TO ALL::::: Here's something I found on another thread.. very interesting.. please read it ALL.. it will help you understand
what's going on with PKGP and the short position. Even though we
aren't calling in our shares.. they WILL BE CALLED IN by the Transfer
Agent come July... then guess what happens!!! SHORT TRAP $$$$$$$$$
That is of course, unless many of you decide to give your shares
over to the MM's... if we hold and stick together (albeit locking
in SOME profit along the way.. and maybe even buying more back later)
we can beat these MM's! jim
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Undeclared Short Selling
Introduction
Many dynamic growth companies have been damaged by undeclared short selling. This practice consists of creating stock that doesn't exist or borrowed (as is the legal requirement) and subsequently sold in large amounts in the open market creating panic
selling and decimating share prices, where they hope to buy the position back at lower levels (creating a profit for the short seller).
Declared Short Sellers
Declared (legal) short sellers are institutional money managers and fringe group market professionals, not small capital public investors. Their positions are reported publicly on
a regular basis, and these individuals must borrow the shares before taking on a short position. They must also typically deposit 50% of the value of the short as a margin deposit. From whom do they borrow? Read the fine print on your margin account
agreements and you will see it is YOU! This is a perfectly acceptable, legal and ethical investment strategy - just like in commodities you have some folks betting on higher
prices, others betting on lower prices in a controlled, disclosed, and regulated environment.
Undeclared Short Sellers
Undeclared short sellers don't borrow the stock they are selling. They (in most cases) don't even have to pay the margin requirements for their position. They are betting on (and trying to create) total failure of the public company. The odds of failure in small
business are better than 98 to 2.
There are many ways a public company can confirm an undeclared short position in their stock. One way is to use the response to the company's annual general meeting. The company can add the issued stock (IS) and the short interest (SI). The sum is the
stock available in the company's market. Now add the known shareholder positions (KS) and the street stock proxies (SP) If the (KS+SP) sum is greater than the (IS+SI) sum, you have an undeclared position in your stock. Most street stock owners (held in
street name at a brokerage firm) don't even submit proxies. You can estimate the size of the undeclared short position by multiplying the stock proxies by 1000. This assumes 10% of the street owners submitted proxies (an estimate, by the way, which is unusually high). When public companies do this comparison they often learn they have 3-7 million shares short and undeclared.
The limiting of access to undeclared short selling was supposed to be the Equity Reform Movement but it hasn't limited the practice. It excludes most retail brokers, newsletter editors, money managers and anyone on the fringes of the internal working of the
market. Undeclared short selling networks include a few powerful market insiders, a couple of politicians, and a few financial powerhouses. Their motto: "You can never sell too much stock." It is estimated these individuals gross over a billion dollars annually,
making it a very big business.
How Can Undeclared Short Sellers Create Nonexistent Shares?
The trading system is responsible for some of it but most nonexistent stock comes from offshore tax havens. It is impossible to trace the beneficial owner. The nonexistent stock
trades several times and comes to rest within the control of the undeclared short selling group. Undeclared short sellers have enough power to force the company to issue more stock, if necessary.
It works because the trading system lacks closure. The monthly brokerage house account statements aren't tied to specific shares issued by the public company. The client account statement is a "claim" of sorts on shares. It does not represent actual
ownership of share certificates. You end up with an open-ended option on the stock you buy - and no actual ownership. Nine times out of ten your brokerage firm loans your shares to the shorts (short sellers) on settlement day!!
So, What Do I Do Now?? (Complaints to regulatory agencies)
Though it sounds good in theory, complaints to the so called "experts" who regulate our financial markets have proven to be completely useless. The problem is simple: Lack of
knowledge on the part of the regulator. You would be hard pressed to find anyone versed on undeclared shorting with the SEC itself let alone the NASD (who oversees NASDAQ and the Bulletin board) who are "association police" with no real legal power
and virtually no transactional knowledge. A complaint to the NASD would probably result in them attacking the public company and the legitimate brokers who bought the shares for their client -- they would attack the victim rather than the culprit.
A Short Trap
The term "short trap" refers to backing the shorts into a position whereby they must cover (buy back the short position in the open market). The only effective way is to demand delivery of all of the shares currently held in street name. This must be done by
the shareholder. The problem is that most brokers are brainwashed to believe that if the shares are not on account at their brokerage firm they are gone forever and the commissions generated selling the shares will go to somebody else. One possible solution is a
large buyer (sometimes as much as 10% of the float) who will demand delivery of his shares.
The Good News (Is there any?)
The good news is that is the trap is effectively enacted the short will HAVE to cover the position. This can, in some cases, take a $.50 stock to $15 or $20 a share - creating huge liquidity for the company and make the shareholders rich. (20-1 returns are not uncommon) Some of the most successful stocks on Wall Street are a
result of an effect short trap.
Example: Presstek (PRST) -- this was a $20 stock that made shareholders a five banger when a major promoter brought in some large players to bust the short.
The Only Real Protection
The only real protection: education of investors! Demand delivery of all shares you buy!!!!
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Trading thin stocks...
is an art form, some say! All we know it can be frustrating, but a stock
that is extremely thin (moves on buy and sell orders) can make those large percentage
moves with very little effort. It's kind of like a hockey puck on the ice - a good shot can
seriously propel it.
How do I do it?
Why does my order in between the bid and offer never get done?
What can I do to make my broker fill my order?
If you are asking these questions, chances are you are in a thin stock.
There are some basic strategies used by market professionals to buy these stocks. The
first is "scaling in". Let's assume you wanted to buy 20,000 shares of a stock that is thin,
and trading at $2.5625 bid, $2.875 offer.
You would run 2000 at the market and see what happens. Worst case scenario you
move the market an eighth or quarter (they have to sell you 500 at each
price) and you wait to see if some selling comes in. If it comes under some pressure, run
another 2000 shares at the market. Do this over a period of a few days - not hours -
and you will get the best (and easiest) fill possible.
Another popular way to trade a large block is to break it into pieces -
20,000 looks like ten orders of 2000 to me. This allows you to see how the
market is reacting to your orders - give it time - sellers or buyers will
eventually show up to fill your order. And use a market order - or you
might never get done.
Another is "buy it and bid it" - this is nicely suited for the investor who
only is looking to pick up 5000-10000 shares. If I was looking for 5000, I
would go market on 2500 and then put an order under the offer for the other
2500. Example:
I buy 2500 at $2.875 and the market goes $2.75 by $3..
I put a day limit in to buy 2500 more at $2.875 (half way between the bid
and offer)
Under 5000 shares, our feeling is you are much better off just buying the
stock (market order) - never try to "Catholic" the trader out of 1/8 of a
point on a stock you intend to double or triple your money in - it becomes
an exercise in futility. Plus: nine times out of ten if you try to screw
the market maker out of a slice, you just will get a polite "nothing done".
I know, I know .. many of you ALWAYS say "I hate market orders" - and it is
true that one time out of four you completely get hosed, but you are
guaranteed a fill - this is important.
Lastly: remember that a market maker is not obligated to fill your limit
orders - even if they are priced at the current offer. Priority goes to
market orders - this can literally put your order in front of some goof who
has had a limit order in for three months..
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