Skip to main content

The Globe and Mail

Newsletter author accused of hyping stocks to artificially raise prices

Brian Jackson/Thinkstock

Investors reading the popular Elite Stock Report newsletter in 2010 learned dramatic news about a largely unknown penny stock called Guinness Exploration Inc.

The company, whose shares traded on the U.S. over-the-counter market, was sitting on one million ounces of recoverable gold in a property in the Yukon, the newsletter reported, and its share price could increase 10-fold within a year. Investors "could be taking your profits out by the truckload," the report said.

It sounded too good to be true, and it turns out it was.

Story continues below advertisement

Colin McCabe, the Abbotsford, B.C.-based author of the investment newsletter, received over $5-million (U.S.) to write stock reports in 2010 that were so glowing they read like "tabloids one might expect to see at a grocery check-out" – and wrote about Guinness without even knowing who was ultimately behind the payments he received, the British Columbia Securities Commission ruled in a decision released Tuesday.

The regulator concluded Mr. McCabe misled investors with his inflated claims and acted "contrary to the public interest" when he wrote promotional articles without doing any apparent research, without verifying facts about the companies he touted, and without relying on any concrete information to support his conclusions.

The hearing panel said he "simply made up a non-existent, but sensational, resource estimate" for the Yukon property, which he called a "discovery so massive it makes Fort Knox look trivial."

"Here we have an individual with no significant academic qualifications related to, nor any practical experience in, the securities business, working out of his home in British Columbia, putting out grossly promotional and misleading reports about publicly traded companies," the hearing panel wrote in its decision.

"The reports are clearly designed to significantly stimulate trading volumes in the shares of the companies targeted in the reports in order to artificially increase their stock prices."

Mr. McCabe was also accused of acting contrary to the public interest in reports on two other companies he was paid to tout -- Tuffnell Exploration Ltd. and Gunpowder Gold Corp.

The hearing panel rejected Mr. McCabe's arguments that investors knew the articles were paid advertisements that contained statements of "corporate optimism," ruling the reports were "blatant touting, not mere advertisement."

Story continues below advertisement

Lang Evans, manager of special investigations at the BCSC, said the case casts a harsh light on egregiously promotional newsletters, saying they reinforce perceptions that B.C. is a haven for penny stock frauds.

"It's a paid-for tout that purports to be research, and it's not," Mr. Evans said in an interview. "And it's not in the public interest, especially from a jurisdiction like B.C. that has had our problems over the years with being a source of suspect promotional activity."

The promotions ultimately hurt legitimate small-cap companies seeking financing, he added.

"Every dollar that goes into one of these suspect promotions is denied from somebody who is legitimate in their pursuit of their business. This is just the old shell game again -- get your shares cheap, pay somebody to tell the investing public it's the greatest thing since sliced bread, and then dump into the ensuing demand."

The commission panel also ruled against Erwin Speckert, alleging he was a middle-man who paid Mr. McCabe for his reports on Guinness Exploration. He contacted Mr. McCabe to order glowing reviews for Guinness without ever telling Mr. McCabe his last name or giving him any contact information except for a fax number. His name came to light later during the BCSC investigation.

Mr. McCabe was paid for his promotional reports by faxing an invoice to a fax number in Switzerland. The BCSC said Mr. Speckert, who runs a marketing company, arranged for funds to be transferred to Mr. McCabe's bank account in Surrey, B.C., from an offshore account in Switzerland.

Story continues below advertisement

Mr. Speckert, who was accused of acting contrary to the public interest, has never disclosed who was behind the payments he funnelled to Mr. McCabe. He refused to tell the BCSC the names of the clients he represented, claiming to do so would violate privacy laws in Switzerland.

Mr. Speckert has his own checkered history. In 2012, he was arrested at the Winnipeg bus depot after security officers found $1.3-million (Canadian) in cash in his backpack. RCMP later charged him with possessing, trafficking and laundering the proceeds of crime – allegedly the money came from an illegal gambling operation in Ontario.

There are no allegations that the cash was related to the BCSC case. Mr. Speckert reportedly lives in both Zurich, Switzerland, and in Minden, Ont.

Report an error Licensing Options
About the Author
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨