It’s really very simple. The issuer disclosed the reverse split ratio in its S1. The underwriter filed the firm commitment with the SEC and priced the units accordingly. The issuer filed the corporate action with FINRA.
However, several protagonists ‘thought’ that IF the common stock PPS rose the issuer would change the reverse split ratio. In order to change the RS ratio The issuer would have had to undo the effective S1 and refile it, the underwriter would have had to recalculate the offering price and refile it, the Nasdaq listing would have been stalled and wait for a new effective S1.
The protagonists were incorrect in their assumption that the issuer would alter the reverse split. The protagonists pumped the stock to .40. I’m sure a few shareholders sold between .06 and .40 but evidently many did not.
Some of these protagonists thought they were squeezing short market makers. But they were actually allowing market makers to raise any short average to a much higher price, which had the overall effect of handing the market makers free money.
All in all this was highly predictable and quite profitable for traders that read the issuers filings and knew what to do.
No corporate offense has been committed on the part of the issuer or the underwriter or NASDAQ or FINRA or the SEC.
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