DJ IN THE MONEY: Gluv Could Turn Into Headache For Wall Street
By Carol S. Remond
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--Trades involving millions of shares of a tiny Florida
company called Gluv Corp. (GVRP) could soon become a major headache for some securities firms.
The trades involved stock improperly sold into the market by one of Gluv's shareholders last week. Although Gluv's stock currently trades at a fraction of a cent, the stakes are high because securities firms that handled these shares
could fail to complete the transactions if they are not unwound by regulators.
If transactions involving improperly released Gluv stock are allowed to stand,investors who sold stock they thought they owned could find themselves short Gluv, having sold shares that they didn't really own. That could result in
losses for investors who would have to purchase shares to deliver to their brokers in order to complete the transactions.
According to market participants, Ameritrade Holdings (AMTD) is one of the brokerage firms that handled some of these improperly released shares.
Ameritrade said it stopped allowing customers to buy Gluv shares on Monday. The firm continues to allow clients to sell the stock.
Gluv is a Pink Sheets company that was recently attempting to restructure its stock ahead of a planned merger with Media Magic Inc. Prior to the merger, Gluv
spun off its assets into a private company, leaving all but a corporate shell for Media Magic to slip into.
In order to get rid of existing shareholders, Gluv conducted a 1-for-6.5 million reverse share split on May 12, which reduced the shares outstanding to just 11. A week later, Gluv said it would conduct a 3 million-for-1 forward
stock split that would bring the shares outstanding to 33 million shares. None of these 33 million shares were supposed to trade before Monday May 23.
But here is the rub: Apparently one of Gluv's 11 shareholders got his 3 million new shares early and started selling stock that was not supposed to be trading. In a press release issued Sunday, Gluv warned shareholders that
shares had improperly made their way into the marketplace and that investors should "not trade these shares until further notice." The company said it's investigating the matter and that it would "cooperate with regulators in resolving the situation." Gluv said it asked the Securities and Exchange
Commission to halt the trading of its stock.
That has not happened. Insteadmillions of shares of Gluv continued trading and that could result in some securities firms ending up stuck with non-existent stock. A spokesman for the SEC had no comment.
The SEC has the authority to suspend trading. The loosely regulated Pink Sheets market falls under the tutelage of NASD which may be waiting for guidance from the SEC. A spokeswoman for the NASD declined to comment.
Trading data shows that some 590,000 shares of Gluv traded last week. It's unclear how many of these shares were not supposed to be trading before May 23.
But since only 11 Gluv shares were really outstanding at that time, it's a fair assumption that most of the shares that changed hands last week were improperly traded.
It's also unclear just how many shares of Gluv are now outstanding. Under the company's 3 million-for-one forward split plan, each of the 11 shares outstanding last week became 3 million shares on Monday. But it's possible, and
even likely, that some of three million shares improperly released prior to Monday were also treated as pre-forward-split stock and broken up into even more shares.
A trading volume of 2.15 billion on Monday certainly indicates that more than just 33 million shares were floating around the market that day. (Trading volume was 556 million shares on Tuesday and 799 million shares Wednesday).
It typically takes three days for transactions to clear. And with settlement time right around the corner for Monday's monster volume, some market participants are wondering whether firms that handled large amounts of Gluv stock will be able to deliver shares.
Neither Gluv, nor Interwest Transfer Co., the company's transfer agent, were available for comment.
Chris Nagy, Managing Director of order routing for Ameritrade, said that as a precaution, the brokerage firm stopped allowing clients to buy shares of Gluv on Monday. The firm has continued allowing customers to sell Gluv stock however.
Nagy said the situation continues to be investigated. Gluv stock closed at $0.0001 a share Wednesday, down 50%.
(Carol S. Remond is an award-winning columnist and one of four who write the "In The Money" feature)
-By Carol S. Remond; Dow Jones Newswires; 201 938 2074; carol.remond@dowjones.com
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