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Market News First under shadow in penny stock analyses

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The Web Team:
MN1 founder barred from trades; conflicts alleged in analysis

11:45 AM CST on Tuesday, November 13, 2007

By BRENDAN M. CASE and MICHAEL GRABELL / The Dallas Morning News

While CNBC and Fox Business Network vie to cover big business, Dallas' Market News First is bringing broadcast coverage to the penny stock world, a bazaar of volatile and often risky shares.

 The start-up streams live video from its Web site, www.MN1.com, marketing its news as help that will make viewers better informed and more profitable investors. It bills itself as "News You Can Trust."

 But viewers beware.

MN1's 33-year-old founder and top executive, self-made millionaire Joshua Lankford, was recently barred from the securities industry. His companies have also been major shareholders in several of the stocks the site has spotlighted over the years. Some featured stocks have been tied to his friends and business partners.

In one instance, a stock rated a "strong buy" on MN1 was the focus of a lawsuit in which investors accused Mr. Lankford of manipulating the share price.

Mr. Lankford's attorney, Spencer Barasch, said MN1 strives to be as transparent as possible.

"MN1 goes to every effort to disclose any potential conflict of interest or any interest that any employee in MN1 might have in any company that's featured on MN1," he said.

For Mr. Lankford, MN1 is the latest in a career that includes a lucrative stint as a broker at Oak Lawn brokerage Barron Moore Inc., lawsuits alleging he orchestrated stock frauds – even an arrest for leading Dallas police on a chase in his orange Lamborghini.

Now he's competing with a growing number of news sites, chat rooms and online bulletin boards offering to help investors make sense of penny stocks. These tiny micro-cap stocks sell for as little as a few cents a share on loosely regulated exchanges such as the Over-the-Counter Bulletin Board and the Pink Sheets LLC.

"He wanted to cover this market in a very professional and upstanding manner," Mr. Barasch said. "It was a market that was not well-served in the financial news world, and it was under-covered. Some of the outfits that purported to cover it weren't necessarily on the up and up."

Because of their generally low prices and volatile trading, these stocks can quickly generate big profit multiples, and the Internet has made them increasingly accessible to ordinary investors. Still, they remain one of the murkiest corners of the investment world.

"If you think of the New York Stock Exchange as the Cadillac and the Nasdaq as the Lexus, then the Bulletin Board is the thrift shop and the Pink Sheets is the stuff that's left on the curb for the junkman to take," said James Angel, a finance professor at Georgetown University in Washington, D.C.

Mr. Lankford envisions MN1 as the anchor of Lankford Media Group, a company he started with $4.5 million of his own money, he told the Dallas Business Journal earlier this year.
Like TV

Viewing MN1's Web site is like watching TV. Using streaming video, the site offers news reports, interviews and talk shows. MN1 even scored four one-hour interviews with O.J. Simpson last summer, making national news.

That mix has already attracted potential suitors. The company has held preliminary talks with media companies and venture capital firms with a possible interest in buying MN1, Mr. Barasch said.

In addition to news stories and video streams, viewers can read financial analyst reports about penny stock companies that are similar to the lengthy reports Wall Street produces about big companies. Nearly all the reports, prepared by MN1 TV personality Michael Willingham (nicknamed "Mike the Analyst"), carry "buy" ratings, recommending that investors purchase the stock.

Mr. Willingham has picked some winners, including one stock that has quadrupled in price since his report on it. Most of his picks sell for less now than when he chose them. Still, some of those losers rose for a while after his reports, meaning investors could have profited by taking the advice, then selling at the right time.

Mr. Willingham is another veteran of Barron Moore, Mr. Lankford's former employer. But he was fired in 2006 because he "attempted to open a stock account at another broker dealer in order to trade penny stocks without prior written notification to Barron Moore," according to the Financial Industry Regulatory Authority, or FINRA.

Mr. Willingham declined to comment for this story.

Barron Moore's president and chief executive, Katherine Moore, also declined to comment.

Mr. Willingham's reports often come at a price for the company being analyzed. An April report on Miami-based American Ammunition Inc., for example, was actually a "paid advertisement" that cost $30,000, according to fine print at the bottom of the report.
The climb up

Mr. Lankford grew up on South Padre Island and left high school in the ninth grade (he later earned his GED).

He joined the Navy and served in Iraq after the first Gulf War but was discharged for chronic alcoholism in 1995, he said in a 2006 deposition. (He has also achieved a longstanding recovery and has been sober more than 10 years, he said.)

He then worked odd jobs – waiter, car dealer, catering truck driver, circulation contractor for The Dallas Morning News.

For a time, he ran a company that sold neckties in downtown office buildings. In the late 1990s, he worked in sales for a local Web site development firm.

But he seemed to hit his stride when he earned his broker's license in 2003. In one year at Barron Moore, he earned $400,000 and eventually owned nearly 25 percent of the brokerage's parent company, executives said.
Living large

Mr. Lankford's standard of living improved. In 2005 and 2006, he bought two $1 million houses in Preston Hollow and sold his $220,000 northwest Dallas house to an investment firm controlled by his half-brother.

Other acquisitions included a Big Dog motorcycle and the Lamborghini.

In 2005, police tried to pull Mr. Lankford over after clocking the Lamborghini going 80 mph in a 35-mph zone. According to the police report, Mr. Lankford led officers on a car chase in the Knox-Henderson area, got out at a bar, threw his keys to a valet and fled on foot. When caught, he told police he was laughing throughout the chase, the report said.

The felony charge was erased from his record this summer after Mr. Lankford completed probation. His lawyer, Mr. Barasch, declined to comment on the incident. Mr. Barasch described Mr. Lankford as a dedicated family man with three young children.

Also in 2005, Mr. Lankford was questioned by the U.S. Securities and Exchange Commission. It's unclear about what.

But the SEC has requested numerous records from Barron Moore in connection with the possible manipulation of dozens of stocks by a Dallas-based network of lawyers, brokers, investors and consultants referred to by the SEC as the "shell creation group."

Mr. Lankford and Barron Moore have denied any wrongdoing. The SEC has not brought any action against either him or the firm.

On Oct. 24, however, Mr. Lankford was barred from the brokerage business by FINRA, the industry's main private-sector regulator. Authorities expelled him because he failed to provide testimony and documents in an inquiry that began in 2005.

Mr. Lankford did not admit or deny wrongdoing. Regulators declined to say why they wanted to talk to him.

There have been other controversies.

Addison-based Consolidated Sports Media Group Inc., which made a Girls Gone Wild-style video shot at NASCAR races, filed suit against Mr. Lankford, accusing him of helping to prepare a junk fax in 2004 designed to pump up the company's stock price. Shareholders, including several companies controlled by Mr. Lankford's half-brother, stood to benefit, according to the suit.

Mr. Lankford denied the allegations in a deposition.

The lawsuit was settled after other defendants in the case agreed to pay Consolidated Sports $4.8 million.

Mr. Lankford also became embroiled in a legal dispute with a group of investors in MicroTrak Inc., a Dallas-based maker of GPS mapping devices for cars. The company saw its stock jump from 40 cents on Dec. 8, 2005, to $2.29 in early January 2006 before steadily falling.

The investor group alleged that Mr. Lankford, through an investment vehicle called Shocker 100 Index LP, had barred it from selling its stock so he and his friends could sell their own shares first, before the stock deflated.

In a later court filing, the group said Mr. Lankford told it he had caused the price spike. He promised to manipulate the price again and asked the group to drop its lawsuit, the group alleged.

Shocker 100 denied the claims in court filings, and Mr. Barasch echoed the denial. "I can't believe that Josh would have said that, and I can't believe that Josh would have done that," he said.

Shocker 100's lawyer, Jules Slim, also noted that one of the investors is a convicted felon once described as "one of central Florida's most notorious criminals" by the Orlando Sentinel. The legal dispute, which settled earlier this year, was not disclosed in MN1's May 2006 analyst report about MicroTrak, a company now called Tracking Corp.

The report gave the stock a "strong buy" rating, predicting the price would shortly zoom from its dip to 63 cents back up to $2.44.

The stock declined steadily in the ensuing months. It now trades at about 7 cents a share.

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