I don't know if it's true, but this was exactly what I was warning about much earlier. If a PIPE is both investing in a company and shorting against that investment, it's a real problem for the company. It's bad enough if it's simply a short at a higher price than the PIPE pays, but if the PIPE's price floats with the stock's price, it can become a "death spiral".
While the PIPE transaction that provided $8 million wasn't the worse kind of convertible (that with a strike price at a substantial discount to a future price), it was clearly repriced by the anti-dilution provisions which were triggered by the December 2007 investment. If I have all the details of the December repricing correct, the end result was 21 million shares issued to the Jan investors for $8 million (paid in Jan of 2007) in total, or about 38 cents a share. (I'm ignoring the additional $3 million for preferred shares by some of the Jan investors in December. That doesn't change much except the number of shares they owned).
Since 38 cents was approximately the price of the shares in Dec 2007 after repricing and issuing shares in exchange for the warrant increment waiver and since it only occasionally traded higher than that since then, it would have been on the face of it, a not particularly good deal for the PIPE.
However, if the PIPE was shorting along the way, particularly in early 2007 when the price was over $2.50/share, then they made out spectacularly well. However, as the article points out, selling shares short to be covered by the PIPE transaction is illegal. And, as you saw in the article, at least the Canadian loophole was closed.
But in the end, it seems to me IF this were what had happened, by now the PIPE would not be trying to get the price lower. If they were covering with open market buys, surely they've had ample time to do that by now. If they were/are using the preferred shares, then there's nothing to be gained by having a price below 50 cents, the conversion price of the preferred.
So unless someone can explain that conundrum, I'm still not convinced, and probably just as well because if your own major investors are conspiring to bring you down, I think you've got some real problems. And of course anyone STILL holding a massive short position in any company while it sits just above it's all time low and well below it's all time high, sounds far too stupid have the money and sophistication to mastermind this complex scheme. All MHO.
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