To all: sorry, but I kind of got off to a late start today. Let me offer a short discourse on some of the machinations that are employed in the Penny arena: in the true sense of the meaning of "shorting" a stock, very few MM's or insiders take such a step. Usually, when someone "shorts against a block" it implies that they are actually stock they do in fact own; but, for whatever reason, they cannot legally sell. For example: a small company needs to raise capital so the go to some financial consultant. That financial consultant places a large blk. of the company's stk. somewhere, thereby raising some money. For that service the financial consultant is entitled by law to take up to 20% of the amount of funds they raise. Also, the financial consultant back-charges the company for their services. Usually they are paid in stock, at a very deep discount to the current price. In the case of UMSI and Select, one could envision a transfer of about 500,000 shs. at a price of somewhere around .10. Now, this stock carries a legend (or letter), meaning that it is not supposed to be sold for a certain period of time. However, very few financial consultants are willing to wait to get paid for their efforts; or, for that matter, gamble on the price of the stk. going up (the old one in the hand theory). So, what they do, is "short against their block"; or, sell shares that they do actually own, but early than they are supposed to. The only way for them to get caught is for someone to request possession of their shares (which hardly ever takes place).
In answer to Art C: because these people actually do own the stk. their selling, it can never be construed as a short position. Also, anytime you open an account with a broker, you sign a broker's agreement form which permits the brokerage house to use your stk. as they see fit. Very few, however, will loan your stk. to be shorted; unless they are blue chip shs., in which event they might.
In answer to Jonathan N: the SEC is normally indifferent as to how many extentions will be issued. Remember, filing these forms for a BB company is voluntary, and they are usually quite flexible. At least that has been my experience.
In answer to Rod and HG: even though we have purchased the shs. , the only way we would know if we have purchased Reg. S, or lettered shs., is if they couldn't be delivered. If they cannot be delivered from the seller to the buyer something is wrong. Keep in mind that the broker or Market Maker is merely a middleman. Many times they will know what is going on, but will look the other way. As they are all insured by the NASD, and know that we (as purchasers] know it too, they feel secure that paper transactions will suffice to satisfy us. That is why when people began talking about Cartels, they fight tooth and nail; alleging attempts at price fixing etc.. If you think that's wrong, just check out the EUTO fiasco here at SI. The company itself filed suit alleging that almost 500 posters here tried to form a Cartel to fix the price of the stk.. The broker then filed a cross suit, alleging the same facts. I feel certain, though, that in the long run, when all the facts do come out (which will take years now that it's all in a civil forum) that the company and the broker will be caught selling lettered stk.. Read the last 6 months of posts and you'll see what I mean.
Other than that, the vol. continues to astound me, but it is very to see. You are right, I think this stk. has seen the bottorm; now we just need to hold on for the ride.
GeneM |
