Financial regulators on Friday suspended trading in Cynk, the social networking company with no assets, no revenues and one employee, whose value on the stock market had mysteriously soared to $6bn in a matter of weeks.
Fuelling talk of another dotcom bubble, shares in the until now unknown Belize-based tech firm soared as much as 25,000% from the middle of June before being suspended Friday morning, before trading began. The Financial Industry Regulatory Authority halted trading in the company, citing an "extraordinary event.”
In a statement, the Securities and Exchange Commission (SEC) statement said the suspension had been made “because of concerns regarding the accuracy and adequacy of information in the marketplace, and potentially manipulative transactions in Cynk's common stock."
The stock’s runaway rise had made the profitless company more valuable than Domino’s Pizza, JetBlue or Spotify – even as a chorus of critics cited mounting evidence that there was little substance behind Cynk. Valued at 6¢ a share back in June, Cynk finished trading on Thursday valued at $14 and had reached as high as $21.
The rise has made a paper billionaire of Marlon Luis Sanchez, the chief financial officer, chief accounting officer, secretary, treasurer and director. Sanchez, a partner in Sanchez Medical Services, a company that “provides comprehensive medical services to the southern California market”, is also the primary spokesperson for the Medical Tourism Industry counsel in Tijuana, Mexico. Calls to the office of Sanchez Medical Services went unanswered.
Cynk’s main business is a website called introbiz.com, which markets itself as somewhere to “buy and sell the ability to socially connect to individuals such as celebrities, business owners, and talented IT professionals”.
The front page features a host of stars, including Angelina Jolie, Channing Tatum, Johnny Depp, Benedict Cumberbatch and Peter Dinklage, although there is no evidence the stars have any ties to the business. There seems to be very little activity on the site.
According to a regulatory filing made last November, Cynk has yet to officially launch, and plans to introduce a new model for social networks "that we believe will require some acceptance". The plan seems to involve being paid for making meetings happen.
“Cynk Technology Corp believes its planned social network may disrupt an inefficient model of meeting people that is currently based on vague notions of social capital by making it clear ‘I want to meet this person, and I will make it worth your while’,” the company said in its filing with the SEC.
“We believe that people will pay for introductions that are meaningful, since it can save or create significant value to someone's life such as to find the right executive, nanny, software developer – or even the right squash player. Instead of paying for a lunch that neither party wants to eat, parties can get down to business knowing that their time has been valued,” the company said.
Some companies, Cynk concedes, may be unhappy with their employees taking money for paid introductions. In those cases, money could be given to a charity. Cynk is also likely to “fly under the radar” for some time, according to the filing. Cynk concedes that there are plenty of other social networks out there, not least LinkedIn which has emerged as the major business-focussed social network.
“However, Cynk Technology Corp believes a social network that generates revenue is a compelling reason to get people to join,” the company said.
So far Cynk and its one employee have not made any money, at least not from their primary business. Sanchez was awarded 210m shares “for acceptance of position and responsibilities” on 17 April 2013. The shares were valued at $.0068 each, or $1,428,000 (£834,000) at the time. Assuming he still holds those shares, and that he would have been allowed to sell them and able to find a buyer, on Thursday they were worth an astounding $2.9bn (£1.69bn).
Cynk’s extraordinary rise started about three weeks ago with a barrage of Twitter accounts tweeting about a massive surge in the stock’s price. The volatile penny-stock market is notorious for sudden share price rises and falls that leave the owners who bought in high holding the bag and facing large losses.
Nicholas Colas, chief market strategist at ConvergEx Group, a global brokerage company based in New York, said: “After the 1990s tech bubble, the 2000s housing bubble, and the financial crisis, you’d think that investors would be keenly aware of excessive risk taking. Turns out you’d be wrong, at least in several areas.”
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