Since 1997, Agoracom Investor Relations Corp. has provided IR services to penny stock companies, and operated Internet chat forums for penny stock investors to discuss their holdings.
Both activities are innocent enough, if they are kept separate and conducted in an ethical manner. But the Ontario Securities Commission is alleging that the Toronto-based company combined the two in a way that deceived both its corporate clients and public investors.
In a notice of hearing filed on April Fool's Day, the OSC accused Agoracom and its two founders, George Tsiolis and Apostolis Kondakos, of getting Agoracom employees to pose as investors and anonymously post thousands of messages touting the firm's corporate clients.
A hearing is pending. If proven, these allegations amount to a serious act of treachery. The company and its founders could be suspended, or even banned, from the Ontario securities market, and other provinces would likely follow suit.
According to the OSC notice, Agoracom has partnership agreements with Internet services such as Google, which ensure that information provided by client companies is made widely accessible to potential investors.
Investors who access this information are directed to the Agoracom website, more specifically to "hubs" or subsidiary sites that feature information on both client and non-client companies, including discussion boards where clients can exchange information and opinions on specific stocks.
For these services, Agoracom charges a monthly fee and stock options equal to 250,000 shares or 0.5 per cent of a company's fully diluted outstanding shares at the prevailing share price, whichever is greater.
Not surprisingly, given the services provided, Agoracom has been very popular with Vancouver penny stock issuers. Among them are Evolving Gold Corp. and North American Gem Inc., both highly promotional exploration companies listed on the Venture exchange.
Agoracom's discussion boards are advertised as "investor controlled," which means specific posters are appointed "hub leaders" with the mandate to curb excessive stock bashing and prevent naysayers from hijacking the discussion.
I have had direct experience with these so-called investor-controlled sites. In January 2008, after I reported that TSX Venture Exchange officials had forced Winfield Resources Ltd. to retract and clarify misleading statements about its exploration project in Libya, I was bashed by hub leader "iTaylor", who sent me an e-mail with the "f" word in it, and by other posters, including one named "Winny1", who said, "I hope Baines doesn't mind a few stitches on his face." Unrealistically puffy posts were warmly embraced, however.
According to the OSC, Agoracom provided its clients with an additional, undisclosed service: "Tsiolis and Kondakos required their representatives, as part of their daily responsibilities, to post anonymously to the client forums using aliases."
The OSC said that, during the period under review -- from September 2006 to July 2009 -- Agoracom reps created more than 24,000 alias messages under 670 aliases, and posted them on client and non-client hubs.
The OSC said that these posts, some of which originated from Tsiolis' residence, "were promotional, and promoted purchasing and/or holding stock."
The OSC said neither Agoracom's clients nor visitors to the hubs were aware of the ruse. "In fact, the respondents knowingly deceived clients about the traffic and activity generated on their hubs. In particular, Agoracom reported the number of posts and shareholder inquiries answered by Agoracom's representatives to clients on a monthly basis, and failed to disclose that a portion of the posts and shareholder inquiries were created by Agoracom's own representatives."
The OSC also said Agoracom and its principals "took steps to actively conceal the fraudulent posting activity." When a company rep revealed in March 2009 he was posting with an alias, they issued an "official statement" claiming these actions were carried out by a single employee and they would ensure it never happened again. In fact, the OSC said, Tsiolis and Kondakos knew this was an ongoing company practice.
Why did Agoracom do this? The OSC alleged that the alias postings created a misleading appearance of investor interest in Agoracom's clients, increasing the value of the firm's options and, at the same time, inducing the firm's clients to renew their investor relations contracts.
In a rebuttal statement on Agoracom's website, Tsiolis said the OSC's allegations are "unfounded and without merit." He said the firm "initiated conversation on some client Hubs to simply act as a catalyst to spark conversation among members and forum users."
He also noted there were more than 14 million visits to client and non-client hubs during the period in question, of which Agoracom employees accounted for less than one-quarter of one per cent.
Tsiolis also noted there were only 30 to 90 client hubs during this period, compared to 300 to 2,000 non-client hubs. The OSC notice does not say how many of the alias postings were posted on client hubs as opposed to non-client hubs.
dbaines@vancouversun.com