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To: Dean Dumont who wrote (5206)	4/23/1998 11:05:00 AM
From: James Harold Alton	Respond to of 19331

bgtit, Thanks for that insight. So unless there is a way for a MM to take an extra cut on a sale (such as a market order where he can sometimes raise the offer and make a few cents) he will usually sell at the clients minimum price..hmmm. Is the reason for this, to maximize volume? I guess the question to me now becomes, why would the client, given a choice such as he had this am to sell his shares for 1.656, not instruct his MM to sell at that price instead of 1.56? James

To: Dean Dumont who wrote (5206)	4/23/1998 11:56:00 AM
From: wd	Read Replies (3) \| Respond to of 19331

bgtit, Here's an article from RevShark - it's long but informative - copy it and pass it around: Virtually ever penny stock hypster out there explains away weak action as being due to "undeclared short selling". I think in most cases that is just plain BS and the Hypster really has no idea what is going on. In any event, someone sent me the following which i though was interesting. Games like this do occur but be wary when this is offered as the universal explanation for all problems. #1 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!!!! #2 The Famous "Month End Maneuver" We receive dozens of emails from our readers asking the question: "Why do my OTC stocks all seem to get killed at the end of each month, and quite often rally the first couple of weeks of the following month?" Rather than individually responding to them, and to help better educate the public we want to explain what typically goes on at brokerage firms at the end of each month, and why. First of all definitions: MONTH END. Typically the day (either settlement day or trading day depending on their system of accounting) that a BD (Broker Dealer - registered as such with the NASD) calculates their paper gains and losses for the purpose of calculating that firms NET CAPITAL (disclosed financial position) for FOCUS REPORTS (financial reports filed with the SEC). For example: ABC is short 100,000 shares of XYZ corp - a small, OTC stock trading at $1.875 bid, $2.125 offer. Their month end is "settlement day" - meaning trade day plus three (like when you or I have to pay for the stock we buy) and the date is June 24, 1997 - (making settlement the last day of the month). In order to enhance their balance sheets (which allows them to sell or buy more stock against their net capital) they decide to start hitting (selling) the stock. Here's the way it looks: They enter an order to sell 10,000 shares at the market. The bid was only good for 2000 shares (not surprising since size buying or selling always shrinks the offer or bid size) so the current market then becomes: $1.75 - $2.125 ... until they offer stock at $1.875 - making it $1.75 - $1.875... but not for long.. They enter an order to sell 8000 shares at $1.75 - which was good for 5000 shares this time. Now the market is: $1.625 - $1.875 .. until they offer down to $1.6875.. and it continues: They see on level two (a trading system that shows the depth of an OTC market) that there is two bids at $1.625, but the next level is $1.3125. Ah ha! A good target price. They sell another 5000 shares at $1.625 - each market maker buys 2500 shares and bid down - making the current price $1.3125 - $1.6875... but low and behold: They offer stock at $1.375 - making the price $1.3125 - $1.375.. The company is now short a total of 112,000 shares.. and in one day shows a paper profit of $84,000 - which applies to their month end balance sheets! Do this on a couple of stocks each month and a small BD can end up with several hundred thousand dollars in additional buying power. The only problem is that it is that you and I are the ones who get creamed. I know of one savvy investor who buys the hell out of his small stocks at the end of each month - and is usually able to sell them at a profit the first few days of the month when the same market maker stops LEANING ON (doing the above outlined shenanigans) the stock. So at the end of each trading month, don't panic and assume something is wrong with your small stocks! You are probably witnessing the "MONTH END MANEUVER" !!! WD

To: Dean Dumont who wrote (5206)	4/23/1998 12:48:00 PM
From: David Bartkowski	Read Replies (2) \| Respond to of 19331

bgtit wrote: -"Mr Alton, if NFSC has an account in house and the holder of the stock wants to sell what he is going to do is sit on the offer. if the client tells broker limit the sell s to 1.56 then that is where the trader is going to sit. But if it is a market order and there is buying in the stock the trader will sit on the offer and short the stock and then turn the trade around and buy the stock back with the client who is selling and take them out at the " Market" bid price" - - bgtit, thanks I am learning so much from these discussions and things are really starting to make sense to me. But I do have a couple of questions about it. If this scenario is occurring (and I believe it is), NFSC would be handling the buying at the ASK. This occurred yesterday. But, here is the part I am unsure of. For NFSC to make their profit, they would then have to jump in and handle the shares being sold at the BID. Did this happen? I do not have the means to find out...wish I had TOL. Or, is it possible that they have a deal worked out to get the shares from another MM? What do you think? Am I right, or am I missing something. Thanks, DAVE