Replies to post #119016 on Wave Systems Corp. (fka WAVXQ)

[rachelelise]

helpful

So you can read that they did indeed short in advance of a PIPE (presumably constituting insider trading) but the panel couldn't figure out if this was against the canadian law (terrific panel) and then even when he signed a covenant not to short they didn't think that was so bad because he said he signed an agreement without reading it even though that particular point couldn't be more important in terms of the deal. I'm sure he signs lots of binding legal agreements without reading them. Sounds like a third world country without laws rather than Canada.

[UncleverName]

helpful, can't take credit for leading you to Whalehaven. I note that they were in the last financing, 2/15/06 for 934,579 shares of stock / 173,611 warrants... and in the 12/5/05 financing for 854,701 shares of stock / 156,250 warrants.

[bbigtim]

Unclever & Helpful/Very Interesting

I remember that, when I first stated my conclusion that the paticipants in Wave's private placements were locking in risk free arbitrage profits by shorting against the box prior to a placement, there was skepticism about this concept by some here. Of course, since that time the participants on this board have become reasonably sophisticated in understanding the mechanics of these placements. While advance trading based on knowledge of an impending placement may be illegal, it still has been an all too common practice.

We need to recognize that Wave management has undoubtedly understood how this process works all along. By using these arbitrage sharks, Wave can quickly issue more stock in what is in effect a sort of mini public offering. One downside is that the strike price for a placement is generally being set at the same time that the placement participants are doing their anticipatory shorting, which creates an incentive to short in a way that depresses the price. Wave management can try to counteract this process by timing good PR with an impending placement. Still, it would be nice if the time comes when most of the participants in a placement are real investors instead of arbitrage sharks.