NEWS - PAIV: "Phantom Shares" Debacle Unresolved
Ameritrade, Paivis, Keeping Possible Buy-in Decision Under Wraps
May 25, 2006 1:30 PM
(By InfinitiStocks.com) There is still no official word from TD Ameritrade or Paivis, Corp (OTCBB: PAIV) on the potential squeeze play of the year, involving "phantom" shares, million dollar margin calls, and locked trading accounts. On Wednesday, InfinitiStocks.com contacted both TD Ameritrade and Paivis for a statement. To date we have not received a reply from either firm. Telephone hold time at Ameritrade's Reorganization and Safekeeping department ranges up to an hour for investors calling in to inquire about their account status.
Ghost Shares?
Last week, shares of unknown origin were delivered as part of a merger/tender offer to former JPHC shareholders holding accounts with TD Ameritrade, a popular online brokerage firm. However, Paivis news on Monday clearly states, "The Merger Shares...have not been allocated to the Jupiter shareholders of record." The press release continues, "Merger Shares have not been physically received by Depository Trust Company." Reports are that major online brokerage firms including Charles Shwab, Scottrade, Fidelity, and others, have not yet issued JPHC merger shares to their own customers.
Panic Sell Off Sparks 990% Rebound
Nonetheless, alleged merger shares that (according to TD Ameritrade) did not bear the restricted legend began appearing in JPHC shareholders' Ameritrade accounts late last week. Investors who contacted AT claim they were informed via telephone and email that their new shares of PAIV were unrestricted and freely tradable. The result was a panic sell off last Friday as some investors began to sell, and more joined in to avoid the near-total loss. The flood of new PAIV shares caused the price to tumble 90%, to $0.0011. Monday the stock rebounded in a big way, and by Wednesday reached an intra day high of $0.0012 - a whopping 990% above last Friday's close. At the time of this writing, PAIV is trading approximately 450% above Friday's level, yet still substantially lower than before the sell off. While day traders and short term speculators have cashed in on this week's rally, we can't help but wonder what existing PAIV shareholders are thinking as they see their own investment ravaged by such powerful market forces.
Restricted vs. Unrestricted
Obviously something is terribly amiss. Paivis stated quite clearly in official filings that the merger shares would be unregistered, and the press release reads, "These Merger Shares to be received by the Jupiter Shareholders are restricted securities as defined by Rule 144." Yet according to TD Ameritrade last week, the shares they issued to their own customers did not bear the restricted legend, and thus were eligible for trade. Ameritrade customer correspondence submitted to InfinitiStocks.com admits, "These new shares were to be restricted. However, Ameritrade allowed clients to trade the security unrestricted on Friday 5/19/2006 and Monday 5/22/2006." The correspondence also reads, "Former holders of Jupiter Global Holding who have sold PAIV will have a short position that may need to be bought back." Unofficially, word from Paivis is that these shares should not have been allowed to trade.
Buy-in Possible, Blame Not Yet Assigned
The net effect appears to be a sizeable uncovered short position. Paivis claims there are just 56.5 million PAIV shares outstanding, yet total trading volume since last Friday stands at almost three billion shares. Many Ameritrade customers who sold the (admittedly) unrestricted stock issued to them by their broker awoke this morning to find their account locked, a negative balance, with one customer reporting a margin maintenance call of over $1,000,000. That's certainly a hefty penalty for selling a stock that currently trades under a penny per share. The question remains: in this extremely unusual situation, who will be required to repurchase the shares? Today, Ameritrade is informing investors who call that no decision has been made pertaining to a buy-in. Further, if a forced buy-in is required, "investors will be notified." There is no official indication whether TD Ameritrade will repurchase potentially billions of shorted shares on their own, or force their customers to bear the brunt of the loss. With primary blame for this incident not yet assigned, it's anyone's guess.
InfinitiStocks will continue to monitor and report new developments as they occur. Retail investors with written correspondence from their brokers that helps explain this unusual situation are invited to forward it to us at: team-infiniti@infinitistocks.com. Any personal information will remain confidential.
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