I followed Gandalf Technologies for some time last year. After they declared bankruptcy they were delisted from the Toronto Stock Exchange, and moved to the Canadian Dealers Network for a while before being removed from there, too. Quite some time later (a couple of months?), they were removed from their regular NASDAQ listing. Then they traded on the OTC-BB.
After delisting, and moving to the NASD bulletin board ("OTC-BB"), Canadian Dealers Network ("CDN"), or pink sheets, you can probably expect a drastic reduction in liquidity.
With Gandalf I saw bid-ask quotes of 1 cent bid, 10 cents ask (I forget if this was on CDN or on OTC-BB). These appeared to be pretty rigid "dealer markets", in that customer orders were not publicly displayed. It appeared to me that your _only_ choice was to either buy at the ask or sell at the bid.
IF ANYONE CAN ENLIGHTEN ME ON HOW THE OTC-BB or CDN WORKS (w.r.t. customer orders), I WOULD APPRECIATE IT! (sorry for yelling....)
In the case of Gandalf, it was evident to me that the common stock was completely worthless (the company was being liquidated, and the unsecured creditors were not full covered. There was no way that there was going to be anything left over for the shareholders).
It took a long, long time though for the thinly traded and illiquid market prices to come down to "zero" (by this I mean well under 1 cent per share).
I never was able to get a straight, official answer from my broker to the question, "What happens to a client's short position when the stock completely stops trading?" They must have thought it was a theoretical question,without a great deal of urgency, or perhaps they did not want to admit what happened - anyhow, they never did answer me.
I have read on SI a bit of a mini-horror story of a real-life small investor going through over a year of hassle with his brokerage w.r.t. this situation. I've also read the golden "shorts to zero never pay taxes" story (this was before the recent change to US tax law). Discretion being the better part of valor, I was anxious to find out the true story - unfortunately, I did not.
In theory, one ought to be able to purchase shares without the assistance of a broker (put a want ad on the Internet). However, people who have lost 100% of their investment might not take kindly to selling their shares for some nominal amount to a short seller, to help the short seller get out of a bind. So perhaps this is not a practical means of obtaining shares....?
I have no idea how bad PAMCE is, whether it is worth "zero", or simply "a whole bunch less". Perhaps no one knows until they issue their 10-K?
If you feel that the shares are worth far, far less than $4 per share, you might consider taking a very patient approach to covering your short position. Depending on how your broker's margining works, it might even be worthwhile holding your position into the next tax year, or possibly even longer (this would depend on the amount of profit your position has, and the tax consequences of realizing your gain this year vs. next. Also, whether or not the shares become "substantially worthless," and you are forced to recognize the profit).
Even if you decide to cover this year, you might be able to get a much better price if you are willing to take two or three months to cover.
FWIW.
- Daniel |
