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Microcap & Penny Stocks : Naked Shorting-Hedge Fund & Market Maker manipulation? -- Ignore unavailable to you. Want to Upgrade?

To: The Ox who wrote (1831)	10/1/2006 2:13:35 PM
From: rrufff	Read Replies (1) \| Respond to of 5034

Short Sellers Swarming Avanir’s Stock, Driving Down Share Price Controversial Traders Playing on Fears, Rumors to Generate Profits By KATIE WEEKS San Diego Business Journal Staff Avanir Pharmaceuticals might be a victim of naked short selling. Sounds sexy, but it’s not, say those disgusted with the practice. Among those are investor Robert Jacobs, a New York resident, who believes a short-selling scam is at least partly responsible for his $750,000 in Avanir stock dwindling to $250,000. The company has submitted a New Drug Application to the Food and Drug Administration for Neurodex, a medicine that could treat uncontrollable laughing and crying in patients with neurological disorders, such as Parkinson’s disease or Alzheimer’s. In traditional short selling, an investor who believes that a company’s share price will decline borrows stock from a broker to sell high, and then later buys shares at a lower price to repay the loan. Naked short sellers do the same thing, but they don’t legitimately borrow the shares, so the stock is not delivered to the person who bought it. Neither practice is illegal, unless abuse can be proven — for example, trying to drive down the share price by pumping a theoretically unlimited volume of sales into the market. Almost two years ago, the U.S. Securities and Exchange Commission began listing companies with enough naked short selling to raise concerns. Avanir has been on that list, dubbed Regulation SHO by regulators, for around three months now. As of Aug. 10, more than a third of the company’s shares trading hands were being short sold, according to Yahoo! Finance. Avanir’s stock has gone from a 52-week high of $18.14 in March to a low of $5.31 in June. On Sept. 27, the day Avanir executives pumped up investors at the 2006 UBS Global Life Sciences Conference in New York, shares closed up 10 percent. The day prior, shares traded hands at a rate much higher than the company’s average volume: 705,000 versus an average volume of 428,114. Executives at Avanir declined to comment for the article, according to the firm’s spokeswoman Patrice Saxon. Saxon, who also oversees investor relations, would not say if the company was concerned about short sellers or if she thought the company’s stock had been declining because of short selling activity. In June, the FDA delayed its decision on Neurodex, a combination of dextromethorphan, used in some cough syrups, and the enzyme inhibitor quinidine. Avanir now expects an FDA decision at the end of October. Jacobs, who lost thousands betting on Neurodex, partly blames a report released earlier this year by New York analyst Evan Sturza, a former hedge fund manager who publishes Sturza’s Medical Investment Letter. The report accurately predicted the FDA’s delay of Neurodex, but Jacobs said a late addition of data was the cause of the delay, not the safety of the medicine, as Sturza suggested. “The report put an aura around the company that was not fair,” Jacobs said. He said the tight-lipped nature of Avanir’s executives adds to a speculative cloud around the company. Patrick Byrne, Chief Executive Officer of Salt lake City, Utah-based Overstock.com, has also been on the regulation SHO list for months. Byrne has been vocal about naked short selling, appearing on national TV news programs. His company has filed a lawsuit against hedge funds and traders he calls “low level gangsters” who he believes are targeting his firm. sdbj.com.