[lifeisstillgood]

(Sorry bout this folks - just trying to wrap my head around it)

What we seem to know and the unanswered questions:

- this seems to be an atrociously bad startup (their "search engine" proxies Google but can be easily tripped)

- it seems to have been a genuine IPO (2000???) that then failed (see search engine) and yet the outstanding shares trade OTC (between large institutions privately - a very common method)

- the scam that seems to be happening is curious (See good explanation about Eve down thread). The idea is bad scammers can trap genuine hedge funds into a short squeeze on this very rarely traded stock. But no sane hedge fund will short the stock without also buying a call option - and so it seems only insane hedge funds get ripped off here.

My questions:

Why on earth are these stocks still lying around and being traded OTC. This seems the sort of thing that would never get allowed on any genuine exchange (the company could barely fulfill minimum reporting requirements)

Why did anyone take this as a "naked short"? Options trading is risk risk risk and people do this for a living aren't fools. Are they?

Even if this got public in the dotcom boom, why is such a scammy company still allowed to operate with outstanding shares ? I mean they have only just halted trading on a company that proxies Google ... Why give the imprimatur of SEC over the past few years to such crap?

[PhantomGremlin]

But no sane hedge fund will short the stock without also buying a call option

Bill Ackman reads this and says "Oh, shit ... you can do that? Why didn't someone tell me that before I lost about $1 billion shorting that POS Herbalife pyramid scheme?"

In other words, sometimes "insane" hedge funds are run by BSDs[1] who are convinced they are the smartest guys in the room. They're so convinced that a stock is worthless that they don't bother doing something prudent like buying protective calls.

And then guys like Carl Icahn buy HLF stock just for the lulz, knowing that they are giving Ackman a very painful galactic wedgie.

Wall Street is definitely Adult Swim. And occasionally joker hedge funds need to be reminded of that.

[1] not Berkeley, but Liar's Poker

[pjc50]

They didn't take it as a naked short, that's no longer allowed: they had to borrow to short, and the borrowing was called in.

Presumably they couldn't find someone to write the call option at a reasonable price. Which makes sense for a volatile thinly traded stock.

[JumpCrisscross]

> no sane hedge fund will short the stock without also buying a call option

Short plus a call is a put. If you can buy a call you can just buy a put. Thinly-traded stocks such as this one would not have exchange-listed options.