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The revocation order was cut and dry. It goes by the SEC File Number. The entity associated with that SEC File Number was grossly delinquent with their filings which is why the stock got revoked. They can play all the games they want with the CUSIP's and the actual corporate name, but if you don't have a valid SEC File Number, you're not going to trade.
So yeah, it comes back to a 10-12G.
I commend you for having found that example. But unless/until Megas files a 10-12G, something which he appears to have no interest in doing, everyone's getting off 'scott' free.
I am definitely surprised that you found an example, but it doesn't change what a broker/dealer can do under Rule 11530(B).
That's the whole point of the Letter of Indemnity. In the unlikely event that BCIT were to become another Impax Labs, the Letter of Indemnity assures that old shareholders would have their positions re-established.
Of course, you'd have to convince Megas to file a 10-12G the way Impax Labs did. Think he'd be game?
That's an EXCELLENT, EXCELLENT example.
And, did you happen to notice HOW they got to trade again?
I understand the equities markets quite well.
Of the two of us, I'm the one who's ultimately going to be right about BCIT.
The old equity was extinguished when Corus emerged from bankruptcy.
Yes. I would LOVE to see an example of such an animal.
No, that just shows they've managed to bamboozle some naive investors. The broker/dealer community is not going to be so gullible.
The client isn't be disenfranchised at all. The Letter of Indemnity assures you that IF any value were to arise in the future from these worthless shares, that the value would accrue to your benefit.
FINRA members are not obliged to seek out certificates for worthless securities. I don't think they're going to be lining up to buy wooden nickels from Megas.
They are unchanged. The litigation links being posted by frank69 concern the FDIC and the TOPrS jockeying for position in the priority of their claims.
In this particular case, a FINRA member could rely on the SEC's revocation, which was publicly announced, along with 11530(B)(3) (absence of a known market value) to support their conclusion that the stock is worthless. There is no stipulation in the rule that requires the public announcement to originate with the issuer.
No stock that was ever revoked by the SEC for failure to timely file financials has come back to demonstrate anything of value for its shareholders. So a FINRA member that relied upon the revocation announcement to issue a Letter of Indemnity would have firm ground to base their decision. The Letter of Indemnity itself just kicks the ball into Megas' court. When all arrows point to a security that is worthless, as is the case with BCIT, it's incumbent upon him to demonstrate otherwise.
FINRA Rule 11530(b)
For a worthless security, in lieu of a certificate, a broker/dealer can provide you with a Letter of Indemnity which shall grant you any rights and/or privileges which might accrue to a holder of the physical securities.
Looks like a total crud-fest. Have you looked at their financials? They're not current with their SEC filings, but they do have some information posted at OTCMarkets.com.
Actually, yeah, you can. In addition to stocks, plenty of other securities aren't marginable but shortable. Call and put options aren't marginable, but both are shortable, to name just two.
Naked short selling is neither counterfeiting nor is it fraudulent. A person who counterfeits a security intends to dupe their counter party with the counterfeited certificate and attempts to walk away from any future liability for the transaction. A party who naked shorts a security maintains that position as a contingent liability on their books until that position either gets closed or is declared worthless.
No, it's not really confusing at all. The shares are worthless. There is no mandate for a broker/dealer, or any other entity, to deliver a security that has turned out to be worthless.
I hate to break it to you, but short sellers, including naked short sellers, are part of the market, too.
Gains from shorting, or even naked shorting, worthless securities are neither ill-gotten nor illegal. When confronted with a fundamentally worthless security, shorting it will always be the correct trade to enter.
To some degree, you're right. The online brokerage community doesn't think very much of those customers they have who get caught up in pump and dump jobs. Consequently, some of them have begun refusing to accept buy orders for certain pinksheet issues. Hopefully, more and more broker/dealers will walk away from that seedy part of the market.
BCIT is hardly the first pump and dump where shareholders got jerked around after the revocation. I don't expect them to be the last.
And as far as I know, it's still not a criminal offense to correctly identify a pump and dump or to goof on the people who get caught up in them. I don't expect that to change either.
It's a public forum and you clearly don't seem to understand the point of investing in securities. And there is nothing going on in the present for BCIT. Whether you can accept it or not, this thing is dead in the water and going nowhere.
Here's some help for you, and anyone else who might have fallen for this pump and dump scheme, that might help you avoid getting ensnared in another one of these messes in the future. (No, I don't really expect this to be of much help to you. But someone else might read it and learn.)
1. Never, EVER buy stock in a company that is not compliant with their reporting requirements. If you follow this rule alone, chances are you'll never get stuck holding shares in a worthless, revoked stock again.
2. Avoid "blank check" companies like the plague.
3. Never buy stock in a company where insiders own preferred shares in an issue that guarantees them control of a company regardless of how badly they dilute the common stock.
4. Avoid companies that have disproportionate expenditures in SGA.
5. Never buy stock that's being promoted as a "short squeeze" candidate.
Five simple rules. It won't guarantee that you'll never lose money in another stock again. You can have honest managements with the best of intentions and good business plans that, through no fault of their own, don't pan out. But at least you'll avoid the most blatant of abusive pump and dump schemes.
The shares are worthless. Why would you expect TDA or anyone else to expend any time, effort, or other resources, on delivering something that's worthless?
They diluted anyone and everyone who might have been unfortunate enough to own BCIT shares.
As for your returning to the naked short issue, that, too, has been discussed plenty. If these people were unsolicited buyers of worthless shares, they have no one to blame for their losses but themselves, regardless of whether or not the broker/dealers completed the delivery of those worthless shares.
Now if anyone here was solicited by a broker/dealer to buy BCIT stock? That would be a different story altogether. They might be able to bring a claim against a broker/dealer, even in arbitration. But I'm quite sure you won't find a ticket marked "solicited" out there from anyone who bought this junk.
At this point in the game, you simply aren't going to get anyone in the broker/dealer community to come buy wooden nickels from Megas.
Here's the truth, Carlton.
BCIT first disclosed that they had issued half a billion shares when they initially filed for 2006.
http://sec.gov/Archives/edgar/data/1076779/000114420407021877/v073199_10ksb.htm
And then the following year they restated the number of shares they had issued to over a billion for 2006.
http://sec.gov/Archives/edgar/data/1076779/000114420408020290/v108815_10ksb.htm
The SEC and DTCC do not "oversee" the issuance of corporate shares. BCIT management, and ONLY BCIT management, is responsible for their share issuances and for the massive dilution that BCIT shareholders have endured.
As for the SEC? I have repeatedly pointed out that their real failure was in not revoking BCIT back in 2001.
Then why did they retroactively change their shares issued from half a billion to a billion for 2006? How can you trust an outfit that goes back, after the fact, and tells the investing public that the number of shares they've issued is double what was previously disclosed?
And really, the substance of that thread goes back to dilution. BCIT management (not naked short sellers) diluted their shareholders by over 99.5%.
How do you defend that?
The point is you can't trust outfits like BCIT to accurately represent to you the number of shares they've issued, especially when they won't stay current with their filings and/or when they go back and retroactively change the number of shares they've issued as BCIT has done. And when you see insiders who have massive beneficial stock ownership numbers relative to the number of shares issued, even if it's only in the form of unexercised convertible shares or notes, you need to recognize that those numbers are going to make themselves felt later with a massive dilution of your holdings.
As far as my "trying so hard"? I don't have really have to try at all. I don't get caught up in pump and dump schemes. I'll make money regardless of whether or not you smarten up after your experience with BCIT. But I do my best to educate investors as to how to identify pump and dump schemes and I try to help them develop the kinds of analytical habits that will make them more successful in the future.
That's one of the problems you encounter when you have an entity that is chronically late with their filings.
When this pump and dump got going, they were only current through their 2001 filings, which is where you're getting that issued share count of 4 million.
http://sec.gov/Archives/edgar/data/1076779/000117266506000196/form10ksb.txt
If you bother to read this filing, don't you find it curious that Megas disclosed beneficial ownership of over 1 billion shares, despite the issued share count only being 4 million?
Is it sinking in yet?
And then, after everyone got hammered, we see a 10-K for 2006, filed late of course, which shows the number of shares issued rose to half a billion.
http://sec.gov/Archives/edgar/data/1076779/000114420407021877/v073199_10ksb.htm
(None of which was a consequence of naked short selling. It was BCIT management issuing those shares.)
The 2007 10-K comes out and we find they retroactively changed the number of shares issued in 2006 from roughly half a billion to over a billion.
http://sec.gov/Archives/edgar/data/1076779/000114420408020290/v108815_10ksb.htm
The lesson is not "never invest in pennies", although in general that's good advice. The lesson is "never invest in anything you haven't carefully researched".
There is no impact on the outstanding/issued share count. The "float"? As I wrote earlier, "float" is a term that has no meaning at the corporate level. It's a figure that mostly gets used to hustle penny stock suckers. You could possibly make an argument that naked short selling does increase the "float". However, this figure plays no role in a corporation's fundamentals.
The "open ended option" is not a bad comparison. If I were to refine that further, I'd say it's more like writing call options with a $0 strike price.
Yeah. You can't naked short stocks with traditional broker/dealers any more. At least not in the U.S.
The number of shares a corporation has outstanding is unaffected by naked short selling, Alan. The outstanding share count a corporation has is only affected by the number of shares management decides to issue.
And as far as driving a company into bankruptcy? That's a feat that can only be accomplished by management. Naked short selling has no impact at all on a company's earnings/losses or what ends up on their balance sheet.
I've considered it. Their retailing operations are a disaster right now, and I'm not completely convinced they can recover.
My problem with shorting JCP is their commercial property portfolio. You may recall that Eddie Lampert made decent money by unlocking the value that the old Kmart corporation had with their commercial real estate holdings. Commercial real estate might still be in a cyclical slump, but I suspect that the number on JCP's balance sheet (Plant, Property & Equipment in excess of $5 billion) might under-represent the true value of their commercial real estate holdings as many of their properties have been on their books for decades.
As bad as things are for JCP, I don't think their stock will end up being worthless. The right scavenger could jump on JCP for their real estate alone. But even if I did short them, or naked short them, there would be no dilutive effect.
True, when I short a security that I believe to be fundamentally worthless, I don't expect to have to buy it back in. Why would you expect me to buy back a security that I believe to be worthless?
I generally try to be more considerate with the term "stupid", but what exactly would you have me say to those people who are incorrigibly and irretrievably obtuse when it comes to doing some very simple due diligence on a stock before they throw money at it?
Is it really that much to expect an investor to download and read a current 10-K or a 10-Q before they invest?
No, there is a difference. First of all, I'm not at all deceptive about what I do or why I do it. I have no problem pointing out a security that's worthless and I would never try to convince someone to purchase a worthless security, which is precisely what the people promoting pump and dump jobs do to traders and investors.
I can urge people to carefully read the filings of the companies whose stocks they buy. (And INSIST that companies be current with their filings before they invest.) But if they won't listen, then yeah, I'm happy to take their money away from them.
"The real purpose of our markets is to separate the rich from the obtuse."
Real investors don't get caught up in the "float" game. "Float" is generally a term used to play with the penny stock suckers and in the case of most pump and dump schemes, is usually a stale number that promoters use to jam gullible traders.
But if you want to talk about people playing a game of semantics? Stick to the topic at hand, namely that of dilution. No dilution takes place when a stock gets shorted, naked or otherwise. Ever.
What really depresses the stock price of these pump and dump schemes is management teams blowing out the share counts while not informing their investors what they've been up to. Which is precisely what BCIT did.
"Float" has no meaning at the corporate level. Increasing a company's "float" is not dilutive.
Call options effectively increase a company's float as well, but no one would be stupid enough to suggest that the options markets dilute companies' stocks.
Well, no, this doesn't make sense. You've repeated an oft-told lie about naked short selling regarding it's ability to dilute a company's shares. Naked short selling is never dilutive. Dilution has a very narrow and precise definition: It is the decrease in percentile ownership of a share of stock that arises when the number of a company's issued shares increases.
Naked short selling has no impact on a company's number of shares authorized, outstanding, or issued. Only your management team can act to increase these numbers and thereby dilute your stock.
There is a certain irony that August 15th will mark the one year anniversary of your involvement with BCIT, at least on iHub. And in this past year, you have lead the BCIT faithful down a number of dead-end alleys, each time leading them to believe that salvation was right around the corner.
There is no reason to believe that this time is going to be any different, but I admit that I look forward to seeing what the next chapter of this Chinese fire drill you're leading is going to look like. It's bound to be extremely amusing.
Only in the fourth market. It's not something any of us can do with a traditional broker/dealer.
Of course. But now you're talking about a different level of risk. At least when you're naked shorting a security that is fundamentally worthless, you can be pretty sure that eventually it's going to zero out and you walk away with your gains.
When you start talking about naked shorting a security that you merely believe is overvalued, there is absolutely no guarantee that your trade will be profitable. The problem with naked shorting a security that is "overvalued" instead of fundamentally worthless is that an overvalued security can remain persistently overvalued for long periods of time. And worse, it might become even more overvalued before it reverts to a sensible valuation. You can be right on your analysis, but if your timing is off enough you can get jammed pretty hard.
Short selling in general is nothing to be approached lightly. Short selling, even naked short selling, by itself is not a path to riches. In fact, you'll find that most people who engage in short selling are seldom if ever net short. They're almost always net long. We use short selling to generate alpha in our portfolios by teasing out those securities that we anticipate will severely under-perform relative to the basket of long positions we hold.
I could. But I would recommend against it. Facebook is difficult to value and even at $20, the shares might be a little rich, but I don't think there's that much downside there.