APRIL 21 UPDATE TO THE SHAREHOLDERS OF MEDINAH MINERALS
FROM THE CENSUS/REGISTRATION COMMITTEE
In our last update we touched upon the apparent reluctance of the various Canadian Depositary officials to provide any information or instructions to their 30 or so member brokerage firms that own Medinah, in order to guide them in submitting the required list of shareholders, their shareholdings, and home addresses, to the Transfer Agent of Medinah, as instructed by the Depositary Trust Corporation. This despite the proximity of the May 1 date, after which all Medinah Mining certs not tendered for exchange will be deemed "null and void". A broker from a mid-sized Canadian brokerage firm just provided some insight into this situation, by revealing that his firm just sent a request to Medinah's Transfer Agent, on behalf of his firm's Medinah shareholders, for the conversion over 100% of of all of the shares held by The Canadian Depositary for all of the shareholders in all of Canada, amongst the 30 or so Canadian brokerage firms that own Medinah. They sent in all of the required shareholder names, a list of the breakdown of shares owned, and the home addresses of all concerned. This does not mean that this one firm will preferentially get all of those shares. We are assuming that the Canadian Depositary will have to "ration" out its shares, until the proper amount of shares are bought out of the open market under a guaranteed delivery basis to make up for the shortfall. So the question begs to be asked regarding what then happened to all of those tens of millions of shares purchased by other Canadian citizens through these other 29 or so Canadian brokerage firms that also store their shares at this depositary, and what are they to do now. Well, we will pass along the recommendations of the legal people that just learned of this debacle, after they have reviewed the situation. It now appears that either illegal short selling from offshore banks utilizing the Canadian brokerage industry as a conduit, play a more preeminent role than otherwise thought, or that the Canadian brokerage firms, with or without the help of their clients, are back up to their old naked shorting tricks again. When the U.S. firms do get busted for their complicity in these acts, they are typically found to have violated antifraud, market manipulation, and books and record-keeping provisions of the Exchange Act, Exchange Act Rules, and stock exchange rules.
We're now entering one of the more enlightening phases of a short selling war. With each brokerage firm that submits his list of shareholders and the quantity owned, to the Transfer Agent, the dense fog that these illegal short selling criminals rely upon to hide their skullduggery, rises and permits more visibility of what has transpired over the last four years. The fog has only been lifting for a day or so now, but the landscape being revealed is a real eye opener. The paper trail is always there, and it never lies. It is indelibly etched and cannot be erased. Have you ever wondered where the money went that purchased the almost 400 million bogus shares? Well, the answer depends on who sold you the bogus shares. If it was an offshore corporation operating through a margin account at a Canadian brokerage firm, then your money is sitting in that margin account, and can be released upon delivery of the necessary share certificates. Yes, your check has been cashed and is sitting in the short seller's account, even though that short seller had no intention whatsoever of ever having to deliver a cert to his broker, for the intended bankruptcy of the company under attack, would circumvent this necessity. If a market maker sold phantom shares into your buy order, then your money is in the coffers of that market making firm, which also had no intention of ever having to cover this short position. Committee members keep hearing the same question over and over again regarding how, in this day and age, can these criminals be allowed to perpetrate these heinous acts on the unsuspecting public. A lot of people know that this is going on, but nobody seems to be doing anything about it. Well, these questions have been circulating for a long, long time. There are loopholes out there that are being exploited. There are organized "fraternities" of illegal short sellers, covering each other's backsides when needed. This committee's mission statement over the years has changed immensely, it started with, "Let's appeal to these people's sense of ethics and fair play, to dissuade them from committing these dirty deeds by educating them that their acts have left behind a path of victims strewn out on the landscape." Well this approach fell onto deaf ears. Our new approach is to hand them a gigantic monetary loss, and appeal to their business sense, which is hopefully a lot better developed than their ethical sense.
The role of the recently announced dividend for share purchases that settle on or before April the 30th should not be overlooked either. Despite the fact that nominally these are restricted shares with a 12-month hold period, there are a couple of possibilities out there that could make the hold period a whole lot shorter. The first would be in the form of a takeout by a major mining firm. This "inevitable" event would result in these shares becoming basically free trading. The other event to consider would occur for the majority of us that did indeed buy phantom shares, that were not covered before the April 25 trade date( for settlement on April 30). These dividends, by far the majority in number, are owed to us not by the company, but by the short sellers that we bought them from. The company only owes dividends to the 1,900 or so of us that bought "real" shares. The 5,400 or so of us that unknowingly bought phantom shares, will have to deal with the short sellers that failed to cover their short position by the April 25 trade date deadline, in order to settle on or by April the 30th. Since Rule 144 shares cannot be purchased anywhere without the aid of the issuing company, there is the distinct possibility that these shares will have to be covered via the purchase of free trading shares out of the open market. A shareholder has the right to a certificate with a legend on it on the dividend "distribution date" i.e. June the 1st, even though it is not free trading until the legend is removed by a take out or a 12-month wait. An electronic transfer by the illegal short selling brokerage firm with a 12-month hold notation, just won't suffice. This would in essence represent a signed confession that this dealer was indeed illegally short this non-marginable security on or near the dividend record date.
These last few days before the April 25th trade date, should be revealing as to how the short sellers elect to play the hand that they dealt themselves. If, for example, the short position is an even 400 million on April the 20th, and nobody covers any of their short position prior to the close of business on April the 25th, then that 400 million share short position becomes 480 million shares on May the 1st. The short position will have been "taxed" 20% by crossing through a dividend record date. This is not good news for the short sellers, it adds another 80 million shares to the amount of stock that needs to be purchased out of the open market under that extremely burdensome guaranteed delivery basis.
We see the short sellers as having three different options in front of them going down the stretch into that all important April the 25th deadline date to cover by regular (T + 3) settlement. The first option would be a massive short covering campaign, by approaching those few shareholders that have "real" Medinah Minerals shares in their back pocket, and trying to coax those shares out of their pocket by ever increasing bids. Remember though that there aren't that many of us in possession of those certs because The DTCC and The Canadian Depositary are still dilly dallying with those 61 million Medinah Mining shares, this is now in effect working against the shorters, providing them with fewer "target shares" to buy in a hurry before the April the 25th deadline. Two other sources of bad news for the short sellers exist if they choose this first option. The first would be that their time-frame for buying just happens to overlap with a time in which a lot of buying will be done by opportunists going after the free dividend, and secondly, to add insult to injury, who in their right mind would want to sell their "real" shares a couple of days before a generous free dividend. Another source of buying that may also overlap this timeframe are the buy-ins ordered by "clean" brokerage firms that just learned that the market makers that they have been buying Medinah from over the last 4 and a half years, have been short selling into all of these orders. So much for option #1 for the short sellers.
Option #2 for the short sellers in the short term would be to continue to sell short into this wave of buying by opportunists and the "clean" brokerage firms, as well as newcomers just learning about Medinah. The drawback here is that each further share sold short between now and April the 25th will necessitate the purchase of 1.2 shares under this onerous guaranteed delivery basis at a later date, due to the dividend record date being crossed. The other source of bad news for the short sellers under this scenario is that on or about May the 1st all of those shareholders (approximately 5,400) that bought phantom shares over the last 4 and a half years, will learn of this sobering reality, by not finding any certificates in their mailbox. Instead they will see a press release or other communiqué from the company stating that all certificates have been sent out, and if you didn't get one by now then you won't be getting one. This is going to make for some very angry shareholders that have been previously equipped with some forms to send into their State District Attorney's Office to force a buy-in within 72 hours. These shareholders will also learn at the same time that they missed out on the free dividend, at least without having to put up a fight.
Option #3 for the short sellers would be to do nothing, and just let their previous short position cross the dividend record date and be "taxed" the 20% rate. By doing neither buying nor selling, the market can finally breathe and take off and search for its true equilibrium point. This lack of fake selling, should cause a gap in the market price. The supply of buy orders has never been even the slightest problem, but the blanket of selling of phantom shares into each and every buy order has been the problem. Thus, in essence, none of the three available options look too savory for the short sellers.
This entire gigantic mess that the illegal short sellers have created was caused by a massive, well orchestrated, 4 and a half year systematic pocket picking of some 7,300 Medinah shareholders that have collectively decided that enough is enough. These shareholders are now madder than hornets, extremely well organized, very well funded, and in possession of one giant ATTITUDE. There are now over a dozen Securities Law Firms that have chipped in their two bits worth in one form or another, to management or to this committee. Their very well appreciated pro bono hours are accumulating massively. The list of damages sustained by management and shareholders grows daily. The laws regarding this type of illegal market manipulation are very succinct and there is a plethora of case law backing up Medinah's stance.
Well, now that we have the bad guys pretty well cornered and handcuffed, what shall we do with them? From a strategic point of view, one "no-brainer" that comes to mind is to aggressively grab every share in sight, and its attached dividend, which may or may not require effort to attain, in between now and the close of business on April the 25th. Which ever of the 3 options they choose is just fine and dandy with us. This bomb we have been building for all of these years is now complete, and the fuse is in place. There are a lot of different options out there on how to light the fuse.
A few comments now should be made on this concept referred to above regarding buying under a guaranteed delivery basis. The short selling of phantom shares is easy. All you have to do is set up your offshore corporation, sign up for a Canadian margin account in its name, and throw a bunch of cash or equities into the account and start selling like a madman. You'll find that destroying small corporations on the Pink Sheets is almost a self-fulfilling prophecy, all you have to do is keep selling no matter what happens. The trick in busting illegal short sellers is different, however. One must turn the tables on these short sellers by educating loyal shareholders as to how these criminals operate. Then the goal is to not only force these people into covering these immense short positions, but to do it when we want them to and under the most uncomfortable conditions that we can provide them. What you do is force the short-sellers to hand the shareholders their possession, the registered cert, within a tightly fabricated timeframe. Forcing them to buy "real" shares from well-educated shareholders that are aware of the potential of this stock play, under tight time constraints is the key. The old adage that he who sells what isn't his'n, buys it back or goes to prison, is really true. The short sellers covering their short position, can't go out in the market and buy any old share in a willy-nilly fashion, like the manner in which they sold these shares. The shorts are forced to buy a real cert, and hand it to its rightful owner in a very compressed period of time, or face the consequences. A buy-in order of 1,000 shares under a guaranteed delivery basis, can undo the damage caused by a 50,000 share short sell order done to neutralize the corresponding buy order. There is a quality aspect to the shares being purchased. The better educated the shareholders are, the higher the quality aspect. If the shareholders of Medinah had a clue as to the fortuitous position that they are now sitting in, they would truly be amazed. Especially after May the 1st when they can supply irrefutable evidence to any regulatory official or State D.A.'s office to prove that they were sold bogus shares. This is one of the reasons why short squeezes are such a dynamic phenomenon. The ability to orchestrate the timeframe for the buy-in and the conditions under which the buy-in is done i.e. under a guaranteed delivery basis after the shareholders have been educated, makes all the difference. The appeal to illegal short sellers is the ease within which to illegally sell short a stock, but the appeal to short busters is the difficulty in buying these shares back under a guaranteed delivery basis.
Some of the statistical guys on this committee want to voice a very strong caveat to people on the threads talking about using technical analysis (T/A) to predict price movement on heavily manipulated, pink sheet stocks. Point #1, rarely if ever have we seen a more manipulated OTCBB or Pink Sheet stock than Medinah. Point #2, most T/A parameters on companies whose market is as heavily manipulated as Medinah are untrustworthy at best, and more likely deleterious than helpful. T/A tools are based on statistical methods assuming a level playing field, and the truth couldn't be further away from reality. The likes of Appel, Bollinger, Lane, and Granville have done some wonderful work in this field to level up the playing fields for the little guys, but don't bring their work into a market like Medinah's. Case in point, run a quick 8-17-9 MACD analysis on Medinah and see how much money you would have lost utilizing this wonderful tool. Save these tools for Microsoft!
A lot of shareholders share the same anxiety over the apparent loss of their Medinah shares held in qualified retirement plans. There are some troubling contradictions at work here as it relates to shares of Medinah held in retirement plans that have been loaned out to short sellers. First of all, securities laws forbid the loaning out of nonmarginable securities (those trading below $3-$5) to short sellers. Secondly, shares in cash accounts are not to be loaned out either, and retirement shares can only be held in cash accounts as prescribed by law. Why then are so many Medinah shares in qualified retirement plans missing all of a sudden? It becomes very disconcerting from both a legal and an ethical point of view, for Medinah's shareholders to pay a commission to a broker for the purchase of his shares, only to learn later that the brokerage firm or clearing agent has rented out his possession, not shared in the rent proceeds, and not only that but rented these certs to the biggest enemy of the shareholder, the illegal short seller trying to kill this company.
Some of the upcoming events in the very near term include:
1) The DTCC already has informed the 128 U.S. based brokerage firms that own Medinah, what their allocation of "real" shares will be of the 57.2 million "real" shares they have to allocate. (61 million less the 3.8 million held for the Canadian Depositary).
2) The Canadian Depositary officials have informed their 30 or so brokerage firms that own Medinah, what their allocation of the 3.8 million real shares they have on deposit will be.
3) These 158 brokerage firms will then compare their house position i.e. what they should have on deposit at the depositary barring any monkey business, with what they were allocated by their respective depositary.
4) Those brokerage firms that find a disparity between these two numbers, are then prescribed by law to buy-in the number of shares under a guaranteed delivery basis, and hand the certificate to its rightful owner, and the bill for the purchase of the shares to the offending party.
5) The brokerage firm must then get his client's name onto a registered cert, with the help of the Transfer Agent, and also get his client's name onto the corporate list of registered shareholders, all of this by the April 30 deadline.
So it is definitely going to be a foot race. Any stalling by depositary officials or brokerage firms may cause them to be the culpable party for not accomplishing everything by 4/30. We assume that all brokerage firms will learn of their respective allotments at basically the same time, although the Canadians will have to hustle. As the fog lifts day by day, we expect upcoming developments to come flying at us with increased frequency, so buckle up and enjoy the ride!
This committee foresees the need to get as many shareholders together in one place to strategize and further attempt to educate. We come from 7,300 different points of view, all of which should be entertained. There are some legal firms that would like our business in regards to our class action efforts, and we would like the shareholders en masse to listen to their sales pitches. There are some very brilliant people that badly want to ride our coattails on this one. One idea that was kicked around a while back was to meet in Las Vegas at The Rio after the stock first traded at 80 cents. If the stock first hit 80 cents on a Monday or a Tuesday, then we would meet on that weekend. If it first hit 80 cents on a Wednesday, Thursday, or a Friday, then it would be on the following weekend, to allow travel planning. Let's talk this up amongst ourselves and see what the consensus is.
Let's try to visualize what might happen in the next few days with a little luck. The Compliance Officers of the 158 different brokerage firms that own Medinah, having received some correspondence from the company a few days ago, finally sit down at their desk and wade through the details. The long Easter Weekend is over and it's time to get back to work. By now one of his subordinates has tallied the house position of Medinah and compared it to the allocation given them by the DTC. Let's assume the two numbers vary by 4 million shares. The subordinate would then be ordered to run the trades on the computer to see which market makers or clearing agents didn't make good delivery. Let's assume that market makers A,B,C, and D all failed to deliver 1 million shares each. Now this Compliance Officer just got notified that Medinah has just announced a 20% dividend on the record date of April the 30th. He now puts 2 and 2 together, and decides that his firm is clean as a whistle, and he doesn't want to get tangled up in this dividend fiasco, so he goes to work and orders the buy-in of 4 million shares of Medinah under a guaranteed delivery basis ASAP. He's got to get a cert into the hands of those pesky Medinah shareholders that have been so persistent. Let's assume that this scenario is playing out in brokerage firm #3 of the 158 firms. Just what does a 4 million share buy-in order under a guaranteed delivery basis look like to those of us with one eye on his business and the other on his computer screen following his investments. The frenzy in the market is noticed by the Compliance Officer in firm # 7 that just learned his numbers vary by 4 million shares also, so he immediately runs the trades to see who failed good delivery to his firm's DTCC account, and learns that it was market maker A in it's entirety. So he orders the buy-in of 4 million shares under a guaranteed delivery basis an hour after the first order went in by firm #3. Now firm #27 on the opposite coast from the other 2 firms, has an alarm go off that says that the Royal Bahama Bank acct. #12345's margin account just went deficient by $2.2 million. I think you can see the picture developing when everybody learns the same bad news all at the same time. The 8 million shares ordered to be bought in may take several days to finish up, the orders were probably accompanied by a note to make sure you have a fill by the close of business on 4/25. Now let's assume for a moment that this committee really isn't working out of an insane asylum, and there really is approximately 400 million shares currently short. What would 50 of these 8 million-share buy orders look like all stacked upon each other? Now you can figure out why we're putting in the 14-hour days on this project!
Once the first couple of houses of the 158 total brokerage firms does its buy-ins to balance the books, then the rest of the dominoes will not be far behind. Remember that shorting occurs in margin accounts that must be kept in balance, and that the brokerage firms that took these illegal short selling orders must protect themselves if this thing blows up in their face. It's awfully easy to ditch an account and go bankrupt. Remember also that there are legal implications out there, so a low profile is necessary. These firms don't want to get mixed up in failed dividend payments and shares becoming null and void due to missing deadlines. The "dirty" houses don't want to pose for yet another "snapshot" in time by missing any deadlines. The paper trail becomes very public when dividend record dates are crossed. The one timing parameter that is of significance deals with how long it takes a brokerage firm to run all of it's Medinah trades over the years to see which market maker failed delivery. We believe this explains the current lull in trading volume over the last several days (4/18-20).
Seasoned brokerage firm officials will be able to recognize that they are in the first phase of a short squeeze. "Dirty" brokerage firms will know that if they got caught, then they are not alone and dozens of other firms also got caught. So the race to cover starts amongst the brokerage firms. Any shares of Medinah Mining that miss the deadline of April the 30th and fall into the null and void category, will basically then add on to the short position, and have to be covered out of the open market. The DTCC, The Canadian Depositaries, and the brokerage firms may have to fight it out to determine who is responsible for missing the deadline. The company itself was very generous in allowing a full 60 days to accommodate the process, legally they could have ordered it done in 30 days. One point of extreme significance, is that at the end of the day, all 165 million "real" shares will be registered, with basically none at the DTCC. Nor will there be any there for a long, long time due to the people in line, about 5,400 of us, with our hand out waiting for our share certs!
One thing that really intrigues our legal guys is why the DTCC capitulated so quickly on the interpleadings filed by the T/A recently. It appears that David took out Goliath during the pre bout staredown in the ring. Our legal guys can't remember seeing this before. We believe that this bodes extremely well for the very immediate future, but we haven't figured out exactly how and why yet. Oh, to be a fly on the wall of Medinah's boardroom right now. It appears that somebody doesn't want to go through the discovery phase of any litigation process and have to expose what's been going on behind the closed doors. This move by the DTCC is very atypical. One theory is that the DTCC is still starry-eyed from the punch landed by Amazon NT recently, and when it came time to answer the bell for the next fight with Medinah, they went into a Roberto Duran "no mas" routine. Who knows for sure? The DTCC is making a genuine effort to let the truth be revealed.
This entire committee we have been building over the last dozen years or so is a total basket case right now. The geology/mining guys can't wait for Gordon to fly south and start drilling. They seem to think that the most recent petrographics indicate that the next hole or two will hit the big one. The legal guys have gotten the scent of something that intrigues them. The finance guys are frustrated because Les won't take their checks. Soon we should get further insight into the exact format that will be used by the 158 brokerage firms to prove ownership by their clients. This will then allow us to put together our plan to catch any cheaters, trust us there will be attempts, there is a lot of money at stake in this game right now. We've seen every trick in the book, and once we learn the groundrules being used between the DTCC and the T/A, we will point out which tricks are apt to be utilized. We have seen some reversing of the bogus electronic transfers made to date. This is good news in the short term, but we anticipate more later out of sheer desperation.
One of the main questions we have been receiving lately deals with what we recommend as an exit strategy. It's way too early to even ponder this, after all it took the shorts 4 and a half years to dig this hole. A lot of people sense an imminent run in the stock on the horizon. We do not make it a policy to coach people on exit strategies, but we will make a few comments on what we anticipate in the future. First of all, the members of this committee have a couple of hundred years collectively in the mining business. Over the last five years, the landscape has changed noticeably. The majors basically haven't spent any of their own money on exploration for all of these five years. Starting from a high of $160 million in 1997, domestic exploration expenditures by major companies in Canada had tumbled to $40 million in 2000. Similarly, Canadian exploration spending by junior companies fell to $52 million in 1999, from a high of $190 million in 1996. Outside Canada, senior companies spent only $220 million, and junior companies only $120 million, in 2000, down from highs of $425 million for seniors in 1996 and $460 million for juniors in 1997. The Prospectors and Developers Association of Canada, PDAC, President John Steele recently called the inability to raise exploration funds "a severe crisis". Majors must constantly add to their reserves, to maintain themselves as a viable entity. Due to this lack of funding, we see Medinah's Lipangue discovery as sitting out prominently amongst very few other discoveries having been made in this five-year timeframe. We see Medinah as a stellar take out opportunity, standing heads and shoulders above its colleagues in the junior resource arena. Consolidation has been the name of the game in the mining business for the last two years. Any prominent discovery gets snatched up quickly. Since these buyouts occur at a significant premium to the existing market price, no matter where it is, this is the target that we have set for those that are committee members and their followers. The only question yet to be answered, is whether or not the pressure put on the shorts to cover the hundreds of millions of shares out of the open market under a guaranteed delivery basis, will propel the share price past any reasonable level the majors could afford. It seems to us, that if a major mining firm is going to figure into the equation, then it would have to be sooner than later. Six or seven major mining firms that have shown the ability to act sooner than later immediately come to mind.
Continued..... |
