Besao,
You are 100% correct. When shorting an OTC stock you have to be one of two groups, borrowed shorts or naked shorts. Remember even naked shorting can be legal if you still are able to get the shares needed to cover the non-borrowed shares.
In these OTC type schemes, naked short selling is always part of the pump and dump process. You are one of two groups who short (Borrowed or naked)
Group 1.
You are involved with the company and know full well they will be increasing the authorized into the billions and also know soon the float will rise from 200,000,000 into the billions and knowing that the stock will drop.
These company associates are also assured that soon the authorized will be increased to 10,000,000,000 shares and will be allocated what they sold naked to prevent any issues with the SEC.
How it unfolds is so simple. SGMD had a 200,000,000 float at $.18 more or less. They had the associates naked sell 500,000,000 maybe even more from about $.18 on down to $.05 on the NASDAQ filing news (Remember that)?
When the naked shares were sold to brokers from the market makers, the market makers were assured more shares will be made available soon so sell as many as they can at the higher pre-increased diluted authorized price.
If the market makers sold the shares on average to the brokers for let say $.10, 500,000,000 is a nice $50,000,000 cash sale. And also some who likely shorted the stock naked were the CEO and diluted scheme participants making them millions on the soon diluted price.
The brokers make millions on commissions and the extra selling for more than they paid the market makers. Once the 500,000,000 were sold (300,000,000 naked and 200,000,000 in the float), all they had to do was wait for the 10 billion increase and the added debt to the financials than the dilution on new marketing that caused the shares to plummet from $.18 to $.01 or less.
At that point the market makers acquire the pre-sold agreement shares from the company (300,000,000) naked shares cheap by paying off debt for shares that become free trading under the debt conversion rule. Once converted, they deliver the 300,000,000 to brokers to cover the shortfall and the naked sale is completed with no violation or SEC enforcement actions.
In a way, the company backs up the naked shares guaranteed that allows naked sellers to file the shares sold as long so they bypass the short filing forms and the naked shares do not show on the FINRA short data.
The company sells the debt shares cheap ($.0002) and the CEO makes about $2,000,000. The market makers gross about $15,000,000 having sold naked 300,000,000 for $.05. The brokers resold them to suckers for $.10 on average taking in $30,000,000 and also netting about $15,000,000 plus the commissions.
All of them knowing full well the authorized will be increased and the dilution to billions of shares up from 200,000,000 will kill the price and the naked sales are no longer on record.
Group 2.
US! We see this happening and also jump in on the short sale knowing what is going to happen and when. We do not naked sell we borrow valid shares, sell them between $.18 and $.05 and buy them all back for $.005.
When you see the signs you jump in, make money and get out on others misery sorry to say. We did not cause the problems with this issue, we just capitalize on it.
Is it wrong to make money knowing others will lose money when we did not create that issue? Morally we are content. Blame the company, the market makers and the brokers but even more so, investors need to blame themselves.
When we saw people jumping on the NASDAQ news we could not understand how investors did not know it was never going to happen based on NASDAQ rules.
SGMD needed to be $1 per share for at least 6 months and have $5,000,000 in revenue annually in order to be up-listed and they had nether. Yet investors kept saying they are going to NASDAQ.
When investors started buying on that news we had no choice but to jump in and short the stock.
Is that wrong?
