Lessons in Stock Manipulation
I was asked today my opinion on a certain nameless penny stock. As soon as I pulled it up on a chart, my immediate reply was that “I would not touch it with YOUR money!” I recounted a certain experience I had as a broker-in-training many years ago, which I would now like to share with you, the reader.
The broker I worked under had a certain client who we will call Dr. Economics. This particular client had a net worth of many millions of dollars and held some very high quality investments in his portfolio. There was one exception however, Dr. Economics liked to play with a certain penny stock called Panther Mountain Water Park which was worthless. That did not stop Dr. Economics from amassing a small fortune in the equity at the expense of the less educated investor, also known as suckers.
Dr. Economics would suddenly begin buying PMWP at under a nickel a share and would do this using various size blocks. Some small, some large. He would accumulate over the course of a few days of buying, millions of shares at an average cost of less than .25. People who had no idea that only one person was buying the stock, would begin to notice that the volume and price had suddenly began to move up sharply. Uneducated investors would automatically assume that some major news catalyst was on the horizon, as the press began to pick up on the increased activity. A buying frenzy ensued on the still worthless equity which Dr. Economics was now all too willing to sell for .90 – 1.00 a share! This is why no one should ever invest in a penny stock.
It was then pointed out to me that Sirius XM is a penny stock. To a certain extent that is true, if you look at the stock price only. There is a huge difference in SIRI in that there is a very active market for the stock. Penny stocks have very little volume to speak of, which makes them prime candidates for manipulation. Technically, the market cap of SIRI alone disqualifies it from penny stock status.
Unfortunately, neither volume nor market cap disqualifies SIRI from the same sort of manipulation that occurred with PMWP. Every day there are thousands of 100 share trades executed which all have a purpose; to keep the stock price of SIRI artificially deflated. The question that needs to be asked is, why? The recent short covering in my opinion reveals the answer. Short sellers needed to cover and these 100 share transactions kept the stock price low enough for short sellers to cover their positions and lock in a tidy profit for themselves at the retail investors expense.
I believe that even more short covering is occurring now that the threat of bankruptcy has been removed. Short sellers have made a fortune on the stock and with the downside risk/reward being so low at this time, continuing to hold the stock short will only result in profits being eaten away. Already SIRI shares have climbed over 300% from their lows. Until all short sellers have covered, I expect more of this type of manipulation to occur.
I never received as much hate mail as I did when I suggested that a reverse split would be the best thing for Sirius common stock, but recent events have only reinforced my position that the stock has too many shares outstanding at too low a price. In my opinion, the only way for the company to avoid this sort of manipulation in the future, is to go ahead and execute the already approved reverse split. There are times when reverse splits are a good thing and for Sirius XM shareholders, this is one of them.
Position: Long Sirius XM
I still disagree about the RS. Although I see your point, what we need is to erase ALL doubt about refinancing AND proof of cash flow positiveness, continued growth and more such good news.
I am still of the opinion that these things will move the stock back up.
If they don’t, then I will resign myself to your analysis, but for now I am unwilling to.
Shorts feed on fear. If the fear is removed…things will get better.
The frustrating thing for me is the lack of cash on hand that I have right now. If I had 10 grand to spare, I could have broken even the other week by buying at .07 cents and selling all my shares in the high teens.
As it were, all I had was $1,000 to average down with then. Which I did…but I am still .80 cents away from break even.
I can keep buying small chunks on dips tho. I know it’s a gamble…but it’s the best strategy I can think of right now to re coup my money that I originally invested in Sirius 4 years ago.
I hope for once my timing is right with this stock.
But I am determined to sell once if I am lucky enough to reach break even. Nothing against the stock personally, but the huge manipulation plus the current market scares me. So if a miracle happens, and I see an out, I’m taking it. I need distance from this stock. I can’t let visions and hopes of pops to $3, $4 and $5 cloud my mind this time.
If Sirius gets slammed back down to .07 cents again, I’ll buy hand over fist. But for now small chunks are fine. Not going to break me, but little by little, I lower my break even price.
I just really would like to get out before Brandon’s infamous RS can happen. If I can…I’d be the happiest guy around.
Cheers and G’luck all.
I will short the hell out if it if they do a reverse split.
One more thought. What if Sirius TRULY takes care of refinancing ALL of 2009 debt without using any of it’s cash on hand.
With the debt obligations extended for several years, and free cash flow positiveness….couldn’t Sirius then BUY BACK such a huge chunk of shares that would make the benifit of a RS truly moot?
Just thinkin.
this stock isnt only a roller coaster ride its been a brown log flume!
hey now! keep your head up! average $.76
The article was long enough without going into the numbers. Think about it like this. Prior to the merger, Sirius traded in the 3.75 range or so.
Then came dilution, with the threat of further dilution. The debt is no longer the issue. The number of outstanding shares is. With the added shares, SIRI would be fairly priced at about 1.40 – 1.50. That also assumes a decent overall market. With the 30% haircut most stocks have taken, the actual fair value of SIRI stocks is now about 1.00.
That’s right. $1.00. Not 2.00, not 3.00, not 4.00. not 5.00. $1.00!
It would take years to get siri to those levels with its current float. They can either buy back shares which is not likely anytime in the next 5 years, or do a reverse split to lower the float.
Sorry but 1-dollar and 50-100 times LESS shares me absolutely Jack to me…………….I just don’t feel it……………………………………….
You know everyone averaged down. $1.00 and i think everyones happy.I am one of those unsophisticated siri holders and the past 2 years has been a gift and a curse.
Please explain the mechanics of how a reverse split would hinder the manipulation and shorting of SIRI in an of itself. If one shorts the stock with $10,000 dollars before a RS split or with $10,000 after a RS, it is the same piece of the companies market cap – just the amount of shares change. If the stock is more expensive per share, buyers just get less shares for there money, but the same piece of the companies market cap…..
It’s all about supply and demand. A buy order represents demand. A sell order represents supply. You need to think bigger than 10,000 dollars.
Let’s look at 1,000,000 dollars. One person with this money can enter 66,666.67 separate sell orders of 100 shares each at .15! The computer recognizes this as an order imbalance, and will drop the price to bring up demand.
Do I need to go further?
Yeah………….get rid of computers and let’s go back to ‘honest old brokers’
Brandon my man…THAT is all I want. I am not one of those under the delusion of a $2 to $5 pps.
I’d be MORE than happy with reaching $1. I’ll let those longs who have dreams of becoming millionaires hold. But if we are lucky enough to reach a buck….I’m out.
Break even is fine by me. I’ve been “long” long enough.
I remember months ago Tyler wrote about how he DIDN’T want a buyout offer price of $1.50. That it would be an insult to longs. Or something to that effect.
Anyway…it’s still a crap shoot. There is no garauntee we make it back to a buck in this economy no matter WHAT news comes out.
And don’t you think that a reverse split in this economy would pretty much ensure it gets knocked back down? Creating another short feeding frenzy?
Yes, I know there are more shares available now making it harder to move up. But like you said, the current fair value is about a buck….and thats GOOD enough for me.
I’m going to keep averaging down on dips. Who knows, if I am EXTREMELY lucky, I could actually lower my break even price where I may even MAKE a profit on a nice run up.
Again. No delusions. It’s a crap shoot. I am biased against a reverse split because it would alter my plan, and pretty much ensure that I stay stuck in this equity for a VERY LONG time.
I’ve been “long” long enough. I hope my plan works….and that we can make it back to a buck BEFORE a RS happens.
Never a dull moment with this stock. At least the whole market is feeling the pain now. For a few years there, it seemed us Sirius shareholders were all alone. Now everyone has joined the fun. 🙂
on the point of it being knocked down….no. I think it was being shorted solely on the bk threat.
put on howard 101 this stock is worth a million dollars!
let freedom ring and let it be rung by a stripper.
43 cents a day for freedom of speech is real cheap is my point
… still searching for the “lesson” in that post.
Brandon, with all due respect, Sirius was being shorted waaaaaay before the threat of BK. I don’t care what anyone says about a RS…..the MOST important thing is TRULY taking care of all the 2009 debt and having the breathing room so that Mel can FINALLY realize the merger’s original potential. We MUST show continued growth, free cash flow positiveness and better marketing. Of course the economy is a contributing factor, but I think if Sirius does the above things, the stock can rise on it’s own without the help of a RS.
Brandon,
If you have a few minutes maybe next article you can use your real world experience and talk about exactly how those 100 share trades are doing what “they” expect? I would love to hear that as I am someone who is always on the outside of wall st. it would be a rare inside look.
What I mean is I don’t understand exactly how the colluding is working? So one MM buys a bunch of chunks of 100 shares at a lower then bid price, while the other one covers short? But then the first would have to sell at a loss because they drove the price down. Right? It’s that interaction I would like to hear about.
Thanks
Timing. You sell into strength and buy into weakness.
Brandon,
The same strategy you cite could also be used to bring the price up if there were motivated buyers with conviction. Those 100 share bocks would get gobbled up ipronto if there was enough interest on the buy side to support and move the share price up. What difference does it make if they are individual 100 share bocks or not – orders are combined all of the time. I just don’t get how a RS would change anything. Who cares if the stock goes back to $3 instead of a $1 if you only have a fraction of the shares you had before? I think the company should be worth more than $1 without a reverse split BTW…
Market cap is maket cap – no matter what the share float is……..
Well said Demian.
Brandon, I appreciate your efforts in writing this article, but on the day when the company has filed 12b-25, extension, rather than report it’s 10K, I don’t think we can say the threat of bankruptcy has been removed. SXM’s auditor, KPMG, must give the green light as a “going concern” in order for the Malone / Liberty deal to be consummated which as yet they have not. With the auditor’s stamp of approval and the deal consummated the SP will take care of itself. R/S’s from positions of strength, to eliminate dilution and invite the over $5 Investment Crowd to jump in, might be a good strategy in the future, but not now IMO. Until the auditor’s give Malone / Liberty that green light, BK is very much still on the table….
I, Moody’s & Standard & Poors respectfully disagree.
Got a Point there Mr. Matthews………Touché
Methinks!
Let’s see what the almighty rating agencies actually say:
*** Moody’s rates SiriXM “Ca”. Here is the Moody’s definition of “Ca” and the next higher rating, “Caa”:
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
*** S&P: CC rating with a positive outlook — again, here’s that rating and the one just above it:
CCC: currently vulnerable and dependent on favorable economic conditions to meet its commitments
CC: highly vulnerable, very speculative bonds
****It would seem that only you and I respectfully disagree
I do agree with Brandon here cos100.
I don’t think BK is a real threat anymore. Either the Sirius deal with Liberty will continue as announced, or Mel will use this grace period to strike an even better refinancing deal with other parties as stipulated in their agreement.
But no matter what, the 2009 debt will be handled and BK taken off the table.
The question is with whom will Sirius strike the final deal with. Will it be good terms?
This is the most important thing.
I do agree with you cos1000 about the RS not being a good thing right now.
We shall see.
I am not as confident that their is still not hurdles to get over, that the auditors have found. The only rating that matters at this point is that which will be given when we get the 10K. I hope you guys are right… I would like nothing better than a clean auditor’s report and this deal done. Until then, given the economy, this Company and Stock have a “Show Me” rating on it……
Why is manipulation of a stock not illegal? Even an idiot like myself can see this stock has been manipulated since early last year. And not one phucking person does anything about it. Mel and Blalock knew this manipulation has been going on for a very long time and did nothing about it. What does that tell you about Mel? I’m telling you right now when this is over, Mel Black and Blalock will be indicted.
It is illegal. It is however the responsibility of SRO’s and the SEC to enforce such actions.
If Sirius Management spent their time chasing these bastards, they’d get nothing done and would spend an incredible amount of money to do someone else’s job, all for nothing.
Therein lies the problem me thinks. How can you encourage the notion of a RS until new regulatory fixes are in place? It is a “short-sell bear raid’ market right now.
There is still a Bush-era hangover and the tools of manipulation favoring the shorts are still in effect. Even a defensive RS would be vulnerable in this climate.
IMHO- Mel should let the pps ride till some rules are re-established and the Nasdaq listing requirements are extended. The Longs need some weapons too!
I just don’t want a RS. At least not before we get back to a buck and I break even. 🙂
I couldn’t agree more. I can remember that bald headed bastard Cramer saying a merger would move the combined company’s market cap to $15 billion. Right now the company is sitting at less than half a billion market cap which even with the $3 billion in debt seems ridiculously low. The campaign to beat down the company through all types of media and forums has been masterful. My guess is the motivation of these individuals varies greatly, especially in light of the recent end around by that sneaky SOB Dish character. RS, the sooner, the better!
Doing a reverse split now would be like inviting someone to hit you over the head with a bat, with the response being “Thank you sir, may I have another?”
A reverse split would send up a cheer like we have not heard on Wall Street in ages. The running of the bulls in pomplona, Spain would have nothing on the crowd running down Wall Street – all to bash Sirius stock by shorting it and beating it down to where it is right now. A reverse split would be the WORST thing to happen to this stock.
I whole-heartedly agree with you Nicholas. What we need is for SiriusXm to actually DO something meaningful. There are 2 types of investors in Sirius at the moment: Those who believe in the company (a minority) and those who believe they can make money trading the stock (the majority by FAR). This stock is volatile and its volatility is a day traders dream. Buy low and sell at a penny gain. Not hard to do. We need new investors, which will only happen when there’s “real” positive news to report. Staving off bankrupcy is not real positive news. It’s not ebough to bring in NEW money to the stock. I believe in Sirius and I believe when there’s “REAL” positive news we will see some true gains in the share price.
You hit it right square on the head Shawn.. Real positive news will bring a mountain of fresh longs to the game. I am long 713,000 shares and would double down in a heartbeat… but only on positive varience in the fundementals, which I believe will come. It is amazing how much money comes out of the mattress when it has good reason. Karmazin & co know this as well as anyone. Mel is a genius at putting the frosting on the cake and getting top dollar for it when the time comes, but you have to have the cake first. Still think that all will be good for the longs in time.
I wholeheartedly and unabashedly, Agree ‘Nick’!!!
Both Nicholas and Shawn are spot on. A reverse split right now…in THIS economic environment….and BEFORE any good news would be a nightmare for current shareholders. Not only would they have their dedication to the company repaid with a FRACTION of their original shares…but they’d then see those reduced shares value be immediately cut down to unrecoverable levels by the shorts.
I believe Shawn is right when he says new investors will only come when there is “real” positive news. But I’ll go one step further and say “sustained and real” positive news.
We need good news YES. But we also need sustained good news over several quarters. Again and again. Only this will shut up the naysayers once and for all. If Sirius can do this on top of refinancing ALL of the 2009 debt….THEN Wall Street will have to sit up and take notice. REAL money will start flowing into the stock again.
It won’t matter what the outstanding share count is. The stock will rise. A RS now would be absurd IMHO. It is in no way at risk of being delisted.
Give the equity a chance first for crying out loud. This is the FIRST real quarterly report coming up to show real synergies from the merger. It maybe slightly less spectacular then it could have been if the economy wasn’t so bad, but who knows…it just may surprise wall street.
We’ve suffered thru SO MUCH with this equity. Lets give it a few more quarters before we start calling for a RS just to artificially raise the stock price. Wouldn’t you rather see it rise on it’s own merits. To see the shorts and bashers lose their power after being at their mercy for so long. YES, right now we still are at the mercy of the manipulators. But if Sirius can show sustained growth and become free cash flow positive while erasing ALL the 2009 debt….then Wall Street AND the media will have to change their tune.
The analysts will begin to upgrade. The institutions will begin to buy. The tide will turn. And all this talk about a RS will be a distant silly memory. People will start talking about share buybacks instead.
Um…ok…perhaps I’m on too much of a roll here. But you catch my drift.
I much rather give Sirius some time to show and prove what it can do. Of course I am biased against a RS because I’m holding shares….but I TRULY believe we don’t need it. Not only because there is NO DANGER of Sirius being “delisted” for a long time…but because I TRULY believe they can rise without a RS.
So lets just wait and see what happens.
Cheers.
Siri RS= Instant SELL for the longs …..Mel wheres the Beef?
Really Brandon…
I think the roller coaster ride we are on with Sirius is more of the caliber of a Millennium Force or an Apollos Chariot. Not Superman: Ride of Steel in New England…
A little pion as I amout of your “economic rollercoaster story” as I as many like me as a private investor am not able to short a penny stock.
So who is doing the shorting?
Should these people live with Madoff and his wife in their exclusive penthouse?
Or should our president create many many long term jobs by building prison facilities to hold all of the crooks indefinately?
A RS at this point would be the shorts ultimate wet dream. They would probably have a year to short this stock back to pennies again after the RS.
We can put SiriusXM on I Phones, blackberrys,computers, even on the moon, but until SiriusXM makes PROFIT this stock will continue to be shorted.
A RS would at this point would be disastrous for shareholders with so much time left before SiriusXM can produce profit.
imho
Vaporgold
Damn it Vapor. You blew my damn wireless baby monitor line away, with that Sat radio on the moon line. LOL. Nice.
Oh hum………….RS RS RS…….whatever, Goodness people shhhhh
Brandon, since you wrote about it, please answer the question-Since small investors cant short a penny stock
Once again who is doing the shorting?
And why is buying 100shares or shorting 100 shares at a time important?
Thank you for your time
100 share orders will not keep this stock down. The reason the stock isn’t rising is because there is no real interest in the stock. If there was, hundred share lots offers would be taken the moment they appeared. Brandon is looking for a rationale to defend his articles over the last year. Obviously, he has never actually worked on that side of the industry. There are no major short players stepping in. It’s simple risk/reward. There is too much risk to short down here. I spent 9 years on a trading desk and that would not be considered a viable strategy at these prices. Sometimes, regardless of how much you like a product or a security, you’re just wrong.
I’m sorry Brandon, but your contention that 100 share orders are responsible for SIRI stock manipulation is a ROFLMAO.
Where’s your proof?
What this stock needs is long term debt financing and some hope for profitability in our very depressed economy.
The proof is on level 2, each and every day. Do you really think retail investors are buying and selling 100 shares? That’s a 14.00 trade @ .14. The commission in some cases costs more. If I bought at 100 shares at .14 for 14.00, I would need to sell at .24 just to break even with my TD Ameritrade account. No one is flipping pennies with 100 share trades. These are manipulative trades, plain and simple.
I believe you are 100% right. SIRI is a stock that is ripe for such manipulation. Why? Becasue an average investor that does research see’s a massively undervalued stock. My own estimates have Siri values right around $1.25 per share (which is low).
Now, research in hand, and deals available, I quickly buy in. Only to watch the prices tank for no reason.
Anyone who has followed this stock for at least 1 year knows that good news has tanked this stock worse than bad news.
Probably like many longs, I have a feeling that a profit will be twisted into a stock price drop, sustained profit will result in a stock price drop, and if Siri bought out google and walmart, their stock price would some how drop.
Anyway, I think you are dead on Brandon…
so..Ill try this one more time
Short sellers needed to cover and these 100 share transactions kept the stock price low enough for short sellers to cover their positions and lock in a tidy profit for themselves at the retail investors expense.
who are the shorters?-why short the stock that moves a penny in either direction -the long term shorters are already gone-?reason for better leverage without money? nah..-if brokerage houses are shorting-they probably can easily do it on margin anyway and dont need the leverage- so who is shorting as you accuse?
I have been in the stock for about 4 years and it seems this is a never ending nightmare, the people at the top dont want anyone at the bottom to have anything and as for the shorting of this stock well, jail for all the shorts but somehow people are looking the other way. Ill look at this in a year or so and for some reason i feel it will be the same outcome ever with brake even money, what a Fk up system
does anyone think that postpone the cc for st. pattys day signals a green day.
makes you go hmmm.does make for good headlines any input?
LOL. Good One. Mel’s Jewish. But hey maybe he married an Irish Catholic on his second time around????????
Coss, RElmor, 163888, s162 calling all cars! Anyone watching level2. Looking for a play today any info helps. It also appears that seeking alpha has jumped the shark. I think this was going to be the new spot for the informed investor.
Long Siri, long six superbowls….you got to be kidding? 6!
Good play? I’m putting my dough into Velocity Oil and Gas. It’s only 2 cents a share right now, but it’s been over a dollar a share as recently as July 2008. Also, they’ve acquired a lot more areas to search for oil in 2009. I’m bullish on them in the long run. I bought 13,540 shares of them yesterday.
you are absolutely spot on… exactly what is happening to SIRI and it could be just a handful of shorts buying and selling this now… as the fins date draws near more will cover and be out of this. already short interest have dropped; now its more the MM’s that have to cover the rest, but because they control the pricing and market, they can take their time at everyone’s expense.