I know a little bit about the power of fear of delisting.
I was short 90,000 shares of SYQT at an average price of ~$14 1/2 going into 6/5/96. I covered it all that day at an average price of ~$8 1/2. Needless to say, I was quite pleased.
My public display of gleeful exuberance caught Herb Greenberg's eye, and he excerpted one of my posts on AOL in his column the following day, which I've reposted below.
The sweetest part of that day was that while ArtBros got Reuters to pick up the story, which hit the wires during market hours and started the plunge, I faxed the story to CNBC, which Ron Insana subsequently screwed up and reported incorrectly, exacerbating the selloff. He broke it on air by saying that SYQT was being delisted rather than the actual fact that the company was merely a candidate for delisting. Funny that Greenberg completely missed this spin (the mistake of one of his peers) in his story.
The point of all this? INFO is no SYQT. And INFO is not going to be delisted over an arcane accounting anomaly (deferred revenues must be carried as liabilities on the balance sheet). The double whammy of the Dow Jones Wire headline and Bob Pisani's reporting of it 20 minutes before the close on Friday set up an excellent low risk long entry point.
<< HERB GREENBERG'S BUSINESS INSIDER --
Online Chatter Caused Syquest's Stock to Plunge 32%
Also, regulators take close look at message boards
Herb Greenberg Wednesday, June 6, 1996
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Wonder how powerful online chatter by individual investors and others is becoming? Yesterday's 32 percent drop in Syquest Technology's stock would make a good case study.
It all started at around 12:17 p.m. yesterday when Reuters reported that Fremont-based Syquest, a rival to super-hot Iomega, was not in compliance with Nasdaq listing requirements.
The stock started falling almost immediately, and soon the news was carried on CNBC television and Bloomberg Business News, which ran the headline: ''Syquest Faces Nasdaq Delisting Because of Negative Net Worth.''
But a look behind the scenes shows that the delisting story was started, and fueled, on the Syquest message board of the Motley Fool investment site on America Online.
The issue of delisting had been debated on the boards several days earlier. At 1:17 a.m. yesterday a poster, known only as Artbros, gave a detailed discussion about how he had called Nasdaq and discussed Syquest and the issue of delisting.
He then wrote that Syquest's ''probable delisting would make an interesting article for submission to a wire service. Anyone affiliated with the wire services out there? If you want to submit it, I'll be happy to write it or give them the specifics and let them write it themselves.''
Later in the day Artbros wrote that as a result of his research, he called Bloomberg ''and I have been told my information has been faxed to CNBC.''
At 12:06 p.m. Pacific Daylight Time (less than an hour before the market closed), Artbros said he had just passed the information on to someone in the Los Angeles office of Reuters. ''Don't know if it will go anywhere,'' he wrote. ''But into the roiling maw of Reuters it was cast.''
Eleven minutes later the Reuters headline crossed, and the stock collapsed. Syquest ended the day at 8 7/8, down 4 49/64. Other online posters started slapping each other on the back. Under the heading ''Delisting and MF influence,'' InsydOut1 wrote: ''I bet all our calls did the trick!'' From WarfRat664, ''Art, thanks for bringing the street back to reality on this one.'' And from LRiley9900: ''THANKS FOR THE MID SIX FIGURES, BABY!!!!!!!!!!!!!!!!! This medium is unfreakingbelievable.''
But just because a company is in violation of listing requirements doesn't mean it will be delisted. Last year 1,000 companies at some point were in violation of listing requirements, including companies that had filed for Chapter 11 and were never delisted.
''The drop in the stock today was to tally unjustified considering that this is not a fait accompli,'' says Nasdaq spokesman Marc Beauchamp. ''Just because a company falls short of one listing requirement doesn't mean it'll be delisted. There are two possible outcomes, and in many cases companies do what's required to get back into compliance.''
He adds that companies can be granted extensions that last for months, and that delisting involves a fairly involved hearing process that can go to the Nasdaq board.''
Beauchamp also says that Syquest was alerted several months ago that its tangible net asset value fell below the required $1 million; it's currently a negative $1.5 million.
Was Syquest required to disclose to shareholders that it was in violation of listing requirements? That's a matter of debate -- depending on whether a company deems it material. Syquest officials didn't return my call.
MEANWHILE . . .
The issue of the influence of message boards, including the fairly uninfluential boards on my Bizinsider site on America Online, are the subject of increasing scrutiny by regulators. ''We've looked at a half a dozen stocks that have moved dramatically in price and volume in recent months,'' Beauchamp says. ''There seems to be a correlation with the Internet message traffic and run ups in these stocks.''
Instead of being a communications tool for the cyber-elite, ''We're seeing the Internet as a home to a lot of people who have their own agendas,'' he says. ''They're using it for their own purposes . . . now you've got good people and charlatans in the temple.
''It's difficult for regulators to act because of First Amendment concerns, but it's something we're clearly looking at. But the main message we'd like to leave right now is investors have to be aware not to give any more credence to an Internet board than they would to a cold-calling broker.'' >>
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