It is a well-known fact that the underwriter is a key factor in the performance of a recently IPO’d security. If Goldman Sachs or Morgan Stanley is the lead underwriter in an IPO, then the company is likely going to be well-received into the public marketplace and perform well afterwards. One reason is the connections that NYSE:GS and NYSE:MS have to institutional investors, as stocks with a large percentage of shares held by institutional investors both causes the public float to become lower (a low float makes the stock easier to bid up, as seen during the dotcom boom, when companies would routinely offer less than 10% of the total float during an IPO) and attracts individual investors to the stock.
But in this post, I will be focusing on MDB Capital, an underwriter based out of Dallas, Texas. MDB Capital has underwritten 3 IPOs in 2014, 2 IPOs in 2013, and has helped numerous companies conduct reverse mergers (For a list of their recent IPOs and reverse mergers visit this link: http://www.mdb.com/about-us/case-studies.html). MDB bills itself as “Wall Street’s only IP-driven public venture bank, with over 15 years of experience launching disruptive technologies into the public markets”. MDB’s statement masks the fact that all of the companies they take public have $0.00 in revenue. MDB is trying to give investors a feeling of “getting in on the ground floor” while companies are still in their infancy, but these stocks have little more than a good story. Take NASDAQ:EYES or NASDAQ:WATT for instance; they make retinal implants and wireless phone chargers, respectively, which seem like brilliant ideas, but they generate zero revenue. All the companies MDB has taken public have had good ideas, but no revenue, making them little more than ideas, and ideas do not always translate into a good business. The companies MDB Capital is affiliated with are no more than pumped-and-dumped penny stocks that should never be held. There is a long list of stocks that have shot up, under the influence of the MDB pump machine, only to come crashing down later in a flurry of secondary offerings and dump of the stock. The goal of a company like MDB Capital is to raise money for their clients: they are concerned with fees and MDB’s own profitability first, shareholder value second.
Overall, the trend with MDB capital is to take a company public on the NASDAQ through an IPO or a reverse merger, and ensure that the stock price more than doubles from the IPO price within the 1st week of trading. Over the course of the months following the offering, MDB will continue to dump their shares in the company and conduct SPOs until the stock’s price is heavily beaten down. At this point, MDB stops its coverage on the stock and severs all ties with the company. The most recent IPO bookrun by MDB capital was the NASDAQ:EYES IPO, which went up 122% first day. The IPO price for EYES was $9, then on IPO day it shot up to $20 with an intraday high of $24. As of Monday 12/29/14 the price on EYES is 10.62, down 50% from its first day close and almost back to its IPO price.
MDB Capital is similar to a modern day boiler room scheme, as seen in the films Boiler Room (2000) and The Wolf of Wall Street (2013). My advice to people trading MDB-run IPOs is to only day trade them, and never hold overnight.
*UPDATE*: Unipixel (UNXL) is down 45% AH on 04/27/15. UNXL is down over 60% in the past two weeks (04/13-04/27).
Other companies that had their IPOs underwritten by MDB Capital include Resonant (RESN), Energous (WATT), Ideal Power (IPWR), ClearSign Combustion Corp (CLIR), Parametric Sound (HEAR), Unipixel (UNXL), VirnetX Holding Corporation (VHC), and Medivation (MDVN) ; all of these IPOs (with the expection of MDVN) have vastly under-performed in the public market since going public. Though MDVN has performed well since their reverse merger, they do have a history of fraud (http://en.wikipedia.org/wiki/Medivation) and MDB Capital’s involvement with the company is relatively unclear.
Link to MDB Capital’s website where they profile their recent IPOs & reverse mergers ==>> http://www.mdb.com/about-us/case-studies.html