CYNK soars from 10 cents to $13.90 a share. Feds halt trading.
CYNK is lesson to traders: Avoid penny stock scams. SEC halted trading of CYNK stock Friday to probe possible illegal manipulation.
A map shows call centers and victims involved with a penny stock fraud scheme a year ago in New York, The SEC is investigating whether fraud was involved in penny stock CYNK Technology, which came out of nowhere and became a $6 billion company in one month.
Lucas Jackson/Reuters/File
The U.S. Securities and Exchange Commission stepped in Friday morning and halted trading of the mysterious penny stock-turned-$6 billion company CYNK Technology. But while the feds investigate whether the market was influenced by an illegal manipulation, the traders involved in the company are frozen, and maybe out of luck.
Penny stock trader and evangelist Tim Sykes told CNBC he has been caught short on stocks halted for two weeks like CYNK.
"I love that feeling," he said of hearing about an SEC halt on a stockAvohe holds short. "It opens everyone's eyes to the fact that these companies are scams or pump and dumps."
Sykes said he has never lost money on aggregate after an SEC halt—although few stocks have spiked such a huge percentage as CYNK, which was less than a dime in June and stopped trading at $13.90.
As for those who have lost large amounts of money on CYNK? Sykes said it should be a learning moment. (Read MoreTrading in CYNK Technology halted by SEC)
"People need to understand the risk, and not to take huge interest in illiquid stocks," he said. "There are so many desperate degenerate traders out there, and this is their version of Vegas."
And while traders either celebrate riding the CYNK wave or lick their wounds, the promoters who pumped the stock on message boards will most likely emerge from the SEC investigation unscathed regardless of the legality of their actions, Sykes said.
"Whether or not there is fraudulent activity going on with CYNK—it's such a fine line. But the promoters will be investigated, they'll pay a small fine, and the game will go on," he said.
But the federal investigators are not without options. Sean Casey, a Partner at the Kobre & Kim law firm who formerly served as an SEC enforcement lawyer and a federal prosecutor, said that the accounts of those suspected of manipulating CYNK for profit will most likely be discovered by investigators.
"The SEC enforcement has effective investigative methods to cut through and learn, first, the firms trading the stock, and then the identity of the account holders," Casey said. "With these enforcement and investigative methods—plus the ability to obtain an emergency asset freeze—the SEC makes it difficult to avoid detection or profit from such conduct."