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“Boxed in the Cellar” >

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trader53 Member Level  Saturday, 07/21/12 04:49:39 AM
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“Boxed in the Cellar” >

Cellar Boxing

It is known as “Cellar Boxing”,
a form of securities fraud known as "naked short selling"
that is becoming very popular and lucrative
to the market makers that practice it.

0.0001 is appropriately referred to as “the cellar”.
This 0.0001 level can be used as a "backstop"
for all kinds of market maker and naked short selling manipulations.

When the market is > no bid to 0.0001 offer <
there is theoretically an infinite spread.

In order to participate in “cellar boxing”,
the MMs first need to pummel the price per share
down to these levels.

An interesting phenomenon occurs at these "cellar" levels.

Since NASD Rule 3370 allows MMs to legally naked short sell
into markets characterized by a plethora of buy orders at a time when few sell orders are in existence,

a MM can theoretically "legally" sit at the 0.0001 level
and sell nonexistent shares all day long

because at no bid and $.0001 ask
there is obviously a huge disparity between buy orders and sell orders.

What tends to happen, is that every time the share price tries to get off of the cellar floor and onto the first step of the stairway at 0.0001
there is somebody there to step on the hands of the victim corporation's market.

Once a given micro cap corporation is “boxed in the cellar”,
it doesn’t have a whole lot of options to climb its way out of the cellar.

One obvious option would be for it to "reverse split" its way out of the cellar, but history has shown that these are counter-productive as the market capitalization typically gets hammered and the post split share price level starts heading back to its original pre-split level.

Another option would be to organize a "sustained buying effort", and muscle your way out of "the cellar",
but typically there will, as if by magic,
be "a naked short sell order" there to meet each and every buy order.

Sometimes the shareholder base can muster up enough buying pressure to put the market at 0.0001 bid and 0.0002 offer for a limited amount of time. Later the market makers will typically pound the 0.0001 bids with a blitzkrieg of selling to wipe out all of the bids and the market goes back to no bid and 0.0001 offer.

When the weak-kneed shareholders see this a few times
they usually make up their mind to sell their shares the next time that a 0.0001 bid appears and to get the heck out of Dodge. This phenomenon is referred to as “shaking the tree” for weak-kneed investors and it is very effective.

At times the market will go to 0.0001 bid and 0.0003 offer.
This sets up a juicy 200% spread for the MMs and tends to dissuade any buyers from reaching up to the "lofty" level of $.0003.

If a 0.0002 bid should appear from a MM not "playing ball" with the unscrupulous MMs, it will be hit so quickly that Level 2 will never reveal the existence of the bid. The 0.0001 bid at 0.0003 offer market sets up a "stalemate" wherein market makers can leisurely enjoy the huge spreads while the victim company slowly dilutes itself to death by paying the monthly bills with "real" shares sold at incredibly low levels.

Since all of these "development-stage corporations" have to pay their monthly bills, time becomes on the side of "the naked short sellers".

At times, it almost seems that the unscrupulous market makers ARE NOT actively trying to kill the victim corporation, but instead want to milk the situation for as long of a period of time as possible and let the corporation die a slow death by dilution.

The reality is that it is extremely easy to strip away 99% of a victim company’s share price or market cap and to keep the victim corporation “boxed“ in the cellar, but it really is difficult to kill a corporation especially after management and the shareholder base have figured out the game that is being played at their expense.

What typically happens in these situations,
is that the victim company has to massively dilute its share structure from the constant paying of the monthly burn rate with money received from the selling of “real” shares at artificially low levels.

Then the goal of the naked short sellers is to point out to the investors, usually via paid “Internet bashers”,
that with the, let’s say, 50 billion shares currently issued and outstanding, that this lousy company is not worth the $5 million market cap it is trading at, especially if it is just a shell company whose primary business plan was wiped out by the naked short sellers’ tortuous interference earlier on.

The goal of the victim company now becomes to avoid the 3 main goals of the naked short sellers, namely:

> bankruptcy,
> a reverse split,
> or the forced signing of a death spiral convertible debenture out of desperation.

As long as the victim company can continue to pay the monthly burn rate, then the game plan becomes to make some of the strategic moves that hundreds of victim companies have been forced into doing which includes:

> name changes,
> CUSIP # changes,
> cancel/reissue procedures,
> dividend distributions,
> amending of by-laws and Articles of Corporation, etc.


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