Short Selling Scheme hits from Berlin
The Cincinnati Post
By Jon Newberry
May 29, 2004
Cincinnati-based Pickups Plus Inc., an auto parts supplier, said Friday it's the victim of a scheme involving the Berlin Stock Exchange.
Officials say they've taken steps to remove the stock's unauthorized listing on the German exchange, which they say was done by high-risk traders called arbitrageurs.
Pickups Plus trades in the United States on the Nasdaq over-the-counter Bulletin Board. It recently discovered that it has also been listed on the Berlin Stock Exchange along with hundreds of other small capitalization U.S. stocks.
The Berlin listing appears to be an attempt to get around recent changes in U.S. securities regulations that ban so-called "naked short selling" of shares, said Sean Hayes, chief operating officer of Pickups Plus.
"Somebody is targeting bulletin board stocks," Hayes said. "They closed a loophole in the U.S., and these guys shortly thereafter found a new loophole."
"Short selling" normally involves borrowing shares, which the borrower perceives as being overvalued, from a securities dealer and selling them at the current market price. When the price later goes down, the short seller figures to buy the shares back at a lower price and repay the borrowed shares to the dealer, pocketing the difference.
Naked short selling does away with the lending and borrowing of shares and permits dealers and short sellers to accomplish the same thing by contract, without buying or selling actual shares. Either way, they win or lose depending on whether an underlying stock's price falls or rises.
Since many small company stocks are lightly traded, making it hard for short sellers to borrow shares in sufficient quantities, naked short selling is popular in over-the-counter markets. Many companies, however, contend that people use naked short selling to manipulate markets by artificially depressing prices.
Hayes said some 50 million of the company's shares changed hands recently -- about as many as are available on the market.
Several other publicly traded companies in the United States and Canada have also requested this week their stocks be delisted from the German exchange.
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