Easy.
When lender have an exchange agreement with companies (could be any so insert company here), they would have a set date on maturity of this exchange agreement/convertible note.
So when the note come closer to maturity the people go out to all the social media sites now and post negative comments making these companies look like they are the worst and they know people that don’t actually know the markets will fall j to the game of emotions and dump into the bid while they short it.
In the agreement, there will be verbiage that states the lender will be able to convert (X) amount of shares on said date (could be a few different days or one day depending on how the agreement was written) using a 5-7 day pricing average.
So the lower they can get the pricing, they would be able to convert at a DISCOUNT (normally 25-30% or if company is desperate…as high as 50%) to that 5-7 day average pricing.
So if we’re floating around .01 and the conversions are coming due, they would be able to convert shares and be in at .005 while the bid and ask still sit around .01.
They would already be up 100% on that scenario. Then some even go as far as hiring a promoter or PR firm to help push the pricing up. They make money on the way down….and the way up.
The only way to combat this is if the company pays the note in full with their yield factored in prior to the due date.
The new laws that the SEC put in place actually help and some companies were smart enough to purposely go on the expert market (not greys) to stop dilution since there is no bid and ask quotes…. but some shareholders would never understand that scenario nor would they like their account value showing peanuts since expert market goes straight to trips and the ONLY people that can BUY Are accredited investors, the company, and market makers. So the rich and insiders can but IF AND ONLY IF Shareholders get shook out. The last paragraph was a expert market scenario only.
Let’s use PSRU as example now! There were people buying this and covering at .03’s after the RS. And then they shorted it again all the way back down to where we are at now. Say they get their conversion at .0015 (sicne we’re floating around .002’s using a 25% discount model) they would be highly likely to start covering from a short position again OR having it promoted/propped just to create liquidity for the lender to get their money back plus intrest.
Once they are done selling shares the stock will either continue going north (due to a bad short position with people still buying) or go south again creating the same patterns we see almost every single penny stock out there.
Say if the notes are done and the company is turning over…..then it would be beneficial for the company to let this happen as they can get shares cheap in the otc one last time….they would only create more equity for the company and the people that lent them money. This scenario is a win win for everybody as long as they can wait it out.
From the looks of it, somebody has been sitting bid collecting shares for almost a year. ALSO…the MMs cannot buy directly from the lenders converting as that’s illegal, so they have to recapture shares by causing panic selling. They are pros at it sicne they have the capital to move markets down here with illiquid stocks.
There’s ALOT of money to be made with this and that’s why these people that lend money to these companies make out great unless the company is smart enough to fight back using the laws provided or they have money to pay the notes.
You cant have my signature....it's priceless
