Replies to post #916 on Evergreen Energy Inc.(fka EVEIQ)

[coin_in_fountain]

To fully understand the new SEC rule, and its potential impact on EEE, you really need to look at ALL the factors that went into its making:

http://www.sec.gov/rules/final/2007/34-56212.pdf

Regarding the consequences of maintaining a naked short position after the expiration deadline:

"Thus, if the fail to deliver position persists for 35 consecutive settlement days, the amendment will prohibit a participant of a registered clearing agency, and any broker-dealer for which it clears transactions, including market makers, from accepting any short sale orders or effecting further short sales in the particular threshold security without borrowing, or entering into a bona-fide arrangement to borrow, the security until the participant closes out the entire fail to deliver position by purchasing securities of like kind and quantity."


To me, that sounds like the police surrounding the home of a known bandit, and saying "Come on out with your hands up! If you don't come out after 35 days with the loot, we're cutting off the electricity." (Sounds a little bit like that Branch Davidian sect problem near Waco Texas about 15 years ago, doesn't it?)

http://www.carolmoore.net/waco/waco-fire-photo.html

Keep in mind there is a big difference between legal short selling, and naked short selling. Short selling still represents a very profitable business for these market makers. Consider the huge jump in EEE short interest that occurred between the last two reporting periods. If the market markers are prevented from any more legal shorting because they have a bunch of illegal naked short positions on their books, then they are going to stand to lose significant revenue, also helping to create a bottom for the stock.

Actually, there is nothing I would like to see more than for EEE to remain on the Reg SHO list after the grandfather clause is eliminated. That would clearly indicate that at least one of these market makers has a HUGE stake in naked shares, and "he's not coming out alive". In other words, the cost of covering those naked shorted shares likely exceeds revenue associated with normal short selling.

Once again, I encourage you to review that full SEC report above. It is very clear that the SEC intends to eliminate the abusive naked shorting problem, and they really believe this new rule will solve the problem.

Now put yourself in the SEC's shoes and imagine what they're going to do if EEE remains on Reg SHO after the grandfather clause is eliminated. That would be a real slap in the face to the SEC, and it would be glaringly obvious that some market maker had been seriously manipulating this stock downwards. I don't think it would take long before the army was called in, punched some holes in the wall of the bandit's hide-out, and forced them out with tear gas. To me, the prospect of the naked shorts "fighting to the death" is very high, given that the shorts didn't cover when the recent China news was announced, but instead chose to counteract the rising stock price by greatly increasing their legal short positions. Whether that was an act of desperation or not - you'll have to judge for yourself.

In all truthfulness, I sometimes hope that EEE does stay on the Reg SHO list after the grandfather clause expires. That would raise my hopes that there is some truth to the rumor floating around that current naked short interest in EEE could be as high as 8 million shares. It seems perfectly logical to me that whoever holds all those naked shares had a lot to gain by not covering while the stock was falling after that recent conference call. But now they're boxed in by that new SEC deadline, and a rising share price. The longer they hold out, the larger the number of naked shorted shares likely exists, and the more valuable covering those naked positions becomes to the Longs. (Or else the the naked shorts wouldn't be defending them so bravely.) For me, staying on the Reg SHO list after the grandfather expiration would be a serious new "buy" signal for this stock. Now imagine the extra boost we would get if Collins comes through with that big deal he recently teased us about in his last blog.

http://blog.evgenergy.com/blog/_archives/2007/11/16/3357322.html

If both of those events happened in the same relative time frame, we could be back up to $22 very quickly. Let that be a lesson to you longs: Don't sell your shares to the shorts!