CFGI is representative of the many incubators that sprung up during the late 90’s. Many will recall, prior to the bubble bursting in 2000/2001, almost everyone wasy trying their hand at trading equity stocks. While some preferred ‘day trading’ – cashing in big on the daily swings of the market, others bought to hold. CFGI capitalized on the appetite for publicly traded stock and, like other incubators of the day, sought out business sectors that were hot and getting hotter. CFGI was owned solely by Benny Traub who, prior to this venture, was an advertising executive and educator in the field of direct-response marketing.
CFGI’s first ‘incubation’ was an i-software project. At the time the software was ground breaking in that it facilitated rapid application development (RAD) of database drive websites. This was a sexy theme for an internet driven investment community and Traub’s company was a competitor of Cold Fusion.
CFGI purchased control of a publicly traded company that traded under the symbol ‘PRTI’. It then merged in the software project and within a few months the stock was trading at over USD$21.00 per share. The meteoric rise in share price was driven by the public demand for equity stocks, which was leveraged by Traub’s marketing savy. From its low of under $0.05 per share in 1999, early shareholders made tens of millions in the run up. After raising $2.5 million in start-up capital and recruiting a seasoned management team, Benny left the helm and moved onto CFGI’s second deal.
CFGI’s second deal involved purchasing control of another publicly traded company, North American Resorts (NARI). NARI acquired the rights to a cancer technolgy that could potentially be used by the tobacco industry to reduce impact upon health issues. In November 2000, PennyStockProfits.com wrote of the Company; “Many people say how they wish they could have bought Microsoft, Dell, or AOL in their infancy, a mere thousand dollars invested would now be worth hundreds of thousands of dollars. Well, IMLB may not be the next Microsoft, but its situation is definitely similar and very intriguing. ” The Corporation is merely a couple months old, and it has already shown strong signs of promise. They are currently being managed by the respectable Cyclone Financing Group, Inc. CFGI has set out a very detailed and aggressive business plan and has followed it to a “t” so far.” On the weight of similar analyst reports, the price of its stock soared from less than 10 cents to $13 a share, generating market capitalization in excess of $100 million. In similar fashion to PRTI, NARI went on the road raising start-up capital, hired management and Traub moved on to his next project.
The demise of the technology sector in 2000/2001 put CFGI’s expansion plans on hold. Traub and his, by then veteran incubation team, determined that there was not sufficient demand for publicly traded equity stocks to warrant the investment in another ‘incubation’.
What remained of CFGI was sold off, however, in 2003 Traub negotiated the rights to an emerging mining technology that could extract minerals, including gold and other precious metals, from mining-waste materials. Traub re-acquired control of NARI, changed the name to Xerion EcoSolutions Group and intended to pursue annother publicly traded startup supplying technology to the green-mining industry. This might have resulted in a resurgence of his incubation efforts, however, his option was contingent upon third-party validation of the mining technology, which the sellers could not produce. Traub did not exercise his option to purchase the technology. He subsequently sold majority control of Xerion, then a shell company, for less than half a million dollars.
Successful incubations are clearly dependant upon market timing and current trends. Some people have all the incubation skills, but miss the clock and either stall out or find only moderate success. But there are others who are lucky enough, and have sufficient foresight to spot the trend early, (but not too early), it can truly be a rocket ride to the moon. CFGI was one of those ‘riding the cyclone’ to the moon, but still could have benefited from starting a year or two earlier.
A note on short selling: While Traub’s stocks were skyrocketing, evidence exists that short sellers moved in to take advantage of the rising tide, hoping that eventual balance would be restored. When stocks didn’t return to earth like they hoped, short sellers often resorted to devious tacticts to drive stock prices down. These tactics sometimes included ‘articles’ that were written by anonymous writers and disseminated on temporary anonymous websites. Slander was not typically used, rather the common tactic was to ask cleverly designed, leading questions in order to lead readers to come to erroneous conclusions that could not be substantiated. Traub’s companies were targets for short sellers, but the short selling movement was certainly not limited to Traub’s stocks, rather every stock on a meteoric rise became a target and many otherwise good companies were taken down. Some companies, such as those belonging to Traub, were able to withstand the pressure of short sales, but others were not so robust and many faltered under the pressure of heavy selling.
Short selling is the practice of selling shares which one does not own. The short seller ‘borrows’ the stock from their broker, sells it and collects the proceeds of the sale into their brokerage account. In the hey day of the bull market of the 90’s and 2000, stock brokerage firms would allow short sellers to do this as long as they eventually covered their sale by later purchasing the stock that they borrowed. The short seller’s strategy was to sell borrowed stock at a high price, then later purchase it back at a lower price, thus making a profit.
Benny Traub sold CFGI in 2002.