Dabbling in penny stocks is risky. Just ask Justin Bieber.
The floppy-haired singing sensation has agreed to act as a spokesman for DriveSafe software from Options Media Group Holdings (OPMG), the company announced. Bieber will endorse DriveSafe online and in person, and the company is planning a Bieber-focused product launch on June 6.
Options Media Group markets an app that blocks a car driver from texting, Web surfing and making outgoing calls while driving. "It is tragic that almost on a daily basis there are reports of deaths and severe injuries caused by drivers who are texting and driving," Bieber said in a press release.
Sounds OK, right? As it turns out, Bieber is associating himself with -- and becoming part owner of -- a company in financial trouble. As part of the deal, Bieber gets warrants to purchase 121 million shares of common stock at a penny per share, or a total of 16.4% of the company, which can be exercised over three years. Bieber also gets royalties on DriveSafe sales.
As of May 13, Justin Bieber Brands owned 51.7 million shares, or 10% of the company. Tuesday, the stock was trading for about 5 cents a share -- not a bad financial haul for the 17-year-old. Update: The stock closed at 4 cents a share Tuesday.
A recent regulatory filing shows that Options Media Group reported a nearly $10 million net loss last year, and revenue for continuing operations fell to half of the $1.6 million reported the year before.
The company had only $97,000 in available cash in mid-May and is trying to borrow $5 million to keep going. It doesn't even own the DriveSafe technology but licenses it from another company.
There's another problem. The man who developed the anti-texting app has a criminal record and is tied to a stolen-car ring, reports the Broward Palm Beach New Times. "I'm a convicted felon," the executive, Anthony Sasso, told the newspaper. "What else?"
Sasso said he was incorrectly linked to the ring after giving a former a customer a bill of sale from a past purchase. He said he didn't go to jail but received two years' probation.
Sasso had been listed as the company's president, but after the New Times began making inquiries, the company's chief executive said he asked Sasso to resign. The CEO said that Sasso will not have stockholder voting rights and will have no relationship with the company, according to the newspaper.
Bieber's crew isn't returning calls about the issue. I wonder how the singer even got tied up with a small Florida company that has only 10 employees.
Trader Timothy Sykes gives Bieber some advice on penny stocks: "Research a company IN DEPTH before you partner with them and become 16% owner," he writes on his blog.
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