Chanticleer Holdings (HOTR): Could Fall 60% After Stock Promotion Becomes Clear
Chanticleer Holdings has risen over 100% on the back of articles written on Seeking Alpha.
The author of this article has been linked to undisclosed paid promotion in the past.
Chanticleer Holdings has been involved with paid stock promotion in the past.
Chanticleer Holdings is a money-losing roll-up that it is almost out of cash and a much-needed offering will cause shares to fall.
Back in April, shares of Chanticleer Holdings (HOTR) were trading at around $2.00 on very low volume. Since that time, several bullish articles on Seeking Alpha caused the stock to rise to as high as $4.00 on surging volume of millions of shares.
Author John Ford wrote an article entitled "Chanticleer: This $2 Stock Would Be Cheap At $6", predicting that this $2.00 stock could rise as high as $10 due to its rising revenues and its similarities to Shake Shack (NYSE:SHAK) which has risen by 70% this year.
In reality, Chanticleer bears no resemblance to Shake Shack. The analogy was simply a convenient way to compare Chanticleer to a sharply rising stock. Shake Shack is a high growth operator of fast-casual restaurants in trendy areas with high foot traffic such as Central Park in New York. Chanticleer, by contrast, is a low margin operator of several disparate restaurants, including Hooter's chains in a variety of countries such as South Africa, Australia, Hungary, Poland, and several other European countries. Unlike Shake Shack, Chanticleer consistently loses money and the losses are recently accelerating substantially. Unlike Shake Shack, any revenue growth from Chanticleer is coming simply by buying more restaurants. There is no organic growth. In its most recent quarter, Chanticleer was unable to file its 10Q on time. The company reported two material weaknesses in its accounting controls and revealed that it was basically out of cash. The company quickly filed a registration statement to sell stock to raise much needed cash.
In short, there were a great many reasons why Chanticleer was trading at just $2.00 and on no real volume. If anything, investors should have been expecting a decline in the stock due to its precarious financial position and its imminent need to raise money via a stock sale.
Yet for some reason, author John Ford was absolutely certain that there was tremendous near term upside to the stock. Why?
An analysis of Ford's past articles is revealing. Ford has written 41 articles covering 23 stocks. Of these 23 stocks,17 happen to be names which are backed by "serial stock promoter" Barry Honig. In fact the only recent article that Mr. Ford has written that wasn't on a name related to Honig was his article on Apple. (More details on Honig are provided below).
The timing of these hyper bullish Ford/Honig articles is also notable in that they always seem to come just as the Honig company needs to raise money via a stock sale. Ford then appears with an uber bullish hype article predicting multi bagger returns just ahead of the key financing.
The modus operandi is always the same. The stocks are small cap Honig names which are very illiquid and underfollowed. Ford uses convenient (but faulty) analogies, comparing his target to recently high flying mainstream stocks. The implication is always that his target stock will be the next to soar.
Ford has been very effective and each of these stocks quickly soared, often by more than 100%. But in each case, the underlying company (just like Chanticleer) was struggling financially. The subsequent equity offering typically caused the stock to drop substantially. Then, after the company had their money and the promotion ended, the stock fell much further, typically well below the levels from where it began. If history is any guide, then investors should expect a sharp drop in Chanticleer when it conducts a (much needed) near term equity offering. They should then expect a continued drop to well below $2.00.
Numerous examples can illustrate this.
Finjan Holdings (OTCQB:FNJN) - Mr. Ford wrote about this stock on January 23, 2014. The stock popped about 20%, since then it has fallen 88%. Two days before the article was published FNJN registered 21,500,000 shares to be sold, allowing them to potentially sell the shares at an elevated price.
Vringo (VRNG) - Mr. Ford submitted three articles on VRNG between the weeks of July 23, 2012 and August 6, 2012, including one where he gave the stock a $30 price target based on a potential patent settlement with Google. Three days after his third article on VRNG in the span of two weeks VRNG registered 9.6 million shares at $3.25 raising $31 million. Since those articles VRNG has fallen 86%
Oculus (OCLS) - Perhaps the most startling example. Mr. Ford has written five times on OCLS going back to September 21, 2011. Additional articles were published on February 9, 2012, March 27, 2012, April 1, 2013, and March 17, 2014. The articles suggested that OCLS could triple and had a $10 billion market opportunity. Three months after his first article on September 21, 2011, OCLS raised $2 million in an offering. One month after the second series of articles on OCLS, the company raised another $3.1 million. Mr. Ford wrote his final article on OCLS one month after the company had registered stock to be sold.
(Editors' Note: Seeking Alpha has removed the OCLS articles due to information received independent of this report).
Senseco (OTCQB:SVON) - Mr. Ford wrote about SVON on December 27, 2013, suggesting that a near term catalyst could cause the shares to double. That day was the peak and the stock has declined 85% since then.
ChromaDex (OTCQX:CDXC) - On December 4th, 2013 Mr. Ford wrote about CDXC, suggesting that the recent investment by Dr. Frost could double the company's valuation. The stock rose 100% in the next month, before quickly plunging 60%.
22nd Century (OTC:XXII) - On November 19, 2013, Mr. Ford wrote about XXII, suggesting that the stock could double. The stock quickly soared 400%. The stock has since fallen over 80% to levels below where Mr. Ford originally wrote about it.
Pershing Gold (OTCQB:PGLC) - On September 19th, 2013 Mr. Ford wrote about PGLC. Mr. Honig is actually a Director of Pershing Gold, suggesting there was 50% upside. The stock then grinded 30% lower, after which it has recovered somewhat.
The trend goes on.
You can see a table with all of the names that Mr. Ford has written on below and whether Barry Honig was involved.
Source: My analysis
Chanticleer - a history of illicit promotion
In reality, investors should have already been on alert regarding inappropriate promotion at Chanticleer. Last year, Seeking Alpha author Richard Pearson wrote a detailed expose article highlighting undisclosed paid stock promotion and small cap stocks.
In that article, Pearson exposed a small firm called Red Fish Creative which, for a fee, would hire authors using either real or fake identities to write bullish articles on a their clients, using a variety of financial news websites. The firm was run by John Eastman.
The article included a table that showed that nearly every article written on Chanticleer at the time had ties to Redfish. In addition, nearly every author with ties to Redfish (including Eastman himself) had written on Chanticleer.
We can even see the pricing sheet for Redfish, which shows the difference levels of pricing for different levels of articles.
Source: Richard Pearson article
Here is the list of articles, a skull and cross bones denoting ties Redfish authors, from Mr. Pearson's article.
Source: Richard Pearson article
The point is that Chanticleer has long been associated with under the table promotions. Now that the company is desperately in need of an equity financing, this latest round of promotion should come as no surprise.
Barry Honig - a "serial stock promoter"
A 2013 report from Lakewood Capital on Opko Health (NASDAQ:OPK). Honig has been involved in numerous micro-cap stock promotions. Here are some of the highlights from Lakewood's report on OPK:
"Dr. Frost has a disturbingly large number of connections to what we believe are two serial stock promoters that have each been the subject of multiple lawsuits, Barry Honig and Michael Brauser (who together run an entity called Marlin Capital)."
"We have found 38 different stocks connected to Barry Honig and 15 connected to Michael Brauser (there are likely many more, but this is what we could track down). Only three of these companies have a market capitalization above $150 million, only one of these companies generates a profit… (Pyramid Oil), which only makes around $1 million per year. 85 Many of these companies have cost investors a significant amount of money and both individuals have been the subject of extensive litigation."
"Barry Honig was also sued in January 2011 in relation to Empire Sports & Entertainment (EXCX) by former two-time winning heavyweight champion Shannon Briggs. According to one article, "…Briggs filed a major lawsuit in New York State Supreme Court, alleging breach of fiduciary duty, conversion, unjust enrichment and breach of contract against Gregory D. Cohen, Shelly Finkel and Barry Honig, and their boxing and entertainment promotional company, Empire Sports & Entertainment." Briggs claimed he was the "victim of a 'ripoff' on two fronts by his former promoters and business partners, part and parcel of which includes documents in which his signature was 'forged.'" Financially, Briggs alleged that he had agreed to fight then world champion Vitali Klitschko for a purse of $750,000, "…but that he wound up with a mere $25,000, after he returned to the United States after the prolonged hospital stay in Hamburg. … 'To add insult to injury,' the lawsuit alleges, 'the defendants deducted the cost of Briggs' hospitalization from the understated purse of the bout.'" However, the story doesn't end there. Empire Sports & Entertainment ultimately became Sagebrush Gold (NASDAQ:SAGE) on June 1, 2011, with Barry Honig serving as Chairman. In October 2011, Honig announced to Sagebrush shareholders that "Legendary investor Dr. Phillip Frost (Chairman of Teva Pharmaceuticals, Inc., Ladenburg Thalmann & Co., Opko Health, Inc.) has invested $5 million in our subordinated debt and convertible preferred stock." The company changed names once again and became Pershing Gold in March 2012. Today, Pershing Gold is 19.4% owned by Frost and 10.1% owned by Honig. Brauser had also previously been a shareholder but appears to have sold all of his shares in April 2013."
A simple search of SEC filings shows the shocking number of promotional micro cap companies that Mr. Honig is involved with.
Conclusion
HOTR has used paid stock promotion in the past and has been the subject of promotional articles again. This has caused the stock to run up. As we have seen in the past, the companies that are covered by Mr. Ford quickly fall back to much lower level after the company completes a secondary. HOTR will be no different. It's not a $10 stock or even close to being the next Shake Shack. It's an unprofitable franchiser of disparate restaurant chains that will quickly see its stock back around $2/ share, representing downside of 65%, around where it was trading before the stock rose because of the stock promotion.
Notes:
I have contacted both Mr. Ford and Chanticleer Holdings with questions. I contacted Mr. Ford on June 1 and Chanticleer IR on June 5th.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.