R. J. Falkner's sound and fury, signifying nothing

It is quite an amazing feat that Bob Saxe and company have managed to keep the cycle of recapitalization going for a full forty years without ever having produced anything of value to the marketplace. Certainly that is attributable in part to management's virtuoso playing of the stalling game, stretching things out as long as humanly possible and counting on faded memories and a constant influx of new players unfamiliar with their past to carry them on to the next stage. That they have managed to keep it up for this long without having diluted the stock beyond recognition is most remarkable indeed.

Still, it all would have been a lot harder if Saxe and company didn't have a willing accomplice or two willing to help them out. And one of their primary accomplices, particularly in recent years, has been the "research" firm of R. J. Falkner and Company.

Falkner is one of a thankfully dying breed of research firms who put out reports on companies that pay them to do so. Not surprisingly, the reports are uniformly and usually quite wildly bullish.

Falkner's report on REFR is no exception. Their latest summation, dated November of last year (when REFR's price was roughly $7.50, or more than twice today's levels), predicts "REFR?s long-term prospects for profitability and growth will be supported by accelerating growth in royalty income within the next 6-12 months."

For those uninitiated with how these forecasts work, this means that, a little over six months having passed since the report was issued, a new version, with a renewed 6-12 month time horizon, is almost certainly due out shortly.

Some, however, suspect that Falkner's assistance in the promotion of REFR goes beyond their silly "research reports". On its disclaimer page, where Falkner customarily admits how much they are paid by the company being "researched" ($3,500 a month in REFR's case, or more than 1% of the company's operating budget), they also add that they provide "investor relations services" to REFR.

Now, given that REFR already has a perfectly competent investor relations person on staff, the question asks, what kind of "investor relations" does Falkner do for REFR? A sampling of disclaimers for other companies' reports characterizes the compensation as being "for the periodic publication of research reports". So clearly Falkner is doing something else for REFR. What might that be?

One rather blunt theory is that Falkner is responsible for a great deal of the promotional activity on the message board forums. While it's a little hard to accept that REFR could get all that much "bang" for $42,000 a year, there is some evidence to support the suggestion. Much of Falkner's report gets requoted endlessly on the forums. Some have claimed this even happens before the fact, that issues raised on the forums subsequently find their way into Falkner reports, though this has not really been established. Another thread is the frequently raised notion of "paid bashers". While this is an extremely popular accusation on the forums of stock of all types, despite the fact that the practice has never been proven, what would be more natural than assuming the contra side is being paid for their postings, if you yourself are being paid for yours?

At any rate, that's probably far more than enough theorizing for a topic upon which little proof of anything exists. For a good chuckle, read the whole Falkner REFR report from beginning to end and see for yourself just how horribly wrong it has already proven. Tomorrow, I'll show you where you can read past reports from Falkner, to get a really good perspective on just how horribly wrong they have been.