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Friday, April 25, 2014 10:58:52 AM
Often when small companies do a financing the company that takes down the shares (=doing the financing) is arranging a naked short sale. They get restricted shares (3-6 months restricted) but do not want to run the risk. They want to book a part of the profit immediately and with this reduce their risk and exposure.
e.g. : Investor XY takes down 50 million shares from Company WZ at a price of 0.005 = $250'000.-- cash for the company.
Current share price at about 0.009 . They sell short as much as they can between 0.005 - 0.009 . They book a profit and reduce their exposure. Both parties are happy. The company got the cash and the investor booked a nice profit and holds a few shares for free now. Since financings are done with restricted shares the investor has to arrange a short sale and borrow the shares through the securities and lending facility of a broker. Happens a lot.
I guess this explains the naked short selling and the big volume and why somebody still makes money selling a low prices.
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