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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Fernando Saldanha who wrote (10370)	6/20/1998 10:15:00 PM
From: Ploni	Respond to of 18691

Fernando, I'll have to look for the Forbes article. It will be interesting to see how it was determined that the purchasers of the convertible issue were the ones that shorted the stock, as I'm not sure how that can be discovered. Cityscape Financial collapsed from $10/share to 5 cents in a few months time, possibly because of the same scenario. There seem to be hundreds of stocks involved in selling discounted and sometimes floorless convertibles. I think the SEC will eventually take a stand on the practice of selling them, or the practice you cite. I think massive shorting by holders of convertibles is clearly illegal manipulation: shorting a stock because you believe the issue to be overvalued and will eventually correct is fine, but shorting tons of stock so that the very act of selling will drive down the price is not legal, per my understanding. Here's the problem: let's say you want to bring a company public. Do you try to raise all the funds you'll need in the IPO, or do you hope that the public's imagination will be fired by the company, and the stock will rise sharply after being IPO'd, so that one or more secondaries may be floated later, to raise additional required funds? Many companies follow the latter approach, and when they are disappointed and the stock languishes or drops, they have to turn to offshore giveaways of new shares at very significant discounts, or convertible debentures with discounts.