NorthWest Biotherapeutics Inc (NWBO)

[hoffmann6383]

I believe the narrative that NWBO should form a NewCo (New Company) and/or do a reverse split (r/s) to cause a short squeeze is a narrative, if played to fruition, would only benefit the naked shorts.

Cites are from here. A Seven (7) part series from The Intercept I’d highly recommend reading

First, a bit on naked shorts.
Naked shorting can be legal for market makers:

As a market maker, Knight was in the rare position of being able to legally sell a stock it didn’t have (the principle being that it will get that stock soon, so no worries). That’s called naked shorting. It’s illegal when regular people do it.

Don’t naked shorts eventually have to close out their position? In theory, yes:

And even with its market-maker exemption, Knight is required by SEC rules to eventually deliver the shares in a naked short transaction to the buyer and close out the trade…. Not doing so results in a “fail to deliver,” which DiIorio describes as the securities version of an IOU. And that IOU comes with rules: Under the SEC’s Regulation SHO, short sellers have to cough up the stock within one day of incurring the fail. Routine failures to deliver can lead to fines by the SEC, or even a ban from the securities markets.

Yet, MMs have figured out a way to never close their naked short position:

Instead of complying with the rule, however, DiIorio alleges that Knight circumvented it by manipulating an obscure process within the machinery of the nation’s clearing system known as the “Obligation Warehouse.” This service facilitates the matching of self-cleared trades (often known as “ex-clearing”) that don’t go through the DTC — for instance if the stock was chilled. The Obligation Warehouse instead simply asks the buyer and seller of these ex-cleared trades if they “know” the transaction. If they both agree, the trade gets confirmed with a journal entry — and the buyer receives their stock purchase. It actually shows up in the buyer’s brokerage account. The trades still have active IOUs, but according to DiIorio’s theory, buyers wouldn’t clamor for the trades to be closed because they would’ve already received their purchase. If true, this would allow Knight to bury its naked short trades. “They set up a shadow clearing system,” DiIorio said.

Hidden naked shorts still have an IOU EXCEPT when a CUSIP is changed via a reverse merger or a stock split:

Reverse mergers and reverse splits typically result in a change in the CUSIP, the nine-digit identification symbol assigned to a public stock. Once that CUSIP changes, the naked shorter has no apparent way to close out the naked short position. No stock under the old CUSIP number exists anymore; it all automatically converts to the new CUSIP. Those trades can sit in the Obligation Warehouse forever, in theory. But the “aged fails” — essentially orphaned naked short transactions — remain on the naked shorter’s balance sheet as a liability to be paid later. By DiIorio’s reckoning, then, the cycle of naked shorting and reverse splits would inevitably result in an ever-increasing number of aged fails. And if that was happening, and those liabilities grew bigger and bigger, then federal regulators could see the outlines of the scheme on any financial statement. DiIorio believed Knight accounted for its aged fails in the “sold not yet purchased” liability on its balance sheet. That’s supposed to be an inventory of stocks for use in future market making, which goes up and down as orders are filled. But DiIorio says it was a hiding place for a billowing structural liability. And consider this: According to its own financial reports, Knight’s “sold not yet purchased” liability jumped from $385 million at the beginning of 2008 to $1.9 billion by mid-2011.

What exactly does this mean?
I believe this allows the naked shorts to never have to cover their position if there was a change in a CUSIP via a merger or r/s. Instead of covering their naked short position, they would place an indefinite liability on their balance sheet under “sold not yet purchased”.

How does this potentially relate to NWBO?

Knight has also been accused of the illegal practice of spoofing, which is a disruptive algorithmic trading activity employed by traders to outpace other market participants and to manipulate markets.

https://en.wikipedia.org/wiki/KCG_Holdings#:~:text=On%20April%2020%2C%202017%2C%20KCG,valued%20at%20approximately%20%241.4%20billion.

Who is Knight?
Knight Capital Group was purchased by KCG Holdings in 2013. In 2017 KCG Holdings was purchased by Virtu Financial.
https://en.wikipedia.org/wiki/Virtu_Financial

Who is Virtu Financial?
Virtu Financial is a corporate parent of Virtu Americas LLC, a Defendant in the NWBO lawsuit.

Virtu Financial Balance Sheet
This shows $4.5b+ in liabilities for “sold, not yet purchased”


Takeaway:
I believe any action that leads to a CUSIP change designed to ‘burn the shorts’ is, in reality, only helping the shorts by allowing them to indefinitely avoid covering said shares and instead hiding them on the balance sheet as a "Sold, not yet purchased" liability. The story above is specifically relevant to Virtu Financial, but I believe similar stories exist for all the MMs listed in the NWBO lawsuit. The MMs would rather have their naked short positions be listed as an indefinite ongoing liability on their balance sheets versus actually having to cover their naked short position in NWBO.

^^ All IMO