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Microcap & Penny Stocks : IELSF-Flight to Fortune Or? -- Ignore unavailable to you. Want to Upgrade?

To: Intrepid1 who wrote (455)	10/30/1998 12:21:00 AM
From: Carl R.	Read Replies (1) \| Respond to of 520

I do not believe I described deliberate market manipulation. I believe I described the orderly liquidation of a convertible position. If the convertible holder simply converted all of their securities and then tried to sell the securities the stock price would probably fall and they would probably lose money. Thus since they expect the price to fall during the conversion/ liquidation process, they start by establishing a short position to protect themselves. Then they convert some securities and sell them, convert some more, sell them, etc. By doing the conversion in small batches, and by maintaining a protective short position, they avoid the risk of the stock falling between the conversion price and the sale of the securities. This is not manipulating the market with the intent of driving the price down. This is protecting their investment and avoiding risk. If an independent investor becomes aware of a floorless issue and shorts the stock in the expectation that it will fall during the conversion process, is that manipulation? Hardly. I don't see the difference. The bandits do profit from the fall of the stock from the time of their initial short until the conversion is complete, but this is not because they manipulated the stock, but rather because the stock fell on its own due to the fact that new stock keeps getting issued (in ever increasing quantities) and forced into an unwilling market. If there was demand for the securities the company would presumably have done a secondary offering instead of resorting to a floorless security. Another strategy that the bandits could employ is to just keep shorting the stock and do no conversions at all until they have sold enough stock that the market value of their short position is equal to the short position. This is potentially much more lucrative, but then they can't sell on upticks. It is also a bit more risky because it would be possible to "trap" the bandits. Once they had established a huge short position, someone could buy huge quantities of the stock driving the price up high enough that they could no longer get enough shares from the conversion to cover their short position, forcing them to take a loss. Of course this trapping maneuver would be illegal market manipulation, so I wouldn't recommend it. As for the shorting strategy of maintaining separate short and long positions in different accounts, I do not know securities regulations that well but I was under the impression that it was legal. I use only one account plus an IRA account, so I have never done it personally. Just the other day I saw a post on SI on the WFR thread where someone had a short position in one account and an offsetting long position in another, so I know people are doing it. But what does this strategy have to do with manipulating the stock? I am confused by your post. For the record, I do not have any interest short or long in IELSF, and never have had. I am simply following this thread as a learning experience about the way in which floorless securities affect a stock. I really don't wish to intrude overly into your discussion, but thought I would insert a comment. Sorry to intrude, but I really would like an explanation of how liquidating the securities in the manner I described would be deliberate market manipulation, and also how you would liquidate the securities if you were a "bandit". Carl