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There's some more info here: https://www.forbes.com/2006/08/25/naked-shorts-global-links-cx_lm_0825naked.html?sh=4fb88a4c8400 https://www.forbes.com/2006/08/25/

by Lazare 6y ago

There's some more info here: https://www.forbes.com/2006/08/25/naked-shorts-global-links-cx_lm_0825naked.html?sh=4fb88a4c8400 https://www.forbes.com/2006/08/25/naked-shorts-global-links-... Global Links was trading around 10c a share with ~350 million shares, for a market cap of around $35 million. They implemented a 350:1 reverse share split, which in theory should have resulted in them having a stock price of $35, 1.1 million shares, and a market cap of around $35 million. For some reason, it took longer for this to shake out than expected; in the immediate aftermath it was reported that enormous quantities of Global Links stock was still trading, and the share price had actually declined to a 8 cents. Presumably, some systems were reporting "old" numbers (pre reverse split) and some "new" numbers (post reverse split), and I'm sure an enormous amount of confusion resulted. And it was at this point Simpson reckons he bought 1.2 million shares for a bit over $5,000. That's less than 1/3 of a cent per share, which seems wildly off (the share price was 10 cents pre reverse split, and would have been expected to be $35 afterwards), but given that it seems a lot of computer systems were not handling this correctly, who knows what he was told by his broker? So...obviously Simpson did not purchase 110% of a company, and he definitely didn't do so for 0.01% of its market cap. I rather assume his broker had told him that he had done so, but that seems like fodder for a lawsuit between him and his broker over their buggy systems, but it doesn't tell us much else. It's possible he might have ended up owning 3.6k shares (about 1/3 of a percent of the company), but even that seems doubtful if it actually only cost him $5k. Anyhow: > I think the more interesting part of the story (if I'm reading it right) is he paid $5000 to completely own a company with millions in assets. I think the better reading of that is some guy found a bug in a broker's system that caused it to tell him he'd done that, but it would have been obvious to all concerned that whether he'd ended up with 0 shares, ~140 shares, or ~3.5k shares, he definitely didn't have 1.2m shares, since they never even existed.

phlo 6y ago
Just looking at the numbers here, this could just be a case of a sign getting flipped somewhere along the way. Global Links intends to do a reverse split, replacing 350 old shares (worth 10¢ each) with one new share (worth about $35). For the sake of argument, let's say they mixed up the ratio in their split filing. Instead of doing a reverse split, they do a forward split, replacing each share of old stock (10¢) with 350 shares of new stock (about one third of a cent, each). The shares trade at a somewhat high volume, because each share is worth a fraction of a cent. Simpson notices that, after a 350:1 reverse split, Global Links ought to have about 1M shares outstanding.¹ He also notices that the current trading price is a fraction of a cent. Small enough to make this a worthwhile experiment. He acquires about 1.2M shares without moving the price too much. He also doesn't question how this was possible to happen within a day or two. After the split, Global Links has some 100B shares outstanding. Simpson's position of 1.2M is less than one percent of that, so the shares continue trading as before. ¹ He might be combining multiple sources of information here. Perhaps his brokerage doesn't show reference data, so he combines the price he sees in his brokerage's app with reference data from Yahoo!finance or something.
- Lazare 6y ago
  Yes, that's a good observation.

by Lazare 6y ago

phlo 6y ago

Just looking at the numbers here, this could just be a case of a sign getting flipped somewhere along the way. Global Links intends to do a reverse split, replacing 350 old shares (worth 10¢ each) with one new share (worth about $35). For the sake of argument, let's say they mixed up the ratio in their split filing. Instead of doing a reverse split, they do a forward split, replacing each share of old stock (10¢) with 350 shares of new stock (about one third of a cent, each). The shares trade at a somewhat high volume, because each share is worth a fraction of a cent. Simpson notices that, after a 350:1 reverse split, Global Links ought to have about 1M shares outstanding.¹ He also notices that the current trading price is a fraction of a cent. Small enough to make this a worthwhile experiment. He acquires about 1.2M shares without moving the price too much. He also doesn't question how this was possible to happen within a day or two. After the split, Global Links has some 100B shares outstanding. Simpson's position of 1.2M is less than one percent of that, so the shares continue trading as before. ¹ He might be combining multiple sources of information here. Perhaps his brokerage doesn't show reference data, so he combines the price he sees in his brokerage's app with reference data from Yahoo!finance or something.

Lazare 6y ago
Yes, that's a good observation.