I ask myself this question every day. What the heck is IR? I know what IRshould not be – it should not be former brokers who lost their licenses through SEC or FINRA actions getting between you and your shareholders. Of course not all IR firms are former defrocked brokers, but hey, a lot of them are, and you should really do your due diligence before you hire and pay them.
Why? They use the same hard-sell Stratton-Oakmont boiler-room sales tactics on OTC CEO’s as they did when they were brokers (some of them actually former Stratton Oakmont Brokers) looking for clients. To them this is exactly the same game where they can use the same skills to develop and attract business, but play both ends of the fence (trade), so to speak. The unfortunate thing is that most OTC CEO’s are fairly desperate to create “awareness” (that’s the term a lot of these so-called IR groups use) and are usually sucked in to their trap. Now, I always found it interesting when selling a CEO on their services, they point to 1) the scope and size of their email lists, 2) their ability to “highlight” your company in a 1 page “tear Sheet”, 3) how they can produce “CEO Interviews” and then blast them out to email subscribers and how they can arrange for you to “present” your company to potential investors and 4) pointing to other symbols where you can see certain spikes when they initiated campaigns, and the ridiculous list goes on.
All of those “services” come at a substantial cost to an OTC company, for what, a few short-lived spikes? But let’s address the money issues first. These programs “campaigns” cost money, and a LOT of money. Anywhere from $5K to $25K a month, PLUS either S8 or restricted stock, and run between 3 months and 6 months. The sales pitch usually goes like this – we provide an array of investment relations services that we can get your company in front of 10’s of thousands of investors who would be interested in hearing your story and possibly buy your stock in the market and we charge a monthly fee but will also work for stock. YIKES! The agreements are for multiple months, and they do not guarantee anything, even actually working on your “campaigns” after you sign up with them. But many OTC CEO’s sign up because the pressure is overwhelming to make their stock perform in the market. What ends up happening is that you are not experiencing a natural market, you are now involved in a pump. What’s worse, 99% of the perception of a pump is followed by a perceived upcoming dump. The guys on IHUB will kill the stock off faster than you can shake a stick at it by slamming the company, management and you. And I get some of the reasons why you do this, it could be that you have a toxic convertible note coming that’s about to age and allowed to convert at a steep discount, or you took a ridiculous ELOC, and need to place “puts” to trickle in some money for operations, or, you need to raise money so the increase in stock price may lure in direct investment via a PPM, but for whatever reason you have to be sure of 2 things – if you expect to apply for an up-list to NASDAQ, forget it for about a year. The listing committee will not entertain a listing application if your company paid for any IR services because no matter the reason and/or result, that’s viewed as an unnatural market. You need to stop ALL IR for a year, before you can even entertain an uplist. Second, BIG TROUBLE, and I mean absolutely BIG TROUBLE for the CEO personally. Recently, The SEC got a guilty plea from the CEO of Forcefield Energy, Inc. as well as a “stock promoter” (code for IR Firm) for market manipulation and kickbacks to that IR firm that had both a cold-calling center (sound familiar?) as well as 2 established publications that touted new stocks sent via email.
The problem is that in situations like this, the IR firm tries to get their greedy hands on money in both directions, payment for the services they purport to perform and kickbacks from the company based on perceived performance. That’s just sheer greed on top of greed. This is just a typical broker tactic to push, push, push and deny, deny and deny any wrongdoing. Obviously this a mantra learned from Jordan Belfort himself and commonplace in the IR world.
So a word of caution, as a CEO, you really need to do your due diligence when deciding upon, and choosing an “IR firm to help your company with legitimate market awareness. There are some good IR advisors out there that I have come across, ones that don’t over promise and actually perform.