Justa came by this article on another thread. Kinda applies
to what we're are dealing with I think. Be sure and read the
last Paragraph, it definetely applies.
Understanding Undeclared Short Selling and How It May
Be Impacting Your Stock
Does it sometimes seem that no matter what you do
your stock has trouble climbing in price? If this is the
case, your stock may be facing downward pressure as
a result of undeclared short selling.
Short selling can be divided into two categories,
declared and undeclared.Undeclared short selling has
damaged many dynamic growth companies. Created by
market professionals, the practice consists of creating
stock that doesn't exist. It isn't borrowed but created
and it creates enormous negative pressure on a stock
price.
The mechanics of undeclared short selling are as
follows:
Nonexistent stock is sold short. This nonexistent stock
increases a
company's float. The nonexistent stock makes it difficult
for investors to profit from their risk capital
speculations. The short sellers make the profit. The
practice hurts the public companies, themselves. It adds
massive costs to maintaining a market in a stock and it
reduces a company's business options.
The basis of declared short selling is borrowed stock. A
short seller
provides 50% or more of the value of the stock to his or
her broker. This is done in a margin account. The
margin protects the broker against any increase in the
share price. The broker borrows the stock from a
depository trust company. He then sells the stock and
adds the money to his client's margin account. Later,
the client buys stock (covers) to replace this borrowed
stock. The difference between the price the client sold
the borrowed stock and the price the client paid to
replace the borrowed stock (covered) is the profit or
loss from the transaction.
Most declared short players are institutional money
managers and fringe group market professionals, not
small capital public investors who seldom participate.
Declared short positions risk being squeezed. If the
company can double its share price, the short seller will
be forced to increase his margin collateral in order to
maintain the short position. At such time, the short seller
may elect to buy (cover) the stock instead of adding to
his margin. This adds to the upward movement of the
share price.
Undeclared short sellers don't borrow stock. They don't
margin the sale of their short position. Because they
are market insiders they can use various techniques to
sell stock short that doesn't exist.
Is there money to be made by undeclared short sellers?
Estimates are that undeclared short sellers make multi-
millions of dollars annually.
Complaints to regulatory agencies haven't stopped the
practice of undeclared short selling. However, one way
companies can protect themselves is to recommend to
shareholders that they take physical delivery of their
stock certificates. When physical delivery of stock
certificates is demanded by a significant number of
shareholders, the creators of non-existent stock can be
squeezed. The short sellers won't have stock
certificates to deliver and thus they will be forced to go
into the open market to buy the stock. This will cause
losses for them and will cause them to move their
undeclared short activities elsewhere.
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