GLUV Corp (fka GVRP)

[WTMHouston]

<<Generally, the short position had to be covered in the market place. If that happens here GVRP will go to the moon.>>

The practical problem with that in this case, which is what takes it outside of the general situation, is that is it impossible to cover the presplit share sales in the market place. There are not enough shares to do it -- period.

Shorting notwithstanding, a company cannot have more outstanding shares than it has shares. Thus, the general requirement for short sales to have shares available to borrow.

Let's try this a different way. I think all agree that the 11 preexisting shares became 33 million post slit shares. Someone can only sell you what they own. If they do not own it, they cannot legally sell it to you -- at least not as against a claim of those who do lawfully own it. The people or brokers who sold restricted post split shares into the presplit market had no legal right to do so and the buyers acquired no more than the sellers had a right to sell -- regardless of what they thought when they bought.

As to the buyers, however, their claim is going to be "I don't care what the seller really owned, he sold them to me and I am entitled to the benefit of my bargain." Lots of contract issues come into play. The first, and probably the most applicable, is mutual mistake of fact, which is both a cause of action for rescinding the contract and a defense to a cause of action for damages based on the expected benefit of the bargain. The legal remedy for mutual mistake of fact is recision, which puts each side back to the position they were in before the mutual mistake. No gain, no loss on either side.

Of course, there may also be statutory violations from the illegal sale of restricted stock. The causes of action and remedies for this are beyond my knowledge and I would not even hazard a guess.

Thinking out loud about this, the company and people within it obviously recognized the problem long before the actual suspension of trading. How might they have known and discovered the problem? First, they may have seen the trading volume, but that does not explain all of the contents of their press release. It went beyond just seeing the trading volume even if that was the genesis for their discovery. More likely, whoever had the account the 3 million post split shares were put into before they should have been or without restriction, noticed large sums of money suddenly coming into their account. If all that was sold was stock from this account, then there are no short sales, naked or otherwise. Of course, this also means that that account has some rather large cash balances from the sales: a fund with which to make people whole.

It is almost certain, however, that some of the transactions, later in the week especially, were sales by folks who had bought at lower prices. It is likely that there are quite a few folks out there sitting on cash profits or cash + essentially free remaining stock. Of course, if those people did not truly own unrestricted stock, regardless of what they thought, then they could not sell it either. This explains some brokerages freezing sales' proceeds from non insiders.

Ultimately, if all presplit transactions are not reversed, there may be a few folks who end up getting to pocket their gains while others who are in a loss or potential loss position get paid off for their loss (as opposed to their expected gain) either from insurance or the cash sitting in the account where the original, improper sales had their genesis.

For those who don't like the results, they have a business decision to make about the amount involved versus the expense of pursuing it.

It is also possible that there was conscious intent to try and illegally make money from selling post split shares as though they were presplit shares. If there were nefarious motives involved, and I am not suggesting there were, but rather just discussing various theoretical scenarios, then the money may gone, one or more people may be ultimately headed to jail, and folks may lose money unless their is insurance coverage (SIPC or otherwise) to make good on the losses.

Since much of this is playing "what if," I, like everyone else, reserve the right to be completely wrong. There could be lots of things that went out that none of us have even yet imagined. One final caveat: no one should act, fail to act, or rely in whatever decisions they may make, on anything I have said. This is not legal advice and is just a collection of my musings. It is speculation -- no more.