Lot78 Inc. (LOTE)

[Jhound212]

A lesson on Market Maker Manipulation in Direct Violation of Rule 5100

It has now been nearly two weeks since Wilson Davis and Tradition Asiel securities illegally created nearly 1.1 million shares of Lot78 out of thin air. Since then those firms have had to bid up the shares of LOTE aggressively in order to desperately cover their position and cover up their violation.

What has come of those 1.1 million shares? As liquidity continues to dry up and shares of LOTE are still trading at a very high $7.40 bucks a share – investors can buy in to two narratives. (1) That the naked short position has been covered and reconciled or (2) that the original naked position has been assumed by 5-10 unscrupulous trading firms.

I first alerted LOTE investors that something was a foul on April 24 and quite accurately predicted that the shares would exceed the high achieved by LEXG and surpass $10. The shares hit $11.65 making my prediction spot on. My prediction proved accurate because I have spent years watching these market makers led by Wilson Davis engage in this activity yet I had never seen someone step up to the plate and call their bluff. Using this knowledge I can tell you that I am confident that the second narrative is the one fellow investors should believe. I will provide more evidence to support my position:

Market Makers and Naked Short Selling (FINRA Rule 5100)

In order to better understand how market makers are able to naked short sell please visit this link:
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=3093&print=1

It boils down to FINRA Rule 5100. This rule states that Market makers acting in a bona-fide market making capacity may engage in a naked short sale, allowing them to short a stock without borrow and providing them an extra 3 days to settle this transaction (known as T+6). This unfair advantage makes no sense unless you focus on the text of Rule 5100 which explicitly states that each and every naked short sale must be made as part of a bona-fide market making. IE: Representing a natural customer seller or a sale which may have a delayed settlement but for which the market maker has precise knowledge of the location of the stock. Nowhere in Finra Rule 5100 is there text allowing market makers to rely on the rule in order to speculate for their own account. In fact the rule states the following:

“Further, NASD is reminding members that intend to rely on the bona fide market making exception to Rule 5100 that they will be expected to be able to demonstrate, upon request, how the short sale transaction meets the bona fide market making exception. Thus, members availing themselves of this exception must have a reasonable basis to believe that each short sale transaction satisfies the terms of the exception and must be able to provide documentation in support of such position”

Using this information and examining what has occurred in the trading of LOTE shares provides much needed clarity. The graphic below shows key moments in the history of the trading on April 24, 2013. The day that WDCO, TRAS, VNDM, CSTI, BMIC, BMAK, LAFC, BKRT, DLNY, ASCM, WORL, FANC, TRLN flooded the market with nearly 1.1 million artificially created shares. Note that none of these market makers were making a market as described in RULE 5100 – they have all committed a major violation by speculating in the shares of LOTE for the benefit of their own account. While they were led by WDCO they have all participated in this crime.



What is obvious is that the original short position created by WDCO has been simply rolled over. Legal short sellers like Timothy Sykes may have been able to locate minimal borrow and as much as people hate Timothy Sykes at least he is NOT committing a crime. But the following firms remain heavily short, have no ability to cover, and have all committed a violation by taking a speculative short position by relying on rule 5100:

1) CSTI – Patrick Mcevoy and Eric Hocchman
2) VNDM – Brian H. Strack,
3) LAFC
4) BMIC
5) TRLN
6) STXG
7) ASCM
8) FANC
9) DLNY
10) BMAK
11) WORL
12) MERQ
13) BTIG
14) NITE
15) CANT
16) BKRT
17) ETRF
18) MICA
19) PATH

19 firms, committing Rule 5100 violations by naked short selling for speculative purposes. For these reasons I believe LOTE is heading much higher, as these firms will soon realize they have inherited the problem that WDCO and TRAS created. In summary, this is my personal based on many years of accumulating intimate knowledge of how these market making firms abuse the system. I trust the smart ones here will see it as clear as I do.