Andrea Electronics (ANDR)

[pitts77h]

Here's an example of one such program that got caught:

https://www.bloomberg.com/view/articles/2015-01-29/penny-stock-pawnbroker-had-a-clever-trick-to-get-paid

Lots of founders/promoters/chief executive officers of tiny public companies own lots of stock in their companies, and not much else. And some of them would like to turn that stock into money.

But controlling insiders can't sell their stock without registering the sales with the SEC. This requires things like, you know, audited financial statements, which can be a problem if you're a tiny company with dubious financials. Even more important, registration also means disclosure...

So the insiders go to ICG and pawn their stock... the CEOs probably mostly knew what they were getting into. They didn't want a loan: They wanted to sell their stock without public disclosure, and they figured that a 50 percent discount on the market price was still a pretty good deal...

Insiders were using ICG to dump their stock on the market without registration and disclosure. The insiders can say that they were just borrowing, not selling, and had no idea that ICG would be dumping the stock on the market. ICG can say that it wasn't selling on behalf of the insiders: It was just hedging its loan exposure by short-selling some of the stock it received as collateral.

ICG got caught, but the practice is still widespread. Check these scum out, for a few examples:

http://www.globalfinancialcorp.com/stock-loans/

http://www.usbest.biz/stock-loan-solutions.html

https://sharespost.com/stock-option-exercise-loan-private-stock-lending-program/