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Capt_Nemo

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Capt_Nemo

Re: Capt_Nemo post# 143519

Sunday, 01/09/2005 10:51:33 PM

Sunday, January 09, 2005 10:51:33 PM

Post# of 219265
Goes with the short selling bullchit!!!

Houston lawyer Wes Christian believes he's figured out how death-spiral rings work. They scan for vulnerable public companies listed on small-cap bourses such as the American Stock Exchange and the Nasdaq Over-the-Counter Bulletin Board.


"They look at the float, they look at the liquidity in the stock, they look at how much they can pump it and how much they can dump it," he says. They approach prospective victims and tell them: "We like your company. We like your business plan. We like your management. We like your board. We'd like to make you a loan, or we'd like to invest equity in your company."


But while the financiers promise much-needed capital, others within the ring start short-selling the company's stock. Other potential investors are warded off by the tumbling share price, but the ring holds on. "They say, `We're gonna stick with you, buddy. We're in it for the long haul,'" Christian continues.


A death-spiral financing is soon hammered out — invariably through an offshore entity. "They say, `We're going to loan you $3 million during the first tranche, and $25 million on the second tranche. But, incidentally, we're not going to give you that second tranche if your stock falls below $1.50.' At the time, the stock is $7. So you're saying, `Hell, it ain't going below $1.50 — not with this money behind it.'"


The ink is scarcely dry on the agreement, Christian explains, when the ring begins selling shares, short-selling and employing other techniques to drive the share price down further. "What you don't realize is, they're gonna help get it below $1.50, so they're off the hook for the $25 million," Christian seethes. "Rarely have they funded the second tranche."


Compounding matters, says Brian Overstreet, a private placement expert and president of San Diego-based PCS Research Technology Inc., other unrelated investors within the short-selling community will pounce on any company that signs a death-spiral financing.


"Once the stock starts trending down, a lot of people jump on the bandwagon, and it can get real ugly real fast," Overstreet says.


The stock tumbles into a death-spiral, and the financiers begin demanding conversions. They can use those shares to cover their short positions, profiting handsomely from the difference between the price at which the stock was sold short and at which it was converted. If the death-spiral ring can drive the company into bankruptcy, they may not even have to cover their position at all. And the kicker: Christian suspects that the money from the first tranche comes from short-selling profits. "They frigging lend you your own money!"


The alleged pattern — or slight variations of it — appears in at least a dozen death-spiral lawsuits (seven of them for which Christian is serving as co-counsel with Houston litigator John O'Quinn). His theory has yet to be tested in court.


http://www.mary.cc/star.htm

Report scum err scams here #board-610

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