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Strategies & Market Trends : Roger's 1998 Short Picks
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To: Alan Newman who wrote (4695)3/10/1998 4:32:00 PM
From: Bill Wexler  Read Replies (1) of 18691
 
In this type of scenario, the following happens.

You have one or a few large shareholders with a lot of stock to get rid of in a scam company (Zitel and Zonagen would be perfect examples). These shareholders may sit on the float while the stock is being falsely promoted. In the meantime, they may also lend out stock to suck in short sellers. If the hype is successful, and enough retail interest is generated, short sellers may begin to cover and the large shareholders may exacerbate the situation by calling in stock, or selling small chunks over a few days, weeks or months. What's interesting is that every time the large shareholder sells that small chunk, he will automatically call in stock that has been lent out. Therefore, the short seller covers at a higher price, the price of the stock is propped up or even goes higher...attracting momentum investors and more small retail buyers, etc. etc. This is why executives at scam companies will often place their shares in margin accounts long before they decide to sell out.

Ultimately, the large shareholders run out of stock or prices become unsustainable...at which point there is a very rapid price decline. this is a "pump and dump" and is a common practice among scam companies.
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