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I rest my case:

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Zardiw Member Level Grandfathered Member Saturday, 09/03/11 07:48:13 PM
Re: fung_derf post# 32358
Post # of 32412 
I rest my case:

Posted by: Georgia Bard (Gary Swancy)
Date: 1/22/2001 5:40:23 PM (ET)
Post # of 331

Let us hold your 144 cert for safekeeping!

No matter where you go in the USA, you are told that you can not short against 144 restricted stock. That is about as true as you can not short an OTC stock. All stock can be shorted if it is in a brokerage account, which will show up in the broker’s long position.

As a service most brokerages are more than happy to hold a certificate for you in their vault. That way should you decide to register the 144, they would at least have the certificate on hand and only the form 4 plus a signature verification document would be all that is required. That can easily be done by fax or email. But is it wise to have a brokerage firm hold a 144 certificate for you in safekeeping? Is it really safe?

Well take today for example. I was watching a security, which I have 3 year restricted 144 stock. Now I had placed that 200,000 shares of 144 in certificate form into a brokerage house that told me they would glad to hold for me in their vault. So I did not sign it but just put sent it in to the broker to hold for me. Of course, I then see the 200,000 shares in my account on my monthly portfolio statement. The statement also notes they are restricted and the equity has no value by the denoted N/A under the Price column and thus no market value across the board. Now based on that statement the brokerage's long position just increased in accordance to my portfolio statement.

Now I realize and know the float is only 240,000 but it has traded the float over the past week and I could not understand where they were getting the stock to roll the bid every 30 – 90 seconds. (“Rolling the Tape”) So I called a broker and surprisingly was informed there was a big seller. Now how could that be since there was no large positions except 144 holders that I knew of at all. Further checking, I discovered there was plenty of stock in the long position of the clearinghouse! In other words, my restricted shares were now showing up in the Broker’s long position that MMs, MIMs, offshore and other players of the market can legally short against. (“Shorting Against the Box”)

A Brokerage’s Long Position is the available stock in the brokerage house accounts that can be shorted against that has not already been shorted. In other words, all stock in a Brokerage’s accounts can be shorted against, restricted or unrestricted. Thus the infamous “Air Shares” suddenly becomes “Restricted Air Shares” if the 144 holder happens to place a restricted certificate in their brokerage house for safe keeping. Because the share amount shows up as shares in the holder’s account, the brokerage shows all shares on the report as a long position for the brokerage.

Lets say that a brokerage house has in its accounts 1,000,000 shares, which is their long position to hopefully sell at a higher price. Of that say 500,000 is restricted that they are merely holding for 144 holders. The brokerage still shows a long position of 1,000,000. If someone plays the market and ”short against the box,” say 500,000 shares then the long position would reduce to 500,000 shares. Basically, they have shorted the unrestricted and have the restricted to go or vice versa. Now say another broker needs to borrow some of the long position to short and make an orderly market. Then the other 500,000 shares can be loaned out and thus shorted against the brokerage’s long position.

Restricted or not, signed or not, giving a broker a certificate for any reason is like putting a T-Bone steak (raw or cooked to whatever preference) on the floor and asking your dog to guard it. When you get back you will discover all that is left is the bone and the dog is still chewing on it. Please note, the dog is waging his tail and loves you to death but will growl at you if you try to even take the bone back. Expect a terrible hassle just to get what is left.

What does the Internet do? They merely start screaming P&D, or some other wild card to justify the stock price and the blame is no where close to the actual events of what has occurred. Now it may very well be 144 stock but not the 144 holders selling it. Most likely they are under the old belief you can’t short 144, which is apparently bogus.

Say a stock is trading at $10.00 a share. A 144 holder places his restricted stock certificate at his broker for safekeeping. The 144 holder now does not have to worry about trying to keep up with the certificate because they feel it is safe hands. Well, the MMs and MIM once the long position is out can just sell the fired out of the stock thus pre-selling the 144. Seems strange but the broker basically just nailed their client who they are suppose to be looking out for by the way. Just like the dog started eating the second you walked out the door.

Now the MIM has sold you out high and the price plummets. Watching with disbelief, you scratch your head on what happen to the stock price. Who in their right mind would be selling the stock, you ask yourself? Now you are ready to sell a bit once the legend is lifted and the price is 80% down from where you first put it into the brokerage house. Your brokerage house will be more than happy to sell the stock for you for a commission or buy it from you. Eventually, it makes back to whoever sold for you so they get the difference from when they pre-sold it for you much higher and can cover in getting you to sell at the low price. Still chewing on the bone in another words. But do not think about trying to pull that cert. Oh man the dog will used whatever they can to stop that from happening.

Bottom line is the 144 holder could not sell the 144 and was trying to be responsible and protect his interest. Heck, the 144 holder did not even sign the certificate nor even file a form 4 if they could. Unknowingly, they just shot themselves in the foot allowing a brokerage to hold their restricted security certificate and guard their investment.

When I called today to pull the certificate out and have it mailed back to me, I was informed of a numerous scenarios about getting my certificate. I was told it would take 6 weeks because the certificate was in the brokerage’s name. How could that be because the legend was still on the certificate and I had not signed it or even filed a form 4. The more I pressed on that issue I was later told that they had my original certificate and it was not in the brokerage’s name or street name. I was told they had talk to the company legal counsel and I was later told that did not happen especially after I did inquire to the counsel. I was told I needed the CUSIP numbers (I did not know you needed both restricted and unrestricted CUSIPs!), the certificate number and a reason for calling my certificate back.

Man I was blown away. My reason was became I owned the flipping certificate and I wanted back. I got both the CUSIP numbers and the certificate number to send in the written-signed request for my certificate. I even gave my Federal Express Account number so I could get the certificate back to me registered mail.

At the end of the day, I have discovered that anything in a brokerage account, restricted or unrestricted, is a long position and can be shorted. Supply and demand now is basically potential supply and demand. I was told today the “Rolling the Tape” I had been witnessing was, “Keeping the market honest.” Talk about an oxymoron or a contradiction in terms. But very few days come along where a light bulb come on or a 2x4 hits you in the head awakening you to the reality of the market.

Never put more into a brokerage account that you are willing to sell. Greed is putting in more shares than you are willing to let go of in a short term basis. They stock you do not intend to sell will be sold one way or another as long as it is in the brokerage account and thus showing up on the brokerage's long position.

I have to wonder how many people unknowingly realize that by putting their 144 certificates in their brokerage house, they actually are shooting themselves in the foot? Are they aware the market is actually about to nail them financially? How many stocks have been nailed not by 144 holders selling but putting their certificate in the hands of their broker for safe keeping and someone else sells for them? Could account for a tremendous MM oversell from what I have learned today.

Not only that, have you ever sent a certificate in to a brokerage house and it is free trading? Ever watch the selling that occurs prior to the 3 days to clear before you can sell. Envision this … you send in a certificate for say 100K shares and are informed it takes 3 days to get good delivery to street name. The broker upon receiving the certificate can short the stock. Who cares about fundamentals or anything? They got a certificate.

Hey, this is based on events today that I experienced and I could possibly be wrong. However, at 10:48 AM when I called for that 144 certificate the last “Rolling the Tape” occurred at 10:47 AM. The rest of the information in this composition was obtained by speaking to professional brokers. It was quite an eye opening experience and explains to me how a lot of stocks fall and no one lied because they have not sold a share. Nothing more than that someone else selling "Restricted Air Shares" causing the downward movement and looking for the holder to sell at the low price.

#1 Rule of the Market: Sell High (even if it is not your stock) and buy low (especially if it is the holders of the stock you sold against)

:=) Gary Swancey


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