Excellent post - hope you don't mind my bringing it here
To: Jeffrey S. Mitchell who wrote (101346) 11/15/2007 10:16:29 AM
From: Hawkmoon of 101442
Yet apparently you think it's OK for Byrne and his mega-million dollar father to buy boatloads of OSTK stock in order to effect a short squeeze?
Jeff, I don't normally get involved in this discussion about OSTK (don't own it), but I have to ask something..
Since when is insider buying by corporate officers of their own stock "manipulation"? Does that mean that all insider buying should be defined as such now? Clearly not..
Listen.. pricing mechanisms in ANY market are based upon supply and demand. There is supposed to a quantifiable amount of a marketable item and buyers and sellers negotiate with one another via direct or indirect bargaining to determine the value of that item.. in this case the price per share of a stock. Naked shorting represents an attempt to artifically increase supply of shares by the counterfeiting of shares in hopes of flooding the market and diluting the value of the stock.
It is FAR DIFFERENT than using an available pool of money to initiate short positions based upon existing levels of margin positions by longs "juicing" up their positions. That is what shorting was created to resolve, to stifle any market distortions created by longs borrowing MONEY (not stock) to increase their positions. Thus, the level of short positions in any equity should match the level of margined stock. It should NOT be permitted that institutions loan out stock that is not currently in a margined state (purchased with borrowed money) even if that stock is held in a margin account. I seldom use margin, but my stocks are in a margin account and thus institutions, against my will, count my stock as "available to be loaned" to shorts.
At it heart, naked shorting represents the sheer power of money being used to create a form of "printing press" for shares to be sold to other people. And it's gone FAR BEYOND merely providing mmkrs the means to maintain market liquidity. If the naked shorts invest enough "seed capital" into their printing press operation, they can make their counterfeit stock currency replace the market for the actual physical shares (eg: Global Links which traded hundreds of millions of shares the day following the purchase of 110% of all of its outstanding shares).
Regardless of whether a company is a scam or not, the stock market is SUPPOSED TO BE BASED upon supply and demand for the physical shares that exist in that specific market. If foolish investors bid up the price of a scam company, existing holders of that stock will sell it to them at some point and market forces and fundamental analysis will correct the imbalance.
So, in sum.. when Byrne and his father purchase shares of their own company, they are risking their own capital in the belief that their shares are undervalued (either based upon fundamentals or market distortions). If the fundamentals of the company do not improve, it's likely their purchase will not result in a profit.
But let's just theorize for a moment that they purchased to create a short squeeze. What of it? There could be NO short squeeze under normal circumstances if a market distorting short position didn't exist in the first place. The Byrnes cannot be blamed for creating the market distortion represented by the naked short positions and their pool of money used by the shorts to maintain it. So if they create a positive pool of money (their own) to resolve the distortion, I see no problem with it. All if represents, IMO, is a market correcting mechanism to resolve the distortions that have been permitted to occur in the trading of OSTK's stock.
One other point:
If anything, I think the complaint will provide a blueprint to the SEC for their Byrne investigation. That's what I would fear most in the short term if I were him.
The SEC can't really be involved in accusing them of "manipulating" their stock until they actually sell. Safe Harbor provisions protect the management against forward looking statements (unless base upon fraudulent premises). The minute the SEC starts investigating insiders for making open market purchases of their company's stock is the day people had better starting stuffing cash in their mattresses.
Hawk |
