OT: MMs get nailed...Merrill Lynch Buyout
May Be Key To Herzog Desperation
It looks to me as though, recent moves by Market Maker Herzog Heine Geduld Inc.
(HERZ) have had an aura of
desperation about them, and the impending buyout by Merrill Lynch, for a rumored
$1-billion, may offer an
explanation.
It has been speculated that HERZ had a 2.5-million-share naked short position in the
stock of Wamex
Holdings, Inc. which was about to open up its ATS (Alternative Trading System)
technology, which in turn was
expected to send its stock price soaring.
If HERZ faced a huge loss on its short position in a stock that it could no longer control,
that might have put a
serious roadblock in the way of completing the deal, leading to its brutal squashing of
Wamex. (See "MM
Blocks Progress," OTC News Network, 06-29-00)
HERZ, often cited for irregularities and SEC violations (this writer is aware of at least
three in past few years),
usually operated behind the scenes, but it burst upon the news scene when it filed an
SEC complaint again
Wamex, formerly traded on the OTCBB as WAMX, with a last close at $1.625. SEC
halted trading in WAMX on a
technicality, silenced Wamex executives with a subpoena and kicked the stock off the
OTCBB, and now won’t
let it back in until HERZ gives the okay. Fat chance!
With Wamex demoted to the Pink Sheets and trading somewhere between 35 and 50
cents a share, HERZ
may now able to begin covering its short position at a substantial profit, and thus
maintain its buyability to
Merrill Lynch.
An alternate theory goes even further, suggesting that HERZ has been covering its short
position at the
suppressed price and may now control a large percentage of Wamex stock, a situation
which may be much
more appealing to ML.
Merrill has moved toward the greater use technology in its trading operations, which
has lowered
trade-processing costs, making the business more attractive. The HERZ buyout would
open the door to ML’s
re-entry into the market-making business. Furthermore, ML has said it will boost the
number of companies in
whose shares it makes a market from HERZ’s current 550 to 2,000, to claim the profits
from trades it now
gives to other MMs.
In a trading world that is quickly becoming dominated by proprietary trading platforms
and Electronic
Communications Networks, including Wamex’ ATS, ML may be looking to increase its
participation further. If
HERZ brings along with it a substantial stake in Wamex, that may clinch the deal.
Some observers might regard it as a sad commentary on the ethics of ML that it would
take in a company with
the ethical rap sheet of a HERZ, but perhaps greed conquers all.
The buyout would make Merrill Lynch the second biggest MM, superseded only by
Knight Securities, Inc.
(NITE) which is owned by several big brokers. Knight’s shares fell 13% -- its worst loss
in 10 months -- when
the buyout news hit. A taste of its own medicine?
OTCBB investors staging their own kind of revolt
– including class action suits and writing Congress -- against the MMM that has
threatened their right to a free
stock market. These are typical.
Mitch Levy, known to Raging Bull followers as a spearhead of the MMMANIP board,
isn’t content with rhetoric.
“The other day,” Mitch wrote, “I was approached by an attorney for a leading securities
law firm who told me
that he felt we may have a case for a class action suit, and that his firm would be willing
to take it on a
contingency basis. The firm has been very successful in the past with a similar suit.”
“Approximately two weeks ago I started to announce on various boards my effort to
change the OTCBB. To
date I have well over one hundred investors who have voiced their interest in
participating in this effort with
more and more stepping forward every day.” You can Join Mitch on the Raging Bull
MMMANIP board.
Investor “Spec-U-Late” wrote OTCNN, “I'm putting together a class action suit with a
major securities law firm
against the various manipulators and their governing bodies in the OTCBB. I'd like to
contact the principals of
(company named) to see if they would be interested in joining this effort. . The thievery
is going to stop! This
will happen!”
He invited “anyone interested in participating as an individual investor, please email me
at
SPEC_U_LATE@ragingbull.com, and I'll put you on the list of participants. Feel free to
join in on the
discussions taking place at the MMMANIP message board at Raging Bull.”
Instead of turning to the law, some investors preferred to approach the lawmakers
directly.
Investor Brian Zander has been getting the word about MMM to elected officials. “I have
been promoting the
idea of shareholders writing to their senators and congressmen a letter voicing our
concern over MMM. We
could fill up our representatives’ mail boxes and let them know about this problem.
Investor Kurt Waters wrote along similar lines: “I have been closely watching the events
unfold regarding the
suspension and subsequent 'Pink Sheeting' of WAMX,” he wrote. “Market Maker HERZ
brings the charges
against WAMX and then is the only one that can 'allow' WAMX back on the Bulletin
Board? Who is in charge?
HERZ or SEC?”
Waters went on to say: “I have subsequently sent e-mail to several Congressmen and
Senators urging them
to look into the actions and power of the MM's. I have also reminded then that their
constituents could well be
investors in WAMX or any other OTC stock company that has fallen prey to MMM.
Perhaps they will remember
that when election time comes around.” |
