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What Do 50 Cent, Carmen Electra & Shaquille O’Neal Have in Common? Touting Penny Stocks

Rapper 50 Cent urges millions of Twitter followers to invest in an obscure penny stock, the latest in a long list of celebrities offering investment advice that’s long on risk and short on security.

Rapper 50 Cent, Actress Carmen Electra and basketball star Shaquille O'Neal have all touted penny stocks. (Getty Images)

Over the weekend, the popular rapper 50 Cent urged his 3.8 million Twitter followers to buy the stock of a microscopic company in Florida. The penny stock jumped 290 percent on Monday. The rapper, who owns 7.5 million shares and warrants for 22.5 million more in the company, had a paper profit that was briefly worth almost $5.2 million on paper.

The company, H&H Imports, sounds like it might be related to the famed maker of New York bagels. No such luck. H&H is a Clearwater, Fla., company that distributes headphones favored by Curtis Jackson, the real name of rapper 50 Cent. It's the parent company of TV Goods Inc., which markets its products through infomercials and the QVC channel, has virtually no revenue ($293,000 in its most recent quarter), and loses money.

"HNHI is the stock symbol for TVG there launching 15 different products. they are no joke get in now," went one promotional tweet from the rapper.

As the Twitter hype (Twype?) wore off, the stock fell from 39 cents to 30 cents a share on Tuesday and a further 4 cents Wednesday morning, meaning 50 Cent gave back just over 290 million cents ($2.9 million dollars). The company has a miniscule market capitalization of $63 million. It traded for 10 cents last week.

Strip away the involvement of a celebrity and the use of social networking and this story bears some resemblance to one of the oldest stock market games around: The pump and dump.

In their classical form, such schemes work this way: Insiders talk up the attributes of a worthless stock (the pump) and then sell when its price jumps (the dump). So far, 50 Cent appears to have avoided violating laws against this sort of behavior because he has not sold H&H stock.

A spokesman for the rapper pointed out that the 7.5 million shares are restricted -- meaning they can't be sold until certain conditions are met. The warrants allow him to buy up to 22.5 million shares, which gives 50 Cent a powerful incentive to talk up the stock. They can only be profitable if the price of H&H rises above certain thresholds. He paid $750,000 for the shares and warrants.

"This kind of stuff has given the SEC headaches for a long time," says Rick Sauer, a former Securities and Exchange Commission attorney who wrote a book about fighting stock fraud at the agency called "Selling America Short." "It's probably OK unless he knew the stock was bad and touted it anyway, which is hard to prove."

An amateur boxer and drug dealer who turned to music after a stint in prison, 50 Cent's most famous record is entitled "Get Rich or Die Tryin'." He is known for his muscular physique and for surviving an attack in which he was shot nine times at close range.

But 50 Cent apparently has little taste for a fight with securities regulators.

Several hours after his first tweet about H&H, 50 Cent tweeted some suspiciously sober cautionary notes. I'm taking a wild guess that they were suggested, though not copy-edited, by a worried lawyer. And the initial promotional tweets were wiped from Twitter, though they live on forever on the web.

Celebrities, often off the B and C lists, seem particularly attracted to penny stock promotions. Or, perhaps more accurately, they are particularly susceptible to offers to shill for stock promoters.

Carmen Electra, the Playboy model turned actress, has made a habit of pitching bulletin board stocks. A few months ago, the SEC sued the guy who played the blond partner of Erik Estrada in the 1970s cop-show ChiPs, charging him with securities fraud. Even Shaquille O'Neal, the NBA star with a massive Twitter following, has promoted a microcap stock that he owned, which subsequently plummeted.

And yes, it's amazing that the penny stock market, a Petri dish of fraud, exists at all. It's caveat emptor all the way.

But is what 50 Cent did really that different from what happens all day long on CNBC when professional money managers take to the airwaves to praise the stocks of companies they already own?

Back in the days of the Internet bubble, the SEC charged a 15-year-old kid, Jonathan Lebed, with engaging in a serial pump-and-dump operation, which netted him hundreds of thousands of dollars.

Michael Lewis, in a famous piece in the New York Times Magazine, argued at the time that there was little distinction between Lebed and the Merrill Lynches of the world. Indeed, a few years later, then-New York Attorney General Eliot Spitzer wrung a $1.4 billion global settlement out of Wall Street for promoting stocks that they privately didn't believe in.

The blurry line between "respectable" money manager and celebrity shill was blurred last Friday, when 50 Cent himself appeared on CNBC. Dutifully, the CNBC host asked 50 Cent for an investment idea. The hip-hop star replied that he was putting his money into Gunnar Optiks, a company that makes glasses that protect eyes from the strain of looking at computer monitors.

Thankfully, Gunnar isn't publicly traded.

Richard Gingras

Jan. 12, 2011, 3:36 p.m.

Good article though I would question the characterization of a $63 million market cap as “miniscule”

Trace Urdan

Jan. 12, 2011, 4 p.m.

But this is really no different than ProPublica writing about a public company and sending its stock careening downward to the benefit of short sellers. “Investigative journalism” that takes one side of an issue and then ignores all extenuating circumstances accomplishes the same thing. All from Carmen Electra to ProPublica are entitled to their opinion and protected by the First Amendment. Caveat emptor.

They Have Millions of Dollars. :)

What really offends me is when you hear and see all these commercials on radio and TV selling things that are obviously scams. Only an idiot would buy them. But unfortunately there are plenty of idiots in the world.

alan pelz-sharpe

Jan. 12, 2011, 5:12 p.m.

A market cap of $63 million but revenues just about $1 million - wow I should be so lucky.  “Miniscule”? I think not.

If all public commentary that could move a traded stock were banned, investigative journalism would certainly be hobbled. If someone either touts or pans a stock, an early question is whether they own some themselves, have skin in the game and how much. This quickly gets into Catch-22 territory, whether somebody with a big megaphone deliberately misled others for personal gain, in effect stealing money from the gullible, or whether they were a gullible sap themselves. Motivation is hard to prove unless a tipster’s actions make it blatantly obvious. 

This slippery slope gets slicker and slicker if a company management is directing things with an eye on short-term stock gains, whatever their reason for it. If they are playing to Wall Street or day traders, judgment starts to cloud. Alpha and beta smoke fogs the reality of what a company should really be doing and what it considers important.

Karl Schneider

Jan. 12, 2011, 5:55 p.m.

2 twits & 2 tits

This is nothing new!  This is exactly what the Venture Capital guys, investment bankers and stock brokers do all the time—they hype up a stock; take their money off the table; Think about the $50B market cap for FB!  OMG:)

Daniel Lafave

Jan. 12, 2011, 7:18 p.m.

@Trace Urdan It’s completely different in that ProPublica doesn’t have a financial interest in the companies they report on.  50 Cent bought warrants for a penny stock and then touted it without disclosing his financial interest.  It’s definitely something for the SEC to look into.

CNBC does this all day long, would someone investigate them!

Hell no! I can see regulation coming…he will be the first rapper to have a financial regulation named after him.

It is possible actors and rappers whatever can be knowledgable and share things but I doubt it in this day in age. What IS interesting is insider trading and secretive/not so glaringly public announcements. Why let someone else tell you how to invest? Isnt it a tad personal?

If I were Larry Wilcox, I think I would be a bit confused by being identified as “the blond partner of Erik Estrada” rather than “Larry Wilcox, who played opposite ...” 
All these years he has had to live in the shadow of his once equal partner who still enjoys the lime light and now this dis’ completes his ignominious fall from Hollywood grace.
Besides by now, the “blond partner” is probably grey.

Maria Coughlin

Jan. 15, 2011, 6:29 p.m.

“But is what 50 Cent did really that different from what happens all day long on CNBC”


Political journalists often will refuse to vote, because it might influence their coverage.


I wonder how many financial journalists refuse to own stocks or bonds?

Sometimes I wonder if it is pointless to try to outlaw this behavior… we can’t get any presidents elected who would ever enforce these laws.

What do they have in common? They’re all nobody, oh and insider trading.

CNBC doesn’t tout stocks. Their guests do and its buyer beware and anyone who doesn’t understand that the guests are touting their own portfolio ideas shouldn’t be watching the network.  Guests explicity state this is what they are buying or selling for their own portfolios and wall street analysts (like them or not) disclose whether they or the firm has a stake or has an investment banking relationship with the stock they are touting.  It is presumed that wall st analysts are being diligent in their recommendations but sometimes they aren’t.  The difference being vs penny stock promoters, is they are recommending stocks in primarily known co’s with real assets and cash flow; although even an analyst can’t always predict company fraud.

For those who want to understand more on microcap stocks (i.e. penny) -
http://www.sec.gov/investor/pubs/microcapstock.htm

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