Every now and then, on Wall Street, a penny stock surfaces from nothingness and generates ridiculous gains in a short time period (the medical marijuana healthcare sector being the latest example). The gains are often short lived, as investors quickly realize the rise of the stock was caused by nothing more than hype and speculation, not fundamentals. Cynk Technology Corp. (CYNK) is the most recent example of this phenomenon.

In May, Cynk traded at a low of $.06 per share; however, by July 10, it was trading at a high of nearly $22 per share. That’s a gain of 25,000% in fewer than two months. At its peak, the company had a market capitalization of over $6 billion. This is more than companies such as GameStop (GME) and Dominos (DPZ). The uncharacteristic rise of Cynk prompted the SEC to halt all trading of the stock. The halt froze Cynk at about $14 per share for two weeks. When the SEC reopened trading, the stock quickly plummeted from $14 to $3 per share. At the beginning of this week, Cynk ended the trading day at a price of just $.60 per share.

Inevitably, Cynk’s Wall Street roller coaster ride quickly found its way into the public sphere, unavoidably raising questions about the company’s legitimacy. Interestingly, on paper, Cynk apparently has only one employee and an "office" in Belize. If that isn’t suspicious enough, Cynk also does not report any assets or revenue; in other words, it's worthless. The company claims to run a “social marketplace” website called Introbiz, where customers can supposedly purchase contact information for celebrities and professional athletes, as well as pursue connections with other high profile personalities. The social “information” ranges in price from $50 to $1500, with only 100 or fewer sales per “product.” For example, Angelina Jolie’s information costs $50 and has been purchased 67 times. The page is marked with this disclaimer: “the information usually includes email [addresses] and phone numbers to the [celebrity's] talent agent, publicist, legal representative, etc. IMPORTANT: The information varies from artist to artist. You will find at least ONE contact entry in your download.” Pretty sketchy if you ask me.

As more information regarding Cynk has been released, some claim that the company, and its stock, may have been part of a “pump-and-dump scheme.” In a scam of this nature, stock promoters, as well as individuals, such as brokers and investment bankers, are paid via stock of a worthless company. By “hyping-up” the stock, these promoters gather attention surrounding the security, convincing unsuspecting investors to buy it. The more individuals who buy, the higher the stock moves, and the more money the promoters make. That is, until people realize that the company is valueless; unfortunately, by this point the promoters have already sold a large majority of their holdings. If you’ve seen “The Wolf of Wall Street,” such a scam is the business model of Jordan Belfort: where he joins a small brokerage firm and convinces people to buy “pink sheet stocks,” and makes a large commission from each sale. However, unlike in the movie, the legal questions facing Cynk have yet to be released.

If you are to take anything away from the rise and sink of Cynk Technology Corporation, it should be to reinforce the importance of investing strategies we recurrently promote here at Economix101: only buy into companies you understand, invest for the long-term, and don’t buy into hype and speculation. As you can see, ignoring these proven tactics can easily result in costly financial mistakes. Otherwise, you could mimic the habits of Cynk investors and either lose millions, or end up in prison.