Up until last autumn, Toron (OTC: TRON) was in the business of "marketing, sales, and resales via the Internet of Web Domain Names or URL's and related services."

It was a tiny company with one part-time employee that, nevertheless, traded thinly over the counter for a few pennies.

Then, in August, Toron's board of, umm, director decided it was time for a change. The company filed an 8-K to disclose:

We received a resignation from Ljubisa Vujovic. Mr. Vujovic resigned as president, chief executive officer, chief financial officer, and as a director of our company. His resignation was not the result of any disagreements with the Company regarding its operations, policies, practices, or otherwise. Concurrently with Mr. Vujovic's resignation, on August 5, 2011, we appointed Michael Whitehead as president, chief executive officer, chief financial officer, and as a member to our board of directors.

Later in the filing, we find out that "our board of directors solely consists of Michael Whitehead." (Note: Toron has since added a second employee-director.)

It wasn't just a change in management, though. According to the 8-K, Whitehead's background is in the mining industry, and Toron would now be a "new mineral exploratory company," according to the website that was created on Aug. 11, 2011.

Intrigued? You'd be better off igniting a pile of your own money
Over the past month, Toron has been touted relentlessly in unsolicited emails and on message boards. In my more than six years of examining the penny stock landscape, I cannot remember a more sustained spam campaign -- I've saved nine emails since Jan. 18 hyping the stock and have deleted at least two more. Sample the absurdity:

T.R.O.N  IS READY TO BREAK INTO THE 30's THIS WEEK!!! STAY TUNED
FOR MORE BREAKING NEWS ALERTS ON TRON.OB !!!! THIS STOCK IS THE
REAL DEAL!!!!!

And:

"TRON IS READY TO RUN -- Rarely does an opportunity so ripe present itself! The possibility for huge gains is immense -- Read below"

Toron Inc is (TICKER: TRON) poised for huge growth. Many experts and Wall Street Professionals are stating that it could run as high as 7.50 in the next 60 days. If that is true (which we believe it could be), the gains would be even bigger than our last 3,000 percent gainer. 

From current prices, that $7.50 target price, by the way, would mark a preposterous gain of more than 3,600%.

But do people actually buy into this spam?
A 2007 paper by Laura Frieder and Jonathan Zittrain proved that, as their title makes clear, "Spam Works" (PDF file, Adobe Acrobat required). They elaborated:

Volume of trading responds positively and significantly to heavy touting. ... Returns in the days following touting are significantly negative. The evidence accords with a hypothesis that spammers "buy low and spam high," purchasing penny stocks with comparatively low liquidity, then touting them -- perhaps immediately after an independently occurring upward tick in price, or after having caused the uptick themselves by engaging in preparatory purchasing -- in order to increase or maintain trading activity and price enough to unload their positions at a profit.

On Monday, Feb. 6, Toron's trading volume was 4,671,439 -- higher than that day's volume for multibillion-dollar blue-chip Dow components 3M, United Technologies, Travelers, and McDonald's.

So yes, "investors" are buying into this "story." Year-to-date through Feb. 6, Toron had already doubled:

Toronchart

There is no rational explanation for the blue line in that chart. Though it trades over the counter, information on the stock isn't impossible to come by -- 30 minutes of Web research yields a ton of red flags. Like:

  • Well, the spam emails themselves. (One blogger identified the IP address of the sender. Country of origin: Poland.)
  • The fact that the company changed its entire business model and management team.
  • That when I emailed the only address listed on Toron's website, I got the following reply: "Delivery has failed to these recipients or groups: info@toroninc.com. The email address you entered couldn't be found." When I called the listed number, it went to a voicemail with a generic message along these lines: "You've reached investor relations. Please leave a message."
  • The company's auditor has been flagged by the Public Company Accounting Oversight Board (PDF file, Adobe Acrobat required), which wrote:

The inspection team identified what it considered to be audit deficiencies. The deficiencies identified in three of the audits reviewed included deficiencies of such significance that it appeared to the inspection team that the Firm did not obtain sufficient competent evidential matter to support its opinion on the issuer's financial statements.

  • The fact that the company has not reported a dollar in revenues, ever.
  • The company's listed office address is actually a Regus "virtual office."

The moral
I don't know if the company has any knowledge of or involvement in this relentless stock-hyping email campaign, or if the touters are just outside stockholders who saw an opportunity and grabbed it.

It doesn't much matter -- Toron isn't the first penny stock to be shamelessly pumped over email and Internet message boards, and it won't be the last.

Perhaps the SEC will jump on the case -- the agency has filed "more than 50 enforcement actions for misconduct related to microcap stocks" since fiscal year 2011. Hypesters have been warned, but they won't disappear.

I implore investors to be, well, investors in businesses, not speculators in rolls of dice. When it comes to unsolicited emails from unknown sources asking you to buy a stock, the SEC's advice for us retail investors is beautifully succinct: "When you see an offer on the Internet, assume it is a scam."

Because, really, even if it's not a scam, it's most decidedly not a good investment.