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AH! Now you're on to something, though it's not QUITE what you think.
The Reg SHO list is a wonderful place to look for corporate vermin. Find a group of companies with persistent appearances on the Reg SHO list and you have a wonderful field of candidates whose 10-K's and 10-Q's should be immediately reviewed.
But you don't exactly strike me as the kind of an investor who reads those things.
Issues with available low strike price listed options and single-stock futures contracts have no theoretical limit to their effective "legal" float.
Would you have us believe that options trading and single-stock futures listings harm companies?
I know it's hard to believe that there are people out there with serious coin that get caught up in these scams. There aren't many, but there are a few.
David Patch himself has claimed to have sunk close to a million into Jag Media. (No, he is not one of my contras.) In my last (failed) attempt to take a naked short position in one of these train wrecks, I got introduced to a guy who had been calling various trading desks asking to be informed if anyone needed to unload a large block in a company we both happened to be watching. At the time, the stock was trading just shy of a dollar. I offered him long exposure at 85 cents in exchange for agreeing to a 27-month hold. He countered with 70 cents and a 15-month hold.
I just couldn't stomach the idea of giving him a 30% discount to the market, he wouldn't budge, and nothing came of it. In retrospect, I should have shut up and done the deal (the stock is under 50 cents now), but I just wasn't willing to give him such a sweet deal.
As for contra party risk management, for both sides, you set up an escrow account. The buyer deposits the agreed upon purchase price. They're obviously concerned that I would walk away if the stock soars. I'm responsible for maintaining the balance at a level that's typically 110% to 150% of the market price, marked to market weekly. I fail to meet escrow, the account defaults to the buyer.
It's not a perfect situation for either party. If the stock spikes 70% in one week and I fail to meet escrow, the buyer is out a portion of the gain. I have to accept a much lower price than the market price to go short. Both parties are subjected to risks that mainstream investors don't encounter when using a traditional b/d account.
Singling out those investors with deep pockets has, in my opinion, become more trouble than its worth. That's why I've shifted my focus to stocks with listed options. You won't find the same concentration of brain dead investors like accadacca, nufced, or gump that you might find in a company like CMKM Diamonds, but you can still find plenty of goobers complaining about "naked short sellers".
And so far I have yet to find a better telltale of impending corporate doom than a bunch of goobers complaining about "naked short sellers".
Well, given the role of so many "naked short seller" diehards as scammers in our markets, they certainly do deserve the beating.
But that's not really the issue, and you should get that by now.
The accusations of "naked short selling" are used for diversionary purposes. We have multiple liars who say it's illegal (when it's not), we have other liars who say it's "counterfeiting" (when it's not), and we have yet another set of liars that claim it damages companies (when, in fact, it does not).
It really has no business whatsoever being mentioned in a conversation about CMKM Diamonds, and yet the scammers and the idiots insist upon clinging to this idea that they've been harmed by illegal naked short selling.
Since they've brought it up, I won't hesitate to show them how it can be done. Nor will I hesitate to show them that, in the case of a CMKM Diamonds, IF there had been a naked short position, no one in a millions years would ever offer to engage in some sort of a ridiculous settlement with the bagholders.
Because it would have been a winning position.
Anecdotal. That is the thing about transactions that fall within the sphere of private securities transactions. You get no transparency at all. (Which is why the idea of Reg SHO was silly to begin with and why the proposed amendments are sillier still.) So can I give you a third-party reference to the 90-95% number that I quoted? (Which, by the way, reflects a tiny portion of their business being geared towards the other activities I've described.) No. It's just my impression of what's taking place out there. Furthermore, I don't claim to have polled everyone out there who is playing around with private transactions.
The scenarios that I've outlined are not the same as non-recourse stock loans. I thought I had made that clear. However, some of the parties engaged in the non-recourse stock loan sector WILL let the right investors take leveraged positions in stocks that aren't margin eligible. And why not? It's good money. They might not do the same 90% LTV ratios in a nasty pink or an OTCBB that you'll see them offer to shares of more reputable companies, but they will certainly let a buyer do things that aren't possible with a registered broker/dealer.
Most of the bozos who get caught up in the sub-50 cent pennies don't have deep pockets and are obviously NOT candidates for contra positions to naked short selling. But if I catch a rumor that someone out there wants to dump a pile of money into one of these cesspools, I won't hesitate to try to get them a better deal than what they'll get on the open market in order to sit contra to my naked short.
I'm sure it varies from one shop to the next, but probably 90 to 95% of all the business being written as non-recourse involves stock pledged by executives in exchange for money.
But the administrative procedures are the same for the naked short selling that can be done, if you find the right candidates, in the pinks and OTCBB.
What you do is try to find someone who's may be trying to quietly accumulate a large block. You establish relationships with trading desks and, if you get the right character who's trying to accumulate a large position, they may be a decent candidate to take a contra position to your naked short. They might want attractive financing terms if they're looking to leverage, they might want to buy at a discount, or they may just want to take a long position without signaling the public with a block trade that crosses the tape.
As I've said before, there are as many different ways and reasons for these transactions to go private as there are buyers out there with goals that can't be achieved through traditional broker/dealers.
Frankly, Forrest, I doubt there is a naked short position in CMKM Diamonds. I looked into trying to establish one in early 2005, but found that there was simply no one with deep pockets willing to hold a stake in CMKM Diamonds.
Because of the additional compliance expenses and the other steps we have to take to create legal naked short positions, they are only cost effective when done for larger transactions... typically in excess of $100k. We won't waste time, effort, or money going naked short stock against some dickhead with $3000 on the table.
One look at Frizzell's bogus cert pull simply reinforces my belief that CMKM Diamonds never attracted anything other than a bunch of dimwits who threw a thousand or two into this scam. But it's not the existence of a hypothetical naked short position that interests me so much. What interests me is the number of scammers out there who lead people to believe that there could be some sort of a forced settlement against "market makers" (there never was a registered CMKM Diamonds market maker), brokers, or any other parties out there who might have been naked short CMKM Diamonds.
No such settlement would ever be offered, because if you WERE lucky enough to have naked shorted CMKM Diamonds, you made the correct decision. You win. You walk away with the money. And, no, you don't have to cover if the security you've naked shorted ends up worthless, as CMKM Diamonds clearly is.
You can do this in Canada OR the United States, and the non-recourse stock loan facility is but one way to approach a naked short position.
In the United States, AND in Canada, you can, if you abide by a number of restrictions, engage in private securities transactions. These have become especially attractive in the United States not just for naked short sellers, but also for buyers hoping to avoid Reg T requirements.
Let me give you an example:
Reg T requires an initial 50% margin for eligible securities purchased in a margin account.
Suppose you were a buyer and you wished to take a $1 million in, oh, say, OVERSTOCK! (no giggling, people), but you only had $250,000 to secure the position.
Obviously, this position could not be taken in a traditional margin account with a registered broker/dealer.
Enter the naked short seller who, in a private securities transaction, can accomodate this buyer, legally, with any set of conditions to which the parties may agree.
There are as many different ways to construct a private securities transaction as there are investors with needs that can't be met within the current regime of securities regulation. But once you take it private, it is possible, it is legal, in the US, and in Canada, too.
Now, again, just the for the sake of an old argument...
You have discovered that my private investment house is naked short a billion shares of CMKM Diamonds.
So WHAT?
It can be done with ANY stock, Forrest. OTC, pink sheet, foreign, restricted. It doesn't matter.
There are no limitations to the form of stocks that we can use in a non-recourse stock loan.
And this is but one legal approach to naked short selling we can adopt.
I haven't found a house in Vancouver that does them. (Doesn't mean they aren't there.)
There are a couple shops in Ottawa that are in this sector, though.
Just Google "non-recourse stock loan canada".
Or continue to embrace your ignorance. It's a lot more fun for us that way.
Do a little bit of research on the market for "non-recourse stock loans", Forrest.
With an eye to compliance and following proper procedures, it really is something that anyone can do.
"You can't fix stupid." - Ron White
Yes. Send Frizzellbee another $25 or we'll shoot this dog.
I thought maybe you were going to lay one of those, "For the sake of research..." or science or something silly like that on us, which I can completely understand given some of the socially irresponsible feats I've tackled for the sake of... ummm... yeah... "science".
The bomb? Well, more like napalm, but you're the one it's falling on, so call it what you like.
Oh, I missed that. I just saw his two $25 scams.
There is a character who has posted on a number of sites using the name "jurisper" who ran a great commentary on Frizzell's game.
This originally appeared on Stockwatch last year:
He wrote:
"GOD USed MY PET CHICKEN TO SEND A SIGN. MY CHICKEN SPOKE TO ME SAYING, 'LO UNTO YOU A SIGN IS GIVEN. YES, YOU. YES, YES, YOU. TURN OFF THE TV AND PUT DOWN THE BEER AND DO YOUR FRICKEN FLY UP, JESUS WEPT. OK, SO I'M SENDING A SIGN, SEE? LIKE A SUPERBOWL AD EXCEPT BIGGER. UNDERSTAND? OK. SO THIS SIGN WHICH IS GIVEN UNTO YOU SHALL BE MADE FLESH AND THE FLESH SHALL BE CALLED URBAN CSAVARANITES BUT THE FLESH SHALL BE ONLY AS A TABERNACLE FOR THE SIGN WHICH IT SHALL BEAR WITHIN IT EVEN AS THE WHALE BORE JONAH FOR MY SAKE IN DAYS GONE PAST... OK, YOU'RE NOT GETTING THIS, ARE YOU? LETS START FROM THE TOP. I'M GOD, OK? NOT BETTY THE CHICKEN. I'M GOD INSIDE BETTY. PUT DOWN THE GODDAM REMOTE. OK, SO I HAVE TO KEEP THIS SIMPLE. BETTY THE CHICKEN SAYS GO SEND MR FRISSLBEE ANOTHER $25. YES, YOU CAN USE THE GROCERY MONEY. AND GIVE ME SOME CORN. AND STOP BREATHING THroUGH YOUr MOUTH.'"
That was when I really started watching what was going on with CMKM Diamonds.
I hope you at least had the good sense to send him two checks drawn on accounts from banks based in Lagos.
ho ho ho
NO WAY! You sent Frizzell $25? Twice?
Tell me you didn't REALLY send him $50...
It's very easy to understand why someone would buy that mailing list, and why Frizzell might sell it.
Frizzell has exhausted this vein of moron ore. There will be no more $25 OG specials. His ride on the bumper cars is over.
But the OG list is comprised of a group of people that can easily be shaken down by the most mediocre of sham stock promoters. I mean, look at the number of people on that list who continue to flock to Hal Engel (Willy Wizard), listen intently to idiots like accadacca & Debi Kiontke, and who have pre-ordered Mark Faulk's bogus book.
There is gold in that list, if not in the ground of the next mining exploration scam that gets pitched to these people. Of course it's going to end up in the hands of people who know how to work suckers.
Actually, if I had been naked short CMKM Diamonds, I wouldn't pay a cent. Just like I didn't have to pay a cent when I naked shorted so many other securities that went to zero.
What exactly is it that you would see me being required to pay? It was the right bet, the stock is worthless, the game is over. Thank you for playing, please drive home safely.
Seriously, Forrest, anyone who was lucky enough to have naked shorted CMKM Diamonds would only be liable for any distribution made to the shareholders. At worst, a naked short seller would have had to cough up a couple shares of Entourage.
Now they don't even have to do that.
Sweet.
Do you mean to tell me that with all your wonderful investing experience you can't answer one simple little question?
By the way, as to the legality of "naked short selling", what exactly do you think is going on with all of those small shops out there offering "non-recourse stock loans"? How, and more importantly, why, do you think we facilitate such transactions? This is just one avenue open for us to legally engage in naked short selling.
So, again, Forrest. Let's say I'm naked short a billion shares of CMKM Diamonds.
So WHAT?
Forrest, I've been following the "naked short seller" scam for several years now. And I've been naked short selling securities myself going back to 1999.
As for my appearance here, recently I was doing some housecleaning and found an old correspondence from DeWayne Reeves regarding CMKM Diamonds. I showed it to a friend of mine and he thought this would be a good board for me to do some posting.
I just didn't realize how entertaining it was going to be.
Oh, this IS a fun one...
He's got nothing on Darren Saunders, though.
First of all, what makes you think I'm a "retail" player?
Second of all, there is no law that specifies that all investors, even "retail" investors, must perform their trades through a registered broker/dealer.
There is no law against naked short selling. So long as you know where, when, and how it can be legally done, you may naked short sell securities to your heart's content.
But you evade my question.
Suppose I had been able to naked short CMKM Diamonds.
So WHAT?
You're certainly entitled to believe what you want.
But we're entitled to mock you for being a dope.
I never did get around to putting on a naked short position in CMKM Diamonds, but I have naked shorted plenty of other securities, some of which would eventually go on to zero out.
Just for the sake of argument, let's suppose that I had been capable of putting on a naked short position in CMKM Diamonds.
So WHAT?
It's like reading a Jay Adobe post.
I'm sure there will be some nasty happenings as more and more of the CMKXers wake up to what has taken place here.
However, I'm intrigued by what will take place in those households where the losses won't quite be the end of their financial worlds. I can see many of the non-scammed spouses saying to their scammed spouses, "From now on, we let professionals manage our investments."
Unfortunately, this will lead many households down to their local Edward Jones branch where some dickhead will put all their money into a bunch of crappy Putnam funds. But can you just imagine the conversations that will take place?
Ed Jones Rep: "What possessed you to put 50% of your portfolio into CMKM Diamonds?"
Scammed Spouse: "Well, Deli Dog and accadacca said that if I was in I would win."
Non-scammed spouse: "Oh, darling, tell him about the shrine you built to Debi Kiontke."
It is incredible the way they got you suckers to embrace what is effectively a reverse split.
It's getting there... slowly. Single-stock futures already trade in Chicago, but for the time being it's just large caps. There is a chicken/egg problem. You need the volume to justify the listing and the listing isn't worthwhile to the exchange unless there's volume to support it.
There is an outfit that is supposedly trying to put together something in Belize that will let investors trade single-stock futures on any OTCBB or pink sheet. If it ever gets off the ground, you should be able to access it with any broker/dealer that'll let you trade penny stocks.
I think it's years away from reality, though.
Nice link, thanks.
Along the lines of his recommendation "to make the equity lending system work better", I really wish someone would put together a decent single-stock futures market for all these OTCBB and pink sheet beauties.
That'd bring an drastic halt to nearly all these scams.
I'm not convinced that DTCC is going to go along with this scheme.
This was obviously an attempt by Pearl to put a fancy spin on a reverse split. I wouldn't be at all surprised if DTCC sent back the convertible that was supposedly "transferred" to them with a little note that said, "Nice try."
I thought the magic gold box was pretty funny, but that's nothing compared to this B.S. CD they've sprung upon their shareholders.
Just when you think you've seen everything...
So THAT explains the 20% gain in their stock today.
HO HO HO
I have to thank Patchie Poo for the Netflix catch.
Perhaps because there is an overwhelming body of evidence showing that cries of "naked short selling" have never been anything more than a tool for inept or crooked managers and promoters to dump worthless stock on dumb shareholders.
Oh, and Investor Village, since the Yahoo! boards did a Casavant this month.
Just jb1967lbk here, on Raging Bull, and Yahoo.
Wouldn't it be, like, totally rad, if you actually, um, like, READ the stuff you cut and pasted?
Best part of that article:
""When companies publicly attack short sellers and wage war, those companies are almost always guilty of what you thought they were guilty of, and other stuff you haven't," said William Fleckenstein, a short seller in Seattle who operates Fleckenstein Capital."
Sometimes, it's just too easy taking money from you goofballs.
Good link for nufced.
And anyone else silly enough to think that short selling of any flavor has ever harmed investors.
http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID566901_code223089.pdf?abstractid=566901&mirid=1
In reality, 10MM shares represents $0 of Entourage.
But I would worry just a little about inhaling the fumes from a burning CMKM Diamonds stock certificate. That has to be Carcinogen City.