The OSTK 300K Share Conundrum
That is insane.
300K shares legitimately issued by the company, insiders and family who aren't trading or selling, and institutions that aren't trading, judging from their filings.
So here's a question: Today 2.5 million or so shares traded hands, on blockbuster earnings (the company was projected to show a .22 cent loss, and beat that by almost 50%, with a .13 cent loss), and yet it was methodically sold off, from the ECN's - BRUT, CINN, and ARCX responsible for 90% of the trades from the sell side. Where did all those shares come from, if nobody on the Byrne side of the fence is selling?
Answer: They are phantom shares created by the system, and traded as though they are real. FTDs. Or at least a good portion of them likely are. Some are no doubt shares lent by a few of the institutions to legitimate short sellers. But most are likely FTDs.
Question two: What happens when the institutions finish up their trading today, and run the math, listen to the call, and figure out that there are only 300K legitimate shares from which to cover around 10 million shares, give or take?
Bonus question: What happens when the institutions simply call back their loaned shares - and there are no actual shares with which to cover? What happens to the millions and millions of shares that must be bought, immediately, no excuses, and there are only 300K shares? Does anyone believe that the institutions won't comprehend the ramifications, and be thinking in terms of 5 or 10 times the money?
Did anyone notice that you can now buy September call options up to $100? Wonder why that is?
I commend Dr. Byrne for alerting the legitimate shorts as to the danger of their situation, and further would advise one and all that criminal behavior like illegally naked shorting to manipulate the price of a stock can sometimes end badly. This looks like one of those times, where a tightly held company owned largely by folks that know each other on a first name, if not familial basis, decide that they don't want to play the game any longer.
If I was one of the three prime brokers that supports the hedge funds involved in this, I would be asking some very hard questions, and stopping any short selling that isn't accompanied by a legitimately issued share of stock immediately. This contingent liability for these houses could be astronomical pretty quickly, as the other stocks these hedge funds are short also must get bought in to cover the damage. And there will likely be heavy hitters watching to ensure that no funny business goes on, so the usual tricks won't fly. So the bankers now are on notice that they have an issue.
Because at the end of the day, it's not just the hedge funds that have a problem now. What's that old saying? If you owe the bank a dollar, you have a problem...but if you owe the bank a billion dollars, the bank has a problem....
Dr. Byrne, IMO, just alerted the banks that they have a problem, and it could be triggered whenever the institutions want to call the shares, or if Dr. Byrne decides to take the company private, or any number of other scenarios. And this isn't some penny stock where it will all go away - everyone will be looking at the trades from this point forward, expecting some sort of shenanigans.
So longs, get your paper certificates now. Legitimate shorts, understand that you have just been warned that you could be put through a thresher, without warning, at will, where your fortunes will be lost in a matter of days. And manipulators, your days are now officially numbered.
That's what I took away from the conference call.
For the record, I have no affiliation with OSTK, nor am I endorsing the buying or selling of their shares, for any purpose whatsoever. Do your own diligence, and invest wisely.