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What makes CMKX so hot are four assertions:
1) They have discovered the world's largest supply of diamonds. They have also discovered considerable gold and uranium.
2) They have a huge naked short position. The short squeeze for such a large position would be dramatic.
3) CMKX management has a deep commitment to current shareholders and will do everything to maximize shareholder value. "Everything" could include a tender offer and taking the company private.
4) The people who are short the stock have up till now co-opted the SEC. But there's hope that with exposure this unholy alliance will crumble.
What makes it a "hot" stock for discussion is that many people believe these assertions fervently. There is also a cadre of people who are equally fervent in their skepticism. The interplay of these two groups and the missteps of management make for great entertainment.
I personally find it ABSURD to believe that Urban and every insider did not have every single cert pulled for any and every share owned. There is absolutely NO advantage to insiders holding shares in electronic form and if your company is currently in the throes of what appeared to be some pretty negative market forces driving your stock down, you hold your certs in absolute physical form.
You are correct that there is little point for insiders of Bulletin Board or Pink Sheet companies to hold their stock in street name if they plan on holding it. If they plan on selling it, then that's exactly how they'll hold it. Also, if they don't plan on selling it, they will often have their stock in cert form, which they then pledge as collateral to banks (frequently foreign) or other entities for loans. Why else would Julius Baer have a decent inventory of stock to borrow?
Just to clarify, I have no knowledge that CMKX insiders have been selling or pledging their stock. I was just speaking about companies in general.
Speaking of market makers shivering, does anyone know exactly what Knight had done to generate the $79 million fine last week? The NASD made references to the fact that they made too much money trading. But how?
(I know there were also supervisory issues. I'm just curious what malfeasance Pasternak et. al. were supposed to be stopping but were overlooking.)
Thank you, Al, for clarifying that. Obviously, since it was a regular dividend, it would indicate nothing particularly about the short position.
OT:
Look what happened to the common shareholders at K-Mart how they got screwed when K-mart reorganized and had a ton of real estate assets hidden away.
The problem wasn't that there were abundant assets; the problem was that there were even more abundant liabilities. I don't understand how anyone could have invested in KMart without bothering to familiarize themselves with the retail business and subsequently with bankruptcy law. The common stock was obviously a goner, as was apparent to even the most casual of observers (though I grant that there WAS one fund who was buying up the common--and no one could figure out what the hell they were doing).
Nor were KMart's assets hidden. Marty Whitman had been crowing about them for years. He laid out exactly the right way to play this long before--when they were still solvent--and everyone had abundant time to follow his instructions. He might have cornered the market in trade claims, but you could have bought the bank debt or bonds. Or you could have taken the easy route and just invested in Third Avenue (or even better, Eddie Lampert's fund).
Per your post it seems to me that many people here are extremely interested in seeing the agony of short-selling hedge funds getting burned. In fact, this seems to be one of the major themes of this board and of similar ones on other web sites. For them KMart ought to be a frequently cited heart-warming story rather than a frequently cited heart-wrenching story. More money has been lost shorting the post-bankruptcy KMart than was ever made shorting the pre-bankruptcy KMart. I'd say the ratio is something like five to one.
On topic: This naked shorting story on CMKX still has me confused. My understanding is that CMKX issued a cert dividend in CIM. Everyone got certs, correct? (I'm not a shareholder, so I'm not that familiar with what they've done.) And there were not a lot of complaints from shareholders about not getting the CIM certs, right? If there's a big short position, how do you get the certs to the shareholders without a lot of fails? I would be indebted to anyone who could explain to me how such a thing works. TIA.
Thank you for posting this, twbrokewatherhouse. I agree that GLKCE is a graphic example. It is a graphic example of shareholder inability or unwillingness to read public filings. I agree that this is a serious problem which has cost investors millions of dollars. I'm not sure what the solution is. The only one I can think of is that investors should not be allowed to invest in a pink sheet or Bulletin Board stock without first successfully answering a questionnaire on each stock. This seems reasonable, no?
Clearly Mark Faulk also suffers from the same inability to read filings. My suggestion here is that for financial commentators we can take a page from the restaurant industry. In many municipalities restaurants are graded on cleanliness, and that grade has to be shown prominently by the entrance. My suggestion is that writers like Mark Faulk should be given a mandatory securities test, and their test score should have to be displayed whenever they write something. I, for one, would like to know, before reading, whether the guy whose article I'm about to peruse got a D for understanding, just as I would want to know before ordering whether the food I'll be receiving got a D for sanitation.
I've seen this assertion many, many times that loads of small, innovative companies have lost billions as a result of naked shorting. I'm just curious: does anyone have a SINGLE example of a legit company where this has happened (outside of cases with floorless converts)?
I'm not looking for a long list--just a single company. Legit company, legit business plan harmed by naked short selling. I'm looking for a case not where the CEO constantly complains like USXP nor for a BS company run by promoters; I'm looking for a case where there was incontrovertible evidence of both a significant naked short and of the legit business plan being foiled by it.
I read recently a story on Mark Cuban's website from a CEO of a Bulletin Board company who told a heart-rending story about naked shorting. He sounded credible. Unfortunately he didn't name his company. It's too bad. If he had not issued a floorless convert, then this would be a good example.
OT: Excuse me if I'm beating a dead horse, but I really like to understand each case of stock fraud so I know how it works.
Presumably the problem here was that they were creating a short position with insufficient margin. It's not the spoofing that was a problem; it was the margin, right? So I'm theorizing that they were short-selling and then entering buys-to-cover. The buys-to-cover were then canceled. It didn't make any difference whether the buys-to-cover were spoof bids; the point was not to get a better price--it was to create a nonexistent flat position, correct?
There are two points about this which I utterly don't understand--and this makes me think that I'm misreading the story. First, how could it have gone on so long? Second, if I understand it right, then they would have had to be creating buys-to-cover by the end of 600,000 shares in a day of a $40 stock. So I've got to be missing something because that's hardly a little trifle that people could miss.
Once again, thanks to anyone who can help me here.
OT: Actually, Janice, I read the SEC complaint several times and still couldn't figure out how they pulled it off. It seemed that the scheme was dependent on reversing trades EVERY DAY for months. Did I get that right? If so, how does someone do that without arousing suspicion?
I must not be understanding this right. It seemed that the only reason they were caught was because of the buyout. The inference I drew was that it could have continued even longer???
Retail brokerage is not an area I know much about, so maybe someone can enlighten me as to how this worked. TIA.
Venice is one of the very few places in the world that lives up to everything that's been written about it.
Las Vegas is the other.
Uhhh, Gump, I don't think you are dealing with the way the market actually works. A broker cannot compel delivery of something which doesn't trade. For example, during an SEC suspension all buy-ins are automatically suspended.
If the "credits" you are proposing trade, then, yes, the buy-in can be compelled. Otherwise, the short-seller will simply be short the "credits". If they have value, then the short-seller is on the hook for the value of the credits. If they are valueless, they just sit on the short-seller's books as a debit. If someone sues for delivery, then a court will not enforce performance for something which cannot be performed. It's like any other contract. If specific performance cannot be enforced, then the economic value of the contract is due the person holding it. It's no different than if I represent Elvis Presley and have signed a deal with you to have Elvis sing at a concert of yours and renege on it. Once Elvis drops dead, I cannot be compelled to bring him back to life. However, I can be compelled to pay you the economic value of the concert.
It's been tried. I'm still short the shares of a private drilling company years after I covered the short of the predecessor company. The people on the other side of the trade haven't said anything because they know the company is worthless. If the company had any value, though, I would be on the hook for the beneficial value of those shares.
This example is why professional short-sellers are never bothered by "call in the certs" campaigns or the like. The only thing they are frightened by is honest, competent management. And of that they are terrified. They understand the concept of infinite loss.
All the company knows is that between restricted shares held by insiders, free-trading shares held by individuals (with certificates) and free-trading shares held in broker street name (backed by certificates), the total SHOULD match the OS..."
No, it shouldn't. Please see my post 145219. It will only match when you add back in the "negative" shares held by shortsellers. CMKX is not different from every other company.
Gotta wonder where all those extra shares came from and who could possibly be doin’ the counterfeitin’?
Counterfeit shares increase the shares outstanding. Short shares do not. Shorting has been done for hundreds of years. There is not something novel going on here (actually I don't think there's even much shorting going on here, but that's a whole other discussion). Also, unless you're party to all of Mr. Casavant's personal financial transactions, you have no idea whether his reputed 350 billion shares are available for borrowing (and thus could be borrowed for short sales). Not all financial transactions are covered by Reg T.
When you count the shares outstanding and include the shorted shares, there is nothing about these "negative" short shares which indicate whether they were shorted naked or shorted borrowed. Nor is there anything about them which, if they were shorted naked, indicates whether they are now supported by underlying borrows. When a market maker shorts MSFT, he does it naked. That does not mean that there aren't shares available to support the short sale.
I want to reiterate my earlier point. I know that CMKX is near and dear to everyone's heart, and many think it's a very special stock, but it is not so special that rules which apply to the 17,000 other publicly traded stocks don't apply to it.
Actually I think the skepticism of bashers is helpful. I think it's important for anyone long the stock to realize that in a little over a month there is a chance (but not a certainty) that the registration will be revoked. I also think it's helpful to encourage people, as I've tried to do, to contact a market maker not involved with CMKX and try out the theories both of the huge naked short position in a .0001 stock and of the perpetually failing deliveries of hundreds of billions of shares. I'm sure you'll grant that, if a market maker were to say, "Gee, that sounds possible," then it would be a source of considerable encouragement. The converse is also true. One of the revelations that might come from such an inquiry is that there is no love lost between other market makers and Knight, who seems to be the focus of a lot of people's ire here. I think that there would be other revelations as well, since it appears to me that many people are getting their information about the way the system works from unreliable sources. Certainly I've seen nothing from Messrs. Patch, O'Quinn, O'Brian, or Collins which indicates much knowledge of the system.
All of this is not to say that, after the selling pressure of the first couple of days of post-halt trading, the stock might not go up. It might. After all, whoever was selling the stock for the last year is probably going to stop. There's not going to be a 15c2-11, so, if you're partial to the market maker naked short theory, the market maker naked shorting will be pretty much over. Or, if you're partial to the insiders dumping theory, then the SEC's looking over CMKX's shoulder ought to reduce their ardor.
I also think it's possible that there might be some remarkable development from the company; after all, everything so far about the company has been remarkable (though most of it in an unflattering way).
I don't think either of these is a likely scenario, but they are possible. In any event, the realistic assessment of the current situation would be the first step toward an investor's maximizing his return here. And there won't be a lot of time to make decisions.
Side note: I think the people long the stock are right to question the motivations of people like me, who post skeptically here. I wish I could lay claim to some selfless agenda. The reality is that watching this is like gawking at an accident on the freeway. Or maybe it's like watching two trains on a slow-motion collision course. It's nothing that I can be proud of, but it's hard to turn away. It is just so damn entertaining--though I wish it were not at the expense of nice people's pocketbooks. In the meantime, I try to be helpful when I can.
Also, I keep figuring there ought to be some way to make money on this stock, though I sure haven't figured it out yet.
Re the zinc: on the same day that I read Sterling's missive I also happened to read Warren Buffett's annual missive. By coincidence both of them talk about zinc. Mr. Buffett talks about the difficulties in getting any value out of a substantial zinc holding. Sterling evidently disagrees. I guess you can take your pick of whom you want to put your faith in.
I called my broker to sell this one short, he just laughed at me...What did your broker say when you tried to sell this one short?
We must have the same broker. Mine laughed too.
I am having a very tough time understanding the arguments both pro and con on this issue of the supposed naked shorting. Maybe it's my problem, but I'm going to take a whack at clarifying the issue.
Let's take a simple, unemotional example of how the system works. ABCD corp has 10 million shares outstanding, of which 2 million are short, all of them borrowed. No one holds stock in certificate form; it's all in street name. They issue a dividend of 10 million EFGH stock. If I'm short 100,000 ABCD, once the dividend is paid, I'm short 100,000 ABCD and 100,000 EFGH. There's no physical delivery or locates or anything else; it's all electronic and happens automatically. Whomever I've borrowed the stock from is credited 100,000 EFGH, whomever I've sold the stock to is credited 100,000 EFGH, and at the same time I'm debited 100,000 EFGH.
Now, if you change the situation to my being naked short, it doesn't change anything. If I'm naked short, and I'm not failing on ABCD, I won't be failing on EFGH. If I'm naked short, and I am failing on ABCD, I'll be failing on EFGH. All fails get straightened out in time. Since I was failing earlier on ABCD, the odds are that the buy-in will come earlier in ABCD. Not a certainty, but the odds favor it.
I don't know the details of the CMKX dividends. I'm assuming that they were handled as electronic entries for those who held in street name. But, if in the case of any of the dividends it was a physical certificate which was mailed out to all the shareholders, then the situation gets much more complicated. In that case there is a lot more delivery that has to be made, and it has to be made soon. In that case only, fails can be a much more significant issue on EFGH than they were on ABCD.
Another point. What seems to be missing in these discussions is that short-selling, naked or borrowed, always increases the number of shares owned. It doesn't increase "the shares outstanding" because that's a technical term. But, if I borrow your car with your permission, and then sell it, there are now two people who think they own that car. There's still only one car (i.e., one share outstanding), but there are now two people who think they have the beneficial value of one car, and one person who has the beneficial value of negative one car.
This argument that naked shorting is like people issuing stock without permission is bizarre; all shorting is like that. But that's the way the system has worked for 300 years. In fact, many financial instruments are always naked shorted.
In one of these crazy anti-naked short selling discussions, I jumped in with what was intended to be an ironic post. I decried the situation where all the time people were naked shorting options--just writing them out of thin air. I thought I was creating a clever joke with the post. Instead, I got a bunch of people responding, "Yeah, that's criminal! Report them to the SEC."
That's why I asked whether the dividend was in kind. If certs were issued to EVERYONE, then it's a much different animal from an in-kind dividend. I don't know the details of the dividends; that's why I asked.
Side note: no matter what they were, they must have been an utter pain for everyone involved because they were letter stock. I'm sure that Urbie wasn't winning any popularity contests in Ameritrade's back office in the days following the dividends.
Then why did every one of the "70,000" shareholders get their divy's, without exception? You'd think with your theory of billions of "naked short" shares, tens of thousands of shareholders wouldn't of received their divy's. You are gullible. Don't let facts get in the way of a magical fantasy.
Um, those dividends were all in kind, no? If you held in street, you got credited in street as an electronic entry, correct? If so, then the dividends would go out, irrespective of whether the underlying was short--naked or borrowed.
I agree with you that the chance of a major naked short is negligible here, but I just think we ought to be accurate about how the system works.
I feel better about this stock now than I ever have I think this is great now we don't have to suffer through the manipulated trading anymore.
I actually agree with you. Presumably the relentless selling of the last year ought to evaporate. Sure, there will be a whoosh of stuckholders trying to get out on the day that trading resumes, but after a few days I wouldn't be surprised to see your scenario of a price rise.
On the other hand, I have been wrong before with these guys. I never would have figured that someone would be as brazen as Dhonau when he dumped all that stock on the day that USCA resumed trading--and three days before they issued an astonishingly revelatory 10-Q. You have to hand it to these guys: they have balls.
But I have faith in human nature, they will come around. And be wiser and better for it.
I'm afraid I have to disagree. I don't think the majority will come around. Some will, but most, if the SEC revokes the registration, will see this as confirmation of the plot to save the naked short position. They will comfort each other that they fought the noble fight and that they perished financially standing up for what was right.
Jeez, why do I bother responding to these posts? If I knew you were going to come along and do a much better job, I should have just shut up.
Incidentally there is a very subtle difference between repurchasing and retiring shares. It has to do with the treatment of the Treasury Stock dollar entry and Issued stock entry on the balance sheet. I suspect that you knew this and were trying to keep the conversation intelligible. After all, this is the CMKX board not the FASB board.
Euthydemus, il miglior fabbro.
(Janice, please try to overlook any misspelling!)
You can repurchase shares and put them in the treasury to be reissued at some future date or you can retire them. Retiring the shares removes these shares from the A/S. There is a big difference
Uh, are you sure you meant that? Retiring shares has no effect on the authorized shares.
Retiring repurchased shares changes the treasury stock dollar entry and the shares issued entry on the balance sheet. I glossed over this because I thought it was too technical a point to make to the person I was responding to since he seemed to be grappling with far, far more basic issues. For the ordinary investor who is not scouring balance sheets the difference between repurchasing and retiring shares is subtle enough that I will stick with my original assertion.
Uhhh, I don't think there was anything in my post which implied that market makers don't short without a borrow. What I was taking issue with was the fantasy world of people writing these screeds--a fantasy world where fails go on forever. They may go on for a while, but sooner or later there's delivery.
Correct. They are hoping that you can provide them some information. They are not hoping to provide you some information nor to be a forum for grievances. Urbie knows this; that's why he suggested not bothering them.
This is an example of the new, rehabilitated, chastised, compliant, and hopefully irrevocable Urban Casavant.
I have a radical suggestion. What about actually talking to a market maker and finding out if any of these things sound remotely plausible? How about asking:
1) Does it sound plausible that there is a large naked short position in a stock which trades at .0001? How would the market maker survive a routine NASD audit? What kinds of things come up during those audits? And, if the naked short is not at the market-maker level, how would a non-market-maker possibly meet margin requirements?
2) How would a large naked short position avoid buy-ins? In all these jeremiads like the one you posted the writers live in a world where fails go on forever. Not two weeks, not two months, forever. And there are never buy-ins. Has any market maker ever heard of such a world? What's the longest the market maker has ever heard of fails persisting?
3) Now that the shares outstanding have been published, how would a stock avoid being on the SHO list 14 days after it resumes trading if, in fact, there are significant fails?
I'm sure you have heard of the concept, six degrees of separation. The idea is that everyone in the world is separated by only six people: you know somebody, who knows somebody,--six times.
I suspect that everyone who is in CMKX is only two degrees of separation from a market maker. That means that everyone knows someone who knows someone who works for a market maker. Obviously they shouldn't talk to someone who is a CMKX market maker because that person might have something to hide. How about the several hundred non-CMKX market-makers who know how the game is played?
I know that most of the faithful are proud of the due diligence they've done. If a naked short position is part of their thinking, I would suggest this as a fruitful area for further due diligence.
OT: Very off-topic. I should have been clearer. Most jets can throttle to more than 100% thrust on takeoff even though this would exceed their approved operating limits at most ambient temperatures. I'm sorry for the inaccuracy.
Because of lower ambient temperatures at altitude it is not unusual for a jet to operate at more than 100% N1 and still be within operating specs.
Sorry for the waste of bandwidth here. I just didn't want the inaccuracy to hang out in cyberspace.
Now back to the main entertainment...
What a crock!!! They have some nerve telling the stockholders not to call the SEC.
I actually thought that was a good idea. The SEC is not going to tell anyone anything material. Thus, it is not in CMKX's interest to irritate them with a deluge of shareholder phone calls. I think CMKX is doing its best to become the best corporate citizen it can be. This is the equivalent of a convicted felon doing all kinds of charity work prior to sentencing.
Sorry, doesn't say anything about retired. Repurchased does not = retired.
Yes, it does. That is exactly what real companies like Coke do all the time in their stock buyback programs.
Might I suggest toning down the rhetoric and purchasing a book on corporate finance?
OT: most jets throttle to more than 100% of thrust on takeoff. Many jets cruise at more than 100% of thrust too.
This is somewhat oversimplified as jets are different from rockets and the readouts from jets are N1, but, in line with your thinking about CMKX, one little factoid (like a strangely placed parenthetical in a CMKX PR or a seemingly bizarre way of measuring thrust) without a knowledge of what is standard in the industry should not lead to an utterly implausible inference.
On topic: I believe that some of these posts from longs should be the subject of a psych thesis on information processing. First, the longs wanted a low share count. Then they got a high share count which according to them excludes stock held in street name. Most longs feel that the bulk of stock is held in street name. Thus, according to this logic, the outstanding shares are really in the trillions. Why is this cause for celebration?
Mind you, I think the share count is exactly what the PR said. I'm just trying to get into the head of a jubilant shareholder.
On a separate topic I think the PR does a nice job of laying out CMKX strategy: put out a flood of accurate 8-K's and hope to forestall revocation. I actually think it might work, as long as there's no weirdness like the Dhonau dumping on the day USCA started trading again. I wouldn't want to bet money that it works, but it's a good strategy. A better strategy IMO would be to head for some non-extradition locale, but evidently there's a certain amount of self-deception to accompany the others-deception here.
The best thing about it IMO is the End is Near one way or the other...I think everyone will agree.
Are you crazy? This has been the most entertaining stock in years. Just when you think it can't get any more bizarre, Urbie finds an 89-year-old Howard Hughes employee who has come out of a 30-year-old retirement in order to beat the SEC senseless. Now we have a trading suspension--which turns out to be a GOOD thing. My only fear is that, if, God forbid, the SEC revokes CMKX's registration, then Investorshub will revoke this board's too. Frankly I think the post mortem's and accusations could go on for years. I could even envision this board becoming the focus for a campaign to abolish the SEC, or, better still, do something really awful to William Donaldson's house on Halloween. As for everyone agreeing, I think we ought to be able to come to an agreement on just the opposite of what you were proposing: the CMKX saga should go on forever, continually twisting and mutating into ever more bizarre incarnations but with one ongoing, persistent credo: all is well.
I am hurt to the quick by your response. The only thing keeping me out of depression is the knowledge that some bashers thought this was not intended seriously either: http://art-bin.com/art/omodest.html
There is no new filing from USCA. I can't imagine how that can be spun as good news or why they would miss a filing that has so much obvious importance for all sorts of reasons.
They could at least have filed an NT.
Of course they could have filed an NT. But that would have been the obvious move, and this is not a game which is going to be won by obvious moves. Not filing is a decoy maneuver, a feint, a draw play--just the kind of clever ploy that is the specialty of D. Roger Glenn. I know you're trying to divine his plan, but don't waste your time. If it were possible to divine, then the naked market makers would have already figured it out. No, this is so brilliant that it could only have been thought up by someone who taught the SEC everything they know about securities. And, boy, when the plan is finally revealed, we will all be shocked and awed at its genius. Everyone except the naked market makers--who will be vaporized by the blast emanating from this plan.
In the meantime just be patient. All is well.
I just wanted to add my gratitude and respect for your dangerous work.
You wrote:
I knew this was only a matter of time.
http://cmkx.proboards35.com/index.cgi?board=general&action=display&num=1100405303
LMAOROTFOAOAOA!!!
This was in response to the CMKX Message Board post which said:
I was told that we should be expecting someone of great importance to be joining the company CMKX....My responce to this was I dont even want to hear who it is unless you are going to tell me Warren Buffet...............The answer I got........Who told you.
Please note that you misread the CMKX Board post. They said that Warren Buffet would be joining the company--not Warren Buffett. Warren Buffett is, of course, the great stock investor from Omaha. Warren Buffet is a caterer from Des Moines.
I doubt it. But I grant you that this has happened before. Does Voisey's Bay ring a bell?
CMKX is already one of the most entertaining stocks in history, but, if its slice of Fort a la Corne is a repeat of Voisey's Bay, then it'll be the undisputed Heavyweight Champion.
I agree with your post.
Of course, there is some naked short position. Imagine if you were in Risk Management at one of the market makers. And let's suppose hypothetically a few months ago that some days your firm would go home net long and some days net short so that on average you were flat. Then there's this massive selling and a series of weird stock dividends. At some point you are going to tell your traders, "I don't care what you do, but never, never go home long this thing. I don't want to be long if something happens." Thus, if the firm's position used to fluctuate between, say, long $30,000 and short $30,000, now it's going to fluctuate between flat and short $60,000. So, on average you are now going to be short 300 million shares. Multiply this number by all the market makers.
Even a slow Risk Manager would have taken this position as soon as the Saskatchewan investigation and the USCA halt happened.
I'm sure you've heard the govenor of Nevada was a slated speaker...you missed the point. I was trying to say the party was distrupted by hoolagans.
My understanding was that the party was disrupted at 11:30. Was the governor a midnight speaker?
Urbie didn't create a class of preferred with super voting powers
If he did, would we necessarily know about it? This is actually a serious question, because I don't know about the disclosure requirements for a non-reporting pink sheet company on the creation of another class of stock.