This is why PR's, amazing quarterly reports/financials, etc. will never make a difference on company's that are Pinks and BB's. Good luck investing. IMO this is why "long term holder" is an oxymoron when trading these stocks; these are momonentum plays at best.
If you are new to the BB/Pink Stock world please read this before investing any money in these companies. I strongly urge all that put $$$ into these companies to only use money you can afford to lose. The Market Makers are corrupt and are allowed to be this way due to the SEC. After you read this it will give you a whole new outlook, it did for me. My trading startegies have significantly changed since learnig this information.
The Hundred Billion Dollar Loophole (05.07.02):
There's a rule that the market makers use ... a rule that only has less than two hundred words in it ... and that rule allows them to naked short an OTCBB or Pink Sheet stock into oblivion. It allows them to literally create, out of thin air, as many shares as they need, to maintain an orderly market.
"(B) Proprietary short sales
No member shall effect a short sale for its own account in any security unless the member or person associated with a member makes an affirmative determination that the member can borrow the securities or otherwise provide for delivery of the securities by the settlement date. This requirement will not apply to transactions in corporate debt securities, to bona fide market making transactions by a member in securities in which it is registered as a Nasdaq market maker, to bona fide market maker transactions in non-Nasdaq securities in which the market maker publishes a two-sided quotation in an independent quotation medium, or to transactions which result in fully hedged or arbitraged positions."
This rule allows a market maker to create a share in a company by simply taking the money from the buyer and making an electronic entry into their brokers' account, and the broker then electronically credits the buyer with one share of that company.
But several things that no one is aware of take place in this transaction. 1. The buyer thinks that his share actually exists, but unless he or she has read his account agreement very carefully, he won't understand that all he did is give money to someone other than the company and never got any actual proof of ownership. His certificate, presumably, is sitting at the DTCC. 2. The market maker filling the order for one share has the buyer's money, and gave nothing except electronic acknowledgement of receipt of it ... the electronic entry in the buyer's account.
One very important thing to understand here, is that at no point in this process, did the company in which the buyer 'invested' ever get one single dime of the money paid by the buyer for that share. There is a tremendous misconception out there that causes many to assume that when they buy a share of a company's stock, the company gets the money.
This is only true if the buyer is buying an IPO, or a private placement of shares from the company. In any other sale or purchase of a stock by an investor, the company does not even see the money.
This is particularly vexing when one begins to understand what happens in naked shorting situations. Situations where the provision that allows for naked shorting to maintain an orderly market is abused.
Understand that whoever is doing the naked shorting is the one receiving the money. They keep it. For as long as it is convenient to do so. That is where the abuse of the rule comes in.
That rule was created to allow for market makers, who by becoming market makers, agree to 'make a market' in certain stocks. That means that they will sell you a share, or buy a share from you, even if there isn't any available, or there are no other buyers for it. The Market makers' job is at least partly, to provide liquidity to the market. In thinly traded securities, or securities where there is a small public float, the market makers' ability to naked short is crucial to the liquidity of the market in that security.
The abuse takes place when the market maker for whatever reason determines that the market for a particular security has become "disorderly". Too much buying pressure, for instance, can cause a price spike in that security that would have no relationship to the true book value of the security. The market maker then determines that he will naked short to fill orders, knowing that by doing so, the price will not explode on unusually high demand because he can literally issue new shares under this rule. The market maker then waits, with an open naked short position in that stock, until the buying pressure subsides, and he can buy enough shares back at lower prices to cover his naked short position.
The rule does not have any time requirements and that allows for the market maker to keep a naked short position open for potentially years. In reality, until the buying pressure subsides enough for him to buy back at lower prices however many shares he needs to fill previously filled orders that make up his naked short position, it simply stays open, and the money sits in his account.
Someone is going to ask the question, "So, how big are all those naked short positions, anyhow?"
There is another provision that says that the market makers do not have to publish their open naked short positions. Never. At all. All OTCBB and Pink Sheet securities can be naked shorted - indefinitely - by market makers under this rule, and there is no way that an investor can discover if there is an open naked short position in a stock he may be interested in, or even how big that short position is.
So far, the SEC does not see a strong need to correct this situation, either.
Think about it. There are unlimited amounts of shares that were never authorized or issued by a company made available to the unsuspecting investor. They are authorized and issued by the market makers under this rule, and the company never gets any money from the sale of shares created under this rule.
The temptation to abuse this rule is irresistable. Just do the math. A million naked shorted shares sold by a market maker at 0.01 (one cent) is $10,000 that the market maker keeps in his account, and that the company does not get. At 0.10 (ten cents) the market maker gets to keep $100,000. Now, that is for each million shares that the market maker creates.
Under this rule, if a company and/or a group of shareholders begin to suspect a short position exists in their security, they can not discover this from any published source. The price of the stock remains constant, or goes down, even though there is unusually heavy buying ... buying that goes on for years in some cases.
The company thinks that there is someone illegally shorting their stock in an attempt to ruin the company. The shareholders think that the company is illegally printing shares behind their backs and is scaming them. Eventually, this distrust between the company and it's shareholders becomes so great that investors start selling, or the company, already damaged by a supressed share price, is forced to issue additional shares into the market because other collateral-backed loans can not be made with share prices so suppressed.
This is what the market maker is waiting for ... sometimes for as long as years. In both cases, the market maker eventually gets his naked short position covered, and all it cost was the company's reputation, the shareholders' money, and the SEC's full cooperation by allowing this abuse of the rule.
There is a third situation that the market makers naked short into ... a stock that is a likely prospect for failure. In that case, they just continue naked shorting no matter what, keeping the price suppressed, and eventually the company files for bankruptcy, and ... the company goes out of business, the shareholders lose their investment ... and the market maker keeps the proceeds of his continued naked shorting.
A good question for the SEC would be, "Seeing as how the companies that failed never got the proceeds of the sale of stock over and above their issued and outstanding, but the market makers did, isn't the SEC allowing actual fraud to take place, and condoning it by the creation and continued existance of this rule?"
Like it or not, the SEC has allowed securities fraud to run rampant in the OTCBB and Pink sheet stock markets by simply looking the other way and allowing the market makers to target the OTCBB and Pink sheet markets as a source of huge amounts of cash, literally stolen from investors by the third party creation of shares by an entity other than the the issure - the company.
This rule is nothing less than blanket permission by the SEC for market makers to become the issuers of company stock, no matter what the company's official authorized and issued amounts are.
And that, my friends and fellow investors, is securities fraud on a scale almost beyond comprehension.
Isn't capitalism great.
One way to fight back on this is to email all the members on the House Committee of Financial Services (click link below). They oversee the SEC. We need 1000's of emails going to the Chairman of this Committee, all memebers for that matter, stating that this corruption must stop!! Come on people let's stand up for something and fight back on this. It will take a herculean effort to make our voices known. The next Chairman will probably be Barney Frank so maybe we can make a difference with a new Chairman.
the real problem with these cos is that they r worthless shells.
even worse, most of these pos stocks will dilute the OS even though they are shells and have no operations.
if any of these cos had even $25,000 they could issue a small cash dividend and force all the naked shorts to cover. I have seen this with CBAY (still, most likely a shell scam) and maybe one other stock.
the CEO in most cases has looted the treasury all the way down to zero.
no, we should not be buying these stocks.
its never going to work to ban naked shorting but also allow pink sheets to dilute billions of shares with no filings at all.
a few shells like APSP are legit and are good investments. u have to know which ones.
there are a lot of shells out there that barely trade but dont go to zero. i would not buy these either unless a reverse merger is filed.
no pink sheets stock will ever be a reverse merger candidate and u can take that to the bank. just think about it. the pink sheets could be attached to huge debts, judgements, and crimes but no one the wiser since they dont file.
stick with clean, OTCBB shells, with moderate market caps.
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Everyone MUST remember one thing when dealing with penny stocks .... get in and get OUT !!! Do not fall in love with these stocks !! There are great % gainers in the penny stock market everyday. A good PR/news release will send a penny stock, especially a Pink Sheet, on a good run up. But those runs are short lived. When everyone else is jumping on the bandwagon, take your % gain and jump off. If you get greedy, all you will do is get burned. This bit of wisdom from years of dealing in the penny market. Wishing everyone good % gainers !!!
-------------------- " Cash is King "
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A must book to read on MM stradegy is "The Market Maker's Edge" by Josh Lukemon, (a former MM of many years). You can look it up on Amazon or at your local bookstore. It puts you in the mind of the MM and presents trading tactics to counter them. Did you know that many of the SEC's so called "enforcement" team were once MM themselves? I'm sure they have their hands in the cookie jar. Did you know that the MM must come up with $20,000 PER DAY in fees to cover their slot on the trading floor? And that's before they put one thin dime of profit into their own pocket.
I have into six figures in play at present. I only keep 10% of that in speculative plays. Of that 10%, most are in the OTCBB which have at least some accountability. Maybe 2% or 3% of that are in pinks. The other 90% are on more solid ground in the either NYSE, AMEX, or the NASDAQ. I personally think the market is heading for a major fall in the coming year. 1)We have record debt. 2)Gold & silver have doubled in price and formed entirely new support levels. 3)OPEC is seriously considering trading in Euros. 4)China & Saudis have both stopped buying our treasury notes which supported our debt. The result is the sharp drop of the U.S dollar against foreign currencies. Dick Cheney's recent visit to Saudi was an effort to schmooze them into buying again.
That said, I'm thinking of buying gold & silver bullion while it's still relatively cheap.
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