bashers at work?
29 Feb 2004, 02:11 PM EST
Msg. 134932 of 135010
"The typical sequence of events we witness time and time again goes something like this. A stock is trading at let's say $5 and a certain group of Wall Street DTCC participants and their co-conspirators judge that the $5 level is a bit too generous for this particular stock. Perhaps they, in their infinite wisdom, think that the $2 level would be more appropriate. They then sell, let's say, one million nonexistent shares at $5 into one million shares of real buy orders over the course of a month or two. There wasn't really an imbalance between too many buy orders and not enough sell orders to address, it was more that the market makers have a superior visibility of these buy orders coming in and they can easily beat a real seller of shares to that buy order. This is no way, shape, or form bona fide market making.
They now have access to a pile of $5 million, the same $5 million that investors just paid for what they thought were legitimate "shares or packages of rights attached to a public company". As the price per share tanks, a bona fide market maker would take that $5 million and buy back shares at perhaps between $4.80 and $4.60 and pocket a quick $300,000 profit without lifting a finger. Abusive market makers don't see it this way, the $300,000 "free" dollars courtesy of na´ve investors just doesn't quite make it. This fraud is way too easy to pull off to settle for a measly $300,000. They saw how easy it was to sell a million nonexistent shares and raise $5 million and so they get greedy and instead of taking money from that pile of $5 million to buy back shares, they decide to add to it by selling yet more nonexistent shares on the way down to maybe $1 or so. Why not, nobody's keeping score back at the DTCC, all of those "failed deliveries" are now safely in the "counterfeit electronic book entries" column hidden amongst the real shares. Now perhaps they have $10 million in front of them from the selling of nonexistent shares.
With more of this behavior the $10 million becomes $15 million as the price per share now approaches a penny. At a penny per share there really are many more buy orders than sell orders. Their continued selling at a penny really does start to resemble "bona fide market making", at least for new buyers anyways. At a penny per share they might decide to go ahead and cover but they notice that they're the only seller around. Who's going to sell shares to them at a penny so that they can cover? They've been the only seller from perhaps $1 on down. All of the real investors are so far "underwater" on their investment that they can't afford to take that big of a loss. Besides, most of them don't even follow the stock anymore unless it's at a year's end and need a capital loss. No new naked short sellers are dumb enough to start attacking a stock that just went from $5 to a penny. They'll go find a different $5 stock to attack.
These market manipulators soon learn that they can't cover because the second they take their finger off of the selling trigger, the stock gaps upward and they haven't even started to buy back shares yet. Since they can't cover without driving the PPS up violently they soon learn that all they can do is to continue leaning on the stock in an attempt to suffocate the company to death by constantly knocking out any bids that are posted. This phase of the overall fraud is where the necessity of Rule 201, the Uniform Bid Rule, comes into play. Without protection from this constant "bid banging" these victim companies will have a tough time fighting off bankruptcy.
What really is frustrating to the corporation mentioned above is that perhaps recent corporate developments perhaps have made the $5 share price level an appropriate valuation but it's too late. With all of the dilution caused by the "bear raid", any future earnings are now divided by an inordinate number of shares to calculate earnings per share and stocks usually trade at multiples of earnings per share. Thus the damage incurred is permanent."