on the disclaimer. (Note: the disclaimer shown on Proactive’s paid for content varies depending on the country of your IP address. The disclaimer will only specify the details such as the amount of money that has exchanged hands and the fact that the featured company itself has paid for the content, if it is accessed through a US IP address. Consequently, non-US traders/investors are less well informed than their American counterparts about the business relationship between Proactive and its clients).

What is more interesting in TNXP’s case is the timing of Proactive Investors’ paid promotion pieces relative to the company’s price action and timing of share offerings. Proactive Investors released TNXP promotional articles on January 15, January 24 and January 29. This time period coincides with TXNP’s filing of a share offering prospectus on January 21. This share offering became effective on February 6, a day that saw TNXP’s share price take a massive dive. This very same day TNXP filed a Free Writing Prospectus form disclosing material information relating to the share offering. In this filing TNXP quotes an entire Proactive Investors article and states the following about said article: “This article was published by Proactive Investors, whom we retained to provide certain media-related services, and was not reviewed or approved by us. We disclaim any connection to the statements made in this article, particularly those related to the market acceptance of any of our product candidates. Investors in our securities should not rely on any of the statements made in this article”.

Despite TNXP effectively stating that they had paid Proactive Investors to publish information relating to its products that could materially be false, TNXP continued to employ Proactive’s services over the coming days. On February 25 Proactive published an interview with TNXP’s CEO, Seth Lederman. Over the next two days TNXP’s share price went on a parabolic run that saw its share price increase from $0.40 to nearly $2.00. On March 3 the company announced it had closed the offering  and that it had sold 14.55 million shares at $1.10 per share. TNXP currently trades at less than $0.70. A “strange” series of events indeed.

TNXP raises plenty of other red flags. The most serious one is that it has been financed by Lincoln Park Capital LLC on more than one occasion. Lincoln Park Capital is arguably one of the most prolific so-called “vulture funds” currently plying its trade in the realm of US small cap stocks. Furthermore, TNXP has also been involved with Iroquois Capital whose co-founder was accused of a fraudulent scheme to trick the founders of an airport spa business, XpresSpa, into a merger with a public Microcap company that resulted in a massive loss of their business investment. A federal judge in New York allowed a securities fraud case to go forward against Abbe and other company executives.

TNXP is yet another so-called “dubious” company that raises plenty of red flags and pays Proactive Investors to promote its shares while selling them during periods of considerable price volatility.

GNPX:

Since the beginning of the year GNPX has featured on Proactive Investors’ USA website on 20 occasions between January 1, 2020 and May 26, 2020. All these are paid for pieces as made clear on the disclaimer. (Note: the disclaimer shown on Proactive’s paid for content varies depending on the country of your IP address. The disclaimer will only specify the details such as the amount of money that has exchanged hands and the fact that the featured company itself has paid for the content, if it is accessed through a US IP address. Consequently, non-US traders/investors are less well informed than their American counterparts about the business relationship between Proactive and its clients).

GNPX is not dissimilar to the previously mentioned companies. It has experienced significant dilution since the beginning of the year (the number of outstanding shares having increased from 19.2 million at the end of 2019 to more than 32 million shares on May 11, 2020) and this highly dilutive time period coincided with Proactive’s positive coverage as well as a share price increase from $0.32 to more than $7.

GNPX has also been financed by some so-called “dubious” funds. The most notable is Hudson Bay Capital, a multi-billion dollar fund that is prolific at trading small caps, has settled with the SEC for short selling violations and has links to a pump and dump ring that is currently being investigated by the SEC.

As pointed out by Hindenburg Research, Genprex’s lead drug candidate (Oncoprex) and some of its key members have been around for nearly two decades. Simply put, Genprex and its products are little more than a recycled version of what was left over of Introgen after it declared bankruptcy in 2009, wiping around $700 million in investment and facing accusations of misleading investors. Genprex went on to assume control of some of Introgen’s intellectual property which included TUSC2, a gene that is the foundation of Oncoprex, and was first licensed by Introgen back in 2001. TUSC2’s intellectual property was far from promising as it was legally abandoned in Introgen’s bankruptcy because “the patents are a burden on the debtors, provide no value to the debtors, and are of no interest to the prospective purchasers, the debtors seek authority to abandon the patents”. It is also worth noting that Rodney Varner, Chairman and CEO of Genprex was Introgen’s general counsel and corporate secretary and Jack Roth, Chairman of Genprex’s Scientific and Medical Advisory Board was previously Chairman of Introgen’s Scientific Advisory Board.

GNPX is but another ailing company that is selling shares while its share price experiences surges that coincide with Proactive’s positive coverage.

Proactive Investors’ US Biotech and Pharma clients:

The above four examples provide some insight into some of Proactive’s more notable clients but it is rather limited when one bears in mind the extent of their coverage. As previously mentioned and as far as we can tell Proactive boasts several websites, one for the USA, one for Canada, one for Australia, one for the UK as well as miningcapital.com and oilcapital.com. In order to narrow down our analysis we decided to focus on the publicly listed companies that have been featured on Proactive Investors’ USA pharma and biotech section excluding cannabis companies between January 1, 2020 and May 27, 2020. The table below shows the summarised results (for a full table with links to the disclaimers as well as all the articles please follow this link):

CYDY, CODX, TLSA, GNPX, ORGS, PRLX, TCON, VNRX, SEEL, IUGNF, KZA, DYAI, QBIO, IPATF, ATBPF, HGEN, MTNB, AGRX, PDDPF, ACST, AIM, THOXF, CRTPF, HBPCF, AQSZF, MLSS, AVCO, TNXP, SMMT, MTP, PXSLY

During this time period Proactive Investors featured 47 different Pharma/Biotech companies, 31 of which are clients. According to the disclaimers found on 410 articles featuring clients, Proactive receives $25,000 from each company featured, meaning that over the last 12 months it has generated a minimum of $775,000 in revenue from its USA Pharma/Biotech section alone (excluding cannabis companies). Large cap companies are featured every now and then but they receive little coverage as they have no business relation with Proactive, meaning that Proactive’s clientele is almost exclusively composed of struggling small cap companies that rely on selling shares to stay afloat.

Opinion:

Put mildly, Proactive Investors is not a wholly independent media outlet. The fact that the vast majority of the companies featured on its Pharma/Biotech section are clients who have paid for favourable coverage means that the main purpose of such pieces is likely to drum up interest for company shares among ill-informed retail investors. What is particularly concerning is that Proactive possesses a wide reach as it has a presence across several countries meaning that it is able to promote public companies across borders/equity markets. Different regulations across equity markets means that the completeness of information contained in the disclaimers varies considerably. This allows Proactive to include region specific disclaimers on its promotional articles. Consequently, US traders/investors are better informed about the details of Proactive’s business relationship with its clients than their foreign counterparts.

We thus advise traders to keep an eye on Proactive Investors’ and carefully read the disclaimers on their promotional articles and how often they cover a particular company as this may allow one to infer if the hype surrounding a featured company is warranted and maybe even when to time their trades.

CYDY, CODX, TLSA, GNPX, ORGS, PRLX, TCON, VNRX, SEEL, IUGNF, KZA, DYAI, QBIO, IPATF, ATBPF, HGEN, MTNB, AGRX, PDDPF, ACST, AIM, THOXF, CRTPF, HBPCF, AQSZF, MLSS, AVCO, TNXP, SMMT, MTP, PXSLY