MDHM - COMMITTEE REPORT TO THE SHAREHOLDERS OF MEDINAH
ragingbull.altavista.com.
This paper will represent phase one of a 4 part educational program to bring the shareholders of MMI up to speed on the subject of short selling and its consequences. This committee feels that education is the single most important weapon to combat short selling. Actually the art of short busting has 5 main phases. Phase 1 involves the diagnosis of a large short position i.e. is this company really under attack or does it have a weak management using a short position story as a cover-up. Phase 2 is the census, it is ongoing constantly, it really never ends. Statistical accuracy is enhanced with each shareholders interviewed. Phase 3 is the registration phase. Phase 4 is the market phase and phase 5 is the litigation phase. These phases overlap quite a bit, the census, phase 2 is used to confirm phase 1 the existence of the short position.
The committee is currently in its eighth week of conducting a census of shareholdings amongst the 4,200 plus shareholders of MMI. To date the committee has successfully interviewed 24% of shareholders finding and delineating 168.6 million shares amongst those interviewed. The total amount issued and outstanding currently is approximately 125 million shares. Thus 43.6 million shares have been unmasked as being sold short. The total short position would thus be this 43.6 million plus the holdings of the other 76% of shareholders. If each of the remaining shareholders not interviewed yet holds a mere 50,000 shares each, then the accurate total short position would be approximately 211
million shares. A well-executed census is the most accurate indicator we use. Our thanks go out to the 20 canvassers.
We've identified about 50 different classical signs of the presence of an inordinately large short position in a company. These can be subdivided into two categories; those that increase in intensity with an increasing number of shares sold short- the elastic type, and those that are inelastic and not proportional to the short position. The elastic type can be utilized later after computer-modeling
techniques are used to augment the accuracy of the share census. Some of the bellwether signs of a large short position include:
1) Internet bashing. Basher's persistence is proportional to the size of the short position because of its high expense. Corporate assassins command a very good wage because of the risk incurred- especially with the SEC bearing down so firmly lately. Medinah's 20 or so bashers have pretty much been putting in 18-hour days for three years straight. We keep files on bashers and don't readily recognize these
"gentlemen", but they are better than most. We're used to dealing with the unemployed brother-in-laws of short market makers. Bashing is an elastic indicator that in this case would point towards an enormous short position. They've spent a fortune.
2) Lots of crossing of shorter's shares at month end (from Mr. Short's left hand to his right hand.) This is usually accompanied by a handy downtick at the end of the last session of the month because the short player's margin account is marked to market. A low close means they don't have to dig into their pocket to make margin. A real low close means they can go even further short. This form of market manipulation has been a common occurrence on Medinah's shares.
3) "Lending at a premium"- DTC charging a premium to loan MMI shares. This is an objective measure of how tough certs are to get a hold of. Medinah's shares just crossed over into this category last week. This is a by-product of the registration effort. A very trustworthy indicator that is of the elastic variety.
4) Down tick at finish of session= "painting the tape" on non-month end days. Especially prominent with a lot of false volume or market maker's playing catch and cranking up the volume. The illusion is of the company being down on big volume (painting a negative picture). Volume changes are the domain of the market makers and are utilized constantly to paint the picture they want painted.
5) Attacking positive press releases-this is a favorite technique of the mature shorter. The intent is to demoralize management and shareholders. Shareholder frustration has a tendency to follow these attacks.
6) Lots of offerings of financings from friends you didn't know you had- always needing free trading shares (Wolves in sheep's clothing), instead of the more common Rule 144(12 month hold) shares. Management is averaging several of these per day. Also an elastic indicator indicating enormous size. These are particularly transparent in that these financiers are offering millions of dollars to a mining
company and they have never asked to see any of the technical reports done by the premier mining consultants in the world(ACA Howe). Nor have they made any site visits with their geologists.
7) Heavy involvement of Canadian Broker/Dealers. They serve as the conduit.
8) Lack of printing of executed orders- no volume shown despite confirmation of buy. Termed "desking" of orders- usually either the market maker shorted it or a low profile smaller broker/dealer. These people will actually cash the check on the buy side and pray that the company goes bankrupt. This occurred about 18 months ago to a buy order from a group of wealthy Chileans who collectively bought ten million shares. Not one share printed as volume. This occurs especially to "offshore" buy orders, i.e. tougher to follow the paper trail. One prominent broker/dealer on Wall Street is famous for doing these and lo and behold was the perpetrator on the Chilean order. A successful "desking" short has the added advantage of no tax consequences to the shorter if the company goes bankrupt. There is no need to complete the "circuit" by buying the shares- the company is bankrupt.
9) Lack of covering in "mature" or long lived shorting campaigns. People always ask why don't they just cover at seven cents and take their win? It's not that easy. The Medinah "bear raid" is a very long-lived event. Usually the shorts can kill a company within 9-12 months. They were unsuccessful in doing this. To their credit they have driven the share price down from $2 to 5 cents. Now that the short position is extremely large covering becomes very expensive. We see the shorts as scratching their heads
wondering why these Medinah guys are so persistent. Their biggest enemy is the registration effort. This brings up a point that should be made. This committee has collectively taken part in dozens of short busting assignments. We have never, however, seen a more dynamic group of shareholders digging in and helping out with the census and registration effort. Our hats are off to you. We probably shouldn't admit this but this will probably be the easiest campaign we've had in a long time. The advent of the Internet, although a mixed blessing when you consider bashing, has enhanced communication channels, which are critical when fighting any kind of war. We feel that the education of the shareholders is the best weapon in this war.
10) Utilization of "Shaking of the tree" techniques. When the shorts or the market makers or both see weakness on the buy side at any moment they will all pull their bids in unison. They will then print a trade at a ridiculously low level to instill panic. This trade will always, however, be only for the minimum of 5,000 shares. This technique is actually very helpful to us because it tells us which market-makers are working in concert. The print out on paper of the activity also looks good in court later as it shows
complicity. One caveat, however, is that this technique is also used in nonshorting situations by market makers.
11) Another indicator occurs when a prolonged period of time is needed to get delivery of your ordered out certs. The longer it takes, the larger the short position- an elastic indicator. Whether or not your broker/dealer is short is also a factor. The further along the registration drive gets (on 10/31/00 there are 51 million registered) then the slower the delivery will be. What happens next, the beginning of phase 4-the market phase, is almost magical. The registered number of shares seems to hit a certain magic
level wherein a tsunami occurs. It's almost like a light switches on and all the short sellers figure out at the same time that their goose is cooked. Management's phone will be ringing off the hook with offers for financings at ten times the current rate. Brokers will pledge that if you let us off the hook now we'll go long the stock 10X the amount we were short.
12) One of our favorite indicators is how fast the registration drive can go from "zero to sixty". What we
mean is how fast does it go at its inception. For example, pretend Medinah has a billion share short position. The canvassers would have 1.125 billion shares (125 million real + 1 billion fake shares) to go after to get registered right from the get go. The registration process should come flying out of the blocks quickly as did Medinah's. We just got going on Medinah's and were already at 51 million. The
exciting part about registration efforts and hitting the magic number is this: lets assume that Medinah's magic number is 70 million shares and lets further assume that the accurate short position is 300 million shares. All we have to do is register 70 million out of (125 million +300 million) 425 million shares "owned" is 17% of the shares "owned" to cause the tidal wave of buying. What we take advantage of is the fact that the shorts don't know how many shorts are out there before they start shorting. Their group may have joined 20 other groups already with huge short positions. They can't take a census like us, besides they're probably short 50 other companies at the same time and are very distracted. We can concentrate 100% on strategizing against them, but they can't do this to us. Some of them don't even know we're in the mining business. This indicator is highly elastic.
13) Another sign of a large short position is the occurrence of threatening phone calls demanding officers and board members quit or else! In Medinah's case there was a huge wave of these about a year ago that caught the attention of all of the authorities. It went all the way to the phone tap and use of bodyguard phase. Just recently this activity has rekindled. This is an elastic indicator in a subjective
sense. People don't make death threats when they are short a thousand shares of Medinah. The cost/benefit ratio doesn't pan out. Why risk jail time for a $50 loss. If a short seller stands to lose $10 or $20 million then it may push some people to this type of behavior.
14) Yet another sign is the use of tortuous interference in disrupting business activities. This can be in the form of trying to kill financing opportunities, or disrupting certain auditing procedures, etc. It could even take the form of inciting local landowners into blocking access roads to mining properties to thwart progress on drilling. These types of activities have been utilized against Medinah for approximately three years. The fact that certain legal firms were utilized tells us that some serious money was spent further pointing towards a large short position.
15) The Canadian brokerage community which has been identified as a key component in the shorting equation uses several different methods of aiding and abetting shorting activity. Medinah has found its name on several internal memos wherein a brokerage firms ask its brokers not to buy the stock. These blackballing lists circulate through the brokerage community in Canada as a form of a "call to arms"
indicating that a brother brokerage firm is in deep trouble. The problem with using these is that they always fall into the hands of compliance departments loyal to Medinah and thus get snuffed out quickly. In the words of the head of a compliance department of a prestigious Canadian firm who was interviewed just last week, "In all my years I've never seen the shorts go this far before, I really have seen it all now". The paper trail is always helpful in the phase 5 litigation also. All of these different signs serve as pieces of the overall puzzle. Once these subjective signs have been documented and categorized, then computer models can be utilized to fill in the missing information from the census because it is never possible to get through to more than 60% or so of the shareholders. The quantifying of the short position is ever important because it alone determines which of the myriad of battle plan combinations to go with. Shorting battles have been happening for a hundred years. Why do they pick on the OTCBB and pink sheets? There are three main reasons.
1) No cops on the beat- the pinks are a pain in the butt to the regulators. 90% of the skullduggery occurs on these easily manipulated exchanges. The regulators almost encourage it, one less pink sheet company is OK with them.
2) The shorters know the statistics-80% of pink-sheeted companies fail. But what the public doesn't know is why. Approximately 20% of pink-sheeted companies are scams; another 40% have ill conceived business plans with semi-good management behind it. Winning 6 out of 10 is a good batting
average. But the act of shorting itself adds probably another 20% advantage to the shorts, giving them an 8/10 chance of success. Not bad. Mining companies have their own set of statistics. Perhaps one of 80 junior mining companies will make it to the big leagues. Most get snuffed out with their first "duster" or bad drill hole. When you combine the mining stats and the pink sheet stats you can see why they
picked on Medinah, especially in this post Bre-x era.
3) The recent mandate to the 6,500 companies on the OTCBB to become fully reporting or head to the pinks was just too good to be true for the shorters. They were monitoring the companies with an "E" appended to their symbol as well as their deadline dates to tender audited financials. Companies with an "E" that still appeared that were with in a week or so of their deadline date were obviously not going to get it done in time. The shorts opened up with both barrels, knowing the stigma of being on the pinks was to their advantage.
As most of you are aware the short battles have a tendency to be very explosive. Shorters have a window of opportunity within which they must kill the company. We feel that this window is basically shut. It's too late to cover now without a lot of bloodshed. Buying 200 plus million shares out of the open market on a "guaranteed delivery" basis would put the stock into orbit. These scenarios historically have two main paths that might be taken. The first is an "open auction" short squeeze where the shorts are so pressured by the registration effort that they get "bought in" by the broker dealer through whom they placed the short sale. The broker dealer must give that shareholder the cert that he bought and is now demanding. It's the law! He has a license he cannot jeopardize. The shareholders or the company or both may then go after another chunk of flesh in the courthouse. The second route is a negotiated settlement between the broker and the company. The brokers are on the hook to deliver the cert. They will wave a white flag to the company and sit at the negotiating table. The NASD will have them sign off on their famous "we didn't do it, and we won't do it again" paperwork. This "negotiated settlement" will
indemnity the shorts from any litigation. Any negotiated settlement would have to be at a level that guesstimates where the short squeeze would have brought the stock and what the litigation may have provided to the shareholders. Otherwise it would be smarter to take the gloves off and go at it in the market and the courts.
Medinah is in excellent hands as far as their choice of legal strategists. Legal precedence, as recently as 10/3/00, has paved a way for Medinah to advance quickly should litigation be the choice. Many of us have sat in the audience while your president lectured to us on how to get a project done correctly "by the book". We may even get a little help from the regulators who are doing a little saber rattling regarding shutting down the Canadian shorting conduit. We'll see if they perform or not. Illegal short
sellers rely upon four main "soft spots" in the system to create their niche.
1) Broker/dealers on the buy side rarely follow up to determine if the people they bought shares from made good delivery (3 days). Instead there are zillions of IOU's flying around in cyberspace. It's too time consuming and it doesn't pay financially to follow these up. Those "darn" discount brokers can't do it while charging $8/trade, and the full service brokers have to cut back on services to remain competitive. If they would follow up and monitor delivery the shorts would be out of work. Pay attention to
developments on Capitol Hill in this regard. Some politicians with a backbone are going to work for us. This whole business of renting out our certs to shorts is EXTREMELY lucrative to the brokerage houses.
2) Market makers hide behind NASDAQ Rule 3370(b)2B. Wherein they can legally go naked short in the "NORMAL" course of making a market. This is one of those "letter of the law/spirit of the law" issues.
3) The Canadian broker/dealers have more lax rules, they are "offshore", they have 1/10 th the population base to derive an income from, and the long arm of the law (used to anyway) have trouble reaching across the border.
4) The DTC and its role in acting as a "lending post" coming to the rescue of its member brokers when they're in trouble. The "good old boys network" is alive and kicking at the DTC.
This wraps up our first of 4 reports. For now, join the census by calling 1(800)547-9375, please register all of your certs including retirement plan certs, and keep in close communication by giving Russell your fax number or E-mail address. We recommend a 3 pronged approach to registration of shares:
1) Fax your broker demanding registration and home delivery of all certs. Ask for written confirmation that they received the fax. Ordering out "splits" or several lower denominated certs is advisable, this way if you need to sell a little bit you won't have to deregister all of your holdings.
2) Should this be nonproductive after 10 business days, send a 3-day demand note via certified mail with the same instructions as in #1 above.
3) Should this fail go to your State District Attorney and file charges against your broker. Bring the most recent month end statement. Some states will reroute you to the state securities commission.
Always keep in mind that we are in a state of war with these people. They are trying very hard to drive our stock price to zero. There are no tie games, one side will win and the other side will lose a lot of money. Get angry and stay angry. There is a 100% chance of us winning if we just be unselfish with our time and register our certs. It's that simple!
Disclaimer: This in no way is to be construed as a solicitation to buy securities, it is an educational piece only.
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babe':)) |
