CYNK Social Media II: The Pump & Dump
The latest excerpts from Bloomberg/Businessweek on CYNK from Belize to Vegas:
The Pump & Dump
Pump-and-dump schemes are as old as the stock market itself. The playbook: A promoter buys a long-dormant company with tradable shares, or creates a new one and issues stock.
The promoter controls most of the shares outstanding but keeps his name out of official filings, appointing a token officer.
Then he starts trading shares back and forth with confederates at gradually increasing prices, using spam promotions now sent by e-mail or social networks to lure in marks—real investors on whom the schemers can dump shares at a huge profit.
Shorting the P&D
There’s another way to profit on pump-and-dump schemes: spot an obviously inflated stock and short it.
That’s what Tom Laresca, a market maker at New Jersey brokerage Buckman Buckman & Reid, did on July 8 after a widely read blog called ZeroHedge brought Cynk to national attention.
Laresca, who has 30 years of experience on Wall Street, says he bet against the shares at about $6 each.
Shorting involves borrowing shares and selling them, in hopes of buying later at a cheaper price so the borrowed shares can be returned at a profit.
It’s not for the faint of heart: Stock lenders can recall those shares at any time. If the price has gone up, the short sellers can be forced to “cover” at theoretically unlimited losses.
The Naked Short
Laresca—who had put on an even riskier form of the trade known as a naked short—figured the stock would fall on its own as more people discovered its absurd balance sheet and nonexistent product or if the SEC suspended trading.
Instead, the shares doubled on July 9, starting a “short squeeze”—a mad rush among traders to buy stock and reverse their short positions.
Laresca, who declined to give the size of his losses, lost his job. “I just don’t understand how this was allowed to happen,” he says, sounding forlorn.
Laresca talks about the CYNK fiasco on Bloomberg/Businessweek.
The Nattering One muses... Although the Businessweek article indicates that Laresca used naked shorts, the original article from BusinessInsider does not mention naked shorts.
In any event, this P&D was deliberately and perfectly executed to bait suckers and computer algorithms that are triggered by market momentum and DO NOT pay attention to the details.
Knowing that the shell company has no assets, no revenue, no sales, how does this stock have ANY MARKET VALUE? Unlike someone paying attention, a computer would not ask these questions.
A 30 year stock market veteran, who thought he knew what was going on (pump & dump), got caught in a short squeeze. How?
More to Come...
The Pump & Dump
Pump-and-dump schemes are as old as the stock market itself. The playbook: A promoter buys a long-dormant company with tradable shares, or creates a new one and issues stock.
The promoter controls most of the shares outstanding but keeps his name out of official filings, appointing a token officer.
Then he starts trading shares back and forth with confederates at gradually increasing prices, using spam promotions now sent by e-mail or social networks to lure in marks—real investors on whom the schemers can dump shares at a huge profit.
Shorting the P&D
There’s another way to profit on pump-and-dump schemes: spot an obviously inflated stock and short it.
That’s what Tom Laresca, a market maker at New Jersey brokerage Buckman Buckman & Reid, did on July 8 after a widely read blog called ZeroHedge brought Cynk to national attention.
Laresca, who has 30 years of experience on Wall Street, says he bet against the shares at about $6 each.
Shorting involves borrowing shares and selling them, in hopes of buying later at a cheaper price so the borrowed shares can be returned at a profit.
It’s not for the faint of heart: Stock lenders can recall those shares at any time. If the price has gone up, the short sellers can be forced to “cover” at theoretically unlimited losses.
The Naked Short
Laresca—who had put on an even riskier form of the trade known as a naked short—figured the stock would fall on its own as more people discovered its absurd balance sheet and nonexistent product or if the SEC suspended trading.
Instead, the shares doubled on July 9, starting a “short squeeze”—a mad rush among traders to buy stock and reverse their short positions.
Laresca, who declined to give the size of his losses, lost his job. “I just don’t understand how this was allowed to happen,” he says, sounding forlorn.
Laresca talks about the CYNK fiasco on Bloomberg/Businessweek.
The Nattering One muses... Although the Businessweek article indicates that Laresca used naked shorts, the original article from BusinessInsider does not mention naked shorts.
In any event, this P&D was deliberately and perfectly executed to bait suckers and computer algorithms that are triggered by market momentum and DO NOT pay attention to the details.
Knowing that the shell company has no assets, no revenue, no sales, how does this stock have ANY MARKET VALUE? Unlike someone paying attention, a computer would not ask these questions.
A 30 year stock market veteran, who thought he knew what was going on (pump & dump), got caught in a short squeeze. How?
More to Come...
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