We are familiar with the practice. We call it illegal shorting. There was a case here recently involving a hedge fund called Gryphon (Dallas not San Fran) one of the principals, Bucky Lyon, was charged for shorting companies in which Gryphon held PIPe positions, at obvious discounts at issuance. The SEC investigation caused massive redemptions and ultimately closed the fund but Bucky beat the rap. Sure, BD's make a lot of money lending the same shares multiple times simultaneously but I have my doubts about the impact for micros. My partner and I take a somewhat different view of the hedgies, we think they "too clever by half". Take a look at the portfolios of firms like NIR Group or Yorkville Advisors (formery Cornell Capital). I reviewed more than 70 portfolio investments of Yorkville and found more than 40 trading at less than a penny. When we look at a stock/company, we are less interested in how we get in than how we get out. These funds may look like geniuses as they continue forcing the issuance of more and more shares but, in the end, the investors, in these funds want their money back through redemptions and that's when the "you know what hits the fan". Putting aside the companies that are operationally dead, I can't tell you how many I see with 500 million shares or more out, trading for less than a penny with <$10 million in total revenue. Both parties are dead. There is no way out and the NIR's of the world can report an accounting profit for a while, but eventually, the are toast. The smart guys will seek structures that enable the company to grow. We think there is a tsunami coming for these investors. By the way, I had missed that Bloomberg piece, thanks.
