Bat,thanks for the reply. Tell me if I am getting a closer handle to understanding this. Lets take this hedge fund Professional Offshore Opportunity Fund. They lend the company $700,000 and get 1,000,000 shares @.70. Now they sell short 250,000 shares and put 250,000 of there shares aside to cover this. So now they have 750,000 shares to play.
Some one starts the pump a while before these restricted become unrestricted to get the stock moving.
09/11/07 they sell half 375000 shares@ $3.60 for $1,350,000.
12/19/07 they sell the other half 375000 shares @ $1.20 for $450,000.
So they now have $1,800,000 on there $700,000 investment for a profit already of $1,100,000.
The 250,000 shares that were short originally could fall to zero and would be .70 to zero or another $175,000 profit. Then they use the 250,000 shares to offset this short as wallpaper.
If the stock price goes up here from .70, they are still even on this because the 250,000 short is still ofset by the 250,000 that they set aside so they balance. No short covering has to take place either. But I think they know the odds on start up pinks already.
So really the only way for an investor to profit from this is to sell before these restricted shares come off (kind of like you did). There really is no way to fight this, because selling pressure would be way to huge. This hedge fund being only a fraction of those involved.
Am I getting any closer to understanding this?
THANKS IN ADVANCE
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