MARKET SCAMS

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Two S.A. firms claim fraud stinging stock
'Naked selling' scam shorts share value, they allege
Mike W. Thomas
Just six months ago, Tidelands Oil & Gas (OTCBB: TIDE.OB) saw its stock fall to 12 cents a share from a high of $4. For the next three months, the company's stock price slowly began to climb back up until it went above $2 per share. Then suddenly in November, the stock began to dive once again, dropping nearly $1 in one afternoon.


Company founder and CEO Michael Ward issued a statement at the time stating that there had been no change in the company's business developments that would support such a decline in the stock price.

"In fact, we recently announced our first pipeline crossing into Mexico at Piedras Negras and Eagle Pass on Nov. 10, 2003, which marked a milestone in the history of our company," Ward said.

So how could good news for the company, which had recently moved to San Antonio, result in a sudden decline in its stock price? According to Ward, the culprit was stock market manipulation.

"There is a large short position in our stock and we have good reason to believe that for a considerable amount of time our company's shares have been manipulated by these short-sellers," he says.

Short selling is a common practice on Wall Street where investors can borrow stock from a broker to sell with the hope that the stock price will decline before they have to return the shares back or cover their position.

But there is a seamier side to the practice of short-selling called "naked shorting" -- whereby groups of people can manipulate the market by selling fictitious shares of stock in an effort to force a company's share prices to go down.

These naked short sellers tend to prey on small companies whose shares trade on the over-the-counter bulletin boards. Ward says he believes his company became a target of the naked short sellers about two years ago.

"We have a huge short position on our stock," Ward says. "The people who are shorting our stock have deep pockets and they really had us on the pavement at one time. The only way we have been able to weather the storm is because we have a good, large shareholder base."

In certain cases involving legitimate market makers, naked short selling is a legal practice. However, Ward claims more and more small companies are being victimized by illegal naked-shorting schemes carried out by unscrupulous players.



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http://sanantonio.bizjournals.com/sanantonio/stories/2004/02/02/story1.html