Appreciate your civil tone, iwondertoo. But just to clarify—FTDs were only one of several examples I mentioned when outlining how synthetic or excessive share structures can arise in microcap stocks. The notion that “a fail to deliver ends with the transaction being canceled” is an oversimplification, and it’s important to understand how real-world practices deviate from textbook assumptions—especially in the OTC.
Let me break it down:
1. FTDs Are Often Rolled or Masked
FTDs don’t always result in canceled trades. In practice, many FTDs are rolled forward or netted out internally—especially in omnibus accounts or by prime brokers. The buyer may see shares in their account, but delivery never occurred. SEC cases have confirmed this behavior, particularly in illiquid stocks.
2. Synthetic Shares Can Arise Without FTDs
Even if no current FTDs exist, synthetic shares can still be created through:
Internal netting at broker-dealers
Omnibus account imbalances
Long positions shown in brokerage accounts without real locates
Legacy mismatches from years ago, never fully unwound
In these cases, the ownership illusion persists even though the official float hasn’t expanded. This isn't speculation—it has occurred in documented cases like CMKM Diamonds, Overstock.com, and Global Links Corp.
3. The SEC Has the Tools—If It Chooses to Use Them
As discussed, the SEC can:
Subpoena beneficial ownership records
Examine broker-dealer books
Investigate clearance mismatches at the DTCC
Trace internalized trades within prime brokers or foreign affiliates
This doesn’t require belief in conspiracy—just recognition that not all trades settle cleanly, and some firms have incentives to cover it up quietly rather than face regulatory scrutiny.
4. It’s Not Just About FTDs
You’re right that FTDs alone don’t prove anything. But the point is broader: multiple mechanisms exist that can distort the true share count, and the SEC has admitted as much in past enforcement actions. The burden of proof shouldn’t rest entirely on retail investors when transparency mechanisms are deliberately opaque.
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Respectfully, it’s not illogical to question market mechanics that have a long and well-documented history of abuse—especially when the stock’s trading behavior defies logic for long stretches. I welcome genuine skepticism, but the concerns here are not baseless.
Krombacher
AI
