The company itself is not selling stock. And the company is not generating any operating cash from this.
This is how a pump and dump works 99.9% of the time.
Small cap stocks can’t afford to pay top dollar for their management team so they include massive quantities of restricted shares as compensation. The company also compensates “insiders” or those that fund the company with massive amounts of restricted stock. All this restricted stock is part of the outstanding stock but not part of the float. After a certain period of time the restriction expires and the management team and insiders have massive amounts of unrestricted stock that is still part of the outstanding stock but not part of the float. Now the goal is to sell all these newly unrestricted shares into the open market to become part of the float.
The question becomes, how do you unload 100’s of millions of shares when only a few million shares trade each day? If, like FITX, you have a recently signed $2 mil line of credit you withdraw some of that money for “advertising” and hire a penny stock pumping newsletter or 3. The purpose of the “pump” is not necessarily to raise the PPS but to raise demand for the stock. Remember the simple economics laws of supply and demand. The demand created by the “pump” can be filled only 2 ways. The stock price shoots up or the float explodes. And this is when the “dump” begins.
The management team can now flood the float with all the shares they own that just had the restriction expire to satisfy the new demand. Instead of 4 million shares changing hands with the PPS going through the roof, 1-200 million shares change hands as the management team pockets all the cash.
The company loses. The shareholders lose. The managers and insiders make tons of cash.
To show exactly what I am talking about, last week, about 16 million FITX shares changed hands. Since there were only 4 trading days, that averaged out to about 4 million shares per day. With the news at the start of this week there was more demand and FITX averaged about 6.3 million shares trading each day and the higher demand caused the price to rise. Then came the P&D on Wednesday. Almost 110 million shares changed hands as FITX management flooded the market with what appears to be about 100 million shares that previously were not part of the float. If they averaged .005 per share, they made $500,000.00 on Wednesday alone.
Two P&D’s ago in March, over a 5 day period FITX had 764,443,089 shares change hands. Considering that FITX historically averages about 3 million shares a day or less when not being pumped, it is safe to guess that about 750,000,000 shares were added to the float over that span. From March 25 to March 30 FITX averaged nearly 1 cent per share. That comes out to $7.5 million dollars management pocketed over those 5 days.
FITX has had 6 P&D’s since September and 4 in the last 5 months. Think about how much money is being made by the people who are supposed to be trying to create a viable, growing business but instead are lining their own pockets with cash.
The worst part about it with FITX is that they have what appear to be good products and could really be a great long term company where the management and insiders could eventually have 100’s of millions of dollars but they would rather make a quick buck and destroy the company while stealing from the shareholders than do the right thing.
AI
