GREAT ABRX ARTICLE:
This ABR Information Services (ABRX:Nasdaq) situation stinks to high heaven. All day today I heard a ton of innocent explanations of why a stock worth no more than $25.50 closed at 90 Wednesday. Someone said it was a Russell 2000 rebalancing gone awry. Another guy said that someone may have gotten wrong advice about how much ABRX had to be bought at the close. I suggested that perhaps someone bought the wrong company and got the symbol mixed up. I have seen all of these happen before.
But I now think all of these innocent theories are wrong. I think there may have been some chicanery here. I think that not because of the way the stock went out on the last day of the quarter but because of the way the stock was trading all of this week and some of last week. For weeks this stock had been trading at its intrinsic value of 25.5, the amount Ceridian (CEN:NYSE) intended to pay you if you owned one of the 400,000 odd shares that weren't already tendered, for a couple of weeks. It was a foregone conclusion that it should never trade higher.
It then began to rally suspiciously on June 23, when it traded at 25 9/16 on 1000 shares. That's a teenie more than the company intended to pay.
Now, get this: The stock went out at 26 on June 24 on 3400 shares, and then spiked to 26.75 on June 25, on 20,200 shares. None of that buying makes sense.
It is entirely possible, right then, that someone saw this stock trading unnaturally and realized that you might be able to sell the stock short at that price, expecting to cover at 25.5 This would have been an illegal short, in that you could not borrow this stock. You could not get a locate, something that has to be done before you short a stock if you don't want to violate the law. (You could not borrow it to short it because all of the stock that was in the vaults around the Street had already been tendered and the rest was not in a margin account and could not be let out.)
Then on June 28, the stock explodes to 27.5 on 52,200 shares. Now, there can be no innocent explanation for that action. Who would possibly pay that much for something unless he deliberately wanted the stock higher for some purpose? Everyone who bought that day at that price could expect to lose $2, as you were guaranteed no more than 25.50.
It gets worse. On June 29, the day before the ridiculous close, this stock traded to 29 11/16, on 28,300. That's ludicrous. As Nasdaq stocks are double counted, that's really only 14,150 shares that were bought, but every share was bought stupidly, unless, again, you wanted to take this stock higher, purposefully.
Of course, we all know now that the stock went out at 90, on huge volume, 273,500 shares, but the commentators made it out to sound like this was a last-minute splurge. This stock had been going up all day. People had been nibbling on the stock in the 30s all morning, which, again, is just as preposterous as 90 when you think about it. Thirty thousand shares gapped it to 60 with 10 minutes left. Another 10,000 shares in different little pieces then took it to 90 at the bell, where the notorious 87,000 shares traded in two lots after the close as well as several thousand other shares at that price. None of these buys made any economic sense either.
This simply could not have been an error. That's a pattern of persistent absurd buying.
Now, let's craft some sinister scenarios. Let's say you are a performance fund and you aren't doing so well. You chose not to tender your stock for 25.5, and then, for a minimal amount of buying pressure you walk this stock up systematically for days before the end of your quarter.
You then blitz the stock up in the last half hour. Your position rises in value immensely because of a small amount of buying and you get credit for a giant gain. That's a huge hit that could mask some other big losses.
You have the whole next quarter to make up for the loss that you may have generated.
You may have been able to work with a friend, someone complicit, who knew to short it to you all of the way up in the last half-hour, so he could make a killing the next day when you walked away and the stock plummeted back to its natural level. You could work out some sort of illegal sharing arrangement with that short-seller to recoup some of that gain.
Here's another explanation, less sinister, but still with a culprit. Someone might have seen the action leading up to the 90 trade and said, "hey this is ridiculous, I am going to go short this over-rated stock."
Each day the stock goes higher, perhaps because someone wants it higher (first example) or perhaps because someone, wrongly, thinks something is going on. The short-seller can't find any stock to deliver (you have to provide that stock, which usually comes from stock loan) and he gets a buy-in notice. He frantically tries to buy back the stock paying absurd amounts, as the stock loan department that needs to deliver the stock to the buyers keeps threatening to buy the short-seller in. (That means go into the open market and buy the stock.) The stock doesn't come down and he fails to cover.
The short-seller stalls and stalls until this Wednesday when, finally, after the close, the firm that is supposed to deliver the stock just goes in and buys it at any price, which in this case is 90. The short is forcibly covered for a brutal loss. The short-seller has no choice. That's how buy-ins work.
The culprit here is the firm that did the buy-in. It is possible that the buy-in firm told one of his buddies, or his own desk, to get the stock in at all costs. That desk then ripped the short-seller's eyes out with that $90 trade, and covered this morning much lower. What a huge profit. (Remember 90 minus where you bought the stock back -- somewhere in the 20s, equals your gain.)
Does stuff like this happen? Heck, I had it happen to me. I was part of a brutal buy-in once for the old National Community Bankshares in Rutherford, N.J. I was short it at the time of the S&L crisis. I thought it would go bankrupt and I would not have to cover. One day I got a call from my firm's stock loan department saying that they could not find any more National Community shares to lend me, and that the firm that I had sold the stock to was threatening to do a buy-in in order to be able to deliver the shares I had sold. I stalled for days and days hoping the stock would come down and I could buy it in myself. But it started running up, as it is usually widely known when a short squeeze gets going. (People talk, stock loan departments talk.)
I watched in horror as the stock which I was short about 35,000 shares jumped from 14 to 17 in a matter of two days. On the third day, a big piece of stock, 35,000 shares, traded at 19 long after the market had closed. I had been bought in, unbeknownst to me. I saw the report that I had bought 35,000 shares on my run the next day. (You don't even get told about a buy-in until after it is done sometimes.) I was livid. I still won't talk to the guy who did it to me, and this was 10 years ago. They had paid 19 for me and I took a huge loss. The stock immediately dropped to 15 the next day. The seller of the shares was the desk that did the buy-in. They made four points on their short overnight.
I suspect that something like that may have happened here. Either the seller made out like a bandit (scenario two) or the buyer was a premeditated bandit (scenario one).
This situation demands an investigation. There was nothing innocent here. The Nasdaq and the SEC should be getting all of the trading records of people who traded this stock and be raising some questions. Right now.
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