back to article OCZ shares trashed by short seller's research note

OCZ stock went into freefall last week after serious allegations were published about its technology and its chief executive. According to a research note, the company was alleged to have hidden CEO Ryan Petersen's youthful misdeeds from investors during the recent secondary capital-raising. This was later discovered to be …

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Again?

This reminds me of the PorkBellies trading debacle of 1983 and the Blue Star Airlines insider trading scandal of 1987.

I've said it before and I'll say it again - Capitalism just doesn't work.

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Actually...

...capitalism does work. What doesn't work are completely artificial trades like "shorting" where you don't even have what you sell. Or "collaterised debt" where you magic a negative into a positive and sell the risk to some poor sucker.

When one or two did it, probably tolerable. When everyone is doing it, it just builds a market on thin air (call it a "bubble") and as we know, all bubbles burst.

No one will complain whilst they trouser their fake cash. it's all milk and honey. Their milk and honey, not yours or mine. When it does go bang, then they come crying for hand-outs.

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Capitalism

Capitalism works fine, in principal. The problem is greed, and the two seem to be inextricably linked.

Presumably the perpetrator has acted illegally, so I assume the authorities are after him?

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Short selling: a better definition.

There are two kinds of short selling, and neither of them is exactly as described in the article.

The first, more conventional kind, involves borrowing the shares, normally from a non-agency broker (i.e. a broker that holds shares itself rather than one that just acts as a go-between), selling them, and then later on buying some, hopefully at a lower price, to repay the loan.

The second kind, called naked short selling, involves committing a sell order while not holding any shares, not even borrowed ones, in the hope of a *very* short term drop in the price. You have to "physically" have the shares before your sell order reaches its settlement date, which is only a few days at the most (most markets operate on a so-called T+3 basis, settle 3 days after the trade, but some operate on a T+1 basis, settling trades the next business day).

Naked shorting is a way to make large sums on potentially volatile stocks, but carries the risk that you will have to "DK" an order (i.e. say you "Don't Know" anything about it, as in _Wall Street_) or take a significant loss. DK too often, and brokers will refuse to deal with you. Enough beyond that, and the regulators have words.

Naked short sellers aren't the lowest scum on earth, but they are vying for the title.

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Grenade

"... Capitalism just doesn't work."

So what would your alternative to Capitalism be, then?

A soviet-style planned economy (like that used by the 1940's-1980's USSR)?

Or an economy built around artificial currency devaluation and restricted human rights (like that currently used by the People's Republic of China)?

How about an economy based on the blatantly corrupt redistribution of natural and agricultural resources by an entrenched dictator, where hyperinflation is rampant and the unemployment rate hovers around 80 percent (like Robert Mugabe's Zimbabwe)?

OK, so capitalism may not work some of the time, but it works the vast majority of the time, and certainly a lot better than the alternatives...

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Big Brother

So the stock drops, so what?

If there is inherent value in the stock, long sellers will now have a field day. So why complain?

Of course, the accelerated "trading" and rumor-triggered stock market transactions. a.k.a. the self-described "financial industry" fed with cheap paper money like a pig bursting at the seams has no inherent value [it doesn't produce SSDs for example], but that's the way the circus rumbles.

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Pint

No really.

"Naked short sellers aren't the lowest scum on earth, but they are vying for the title."

Only if they are bullshitting their clientele about what they are gonna do with the money they are receiving and/or go crying to governemnt upon cratering later.

Otherwise - hell, they can play casino all day for what I care.

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Alien

Capitalism works fine in principal?

> Capitalism works fine, in principal .. Bilgepipe

What goes on in Wall Street isn't capitalism, more akin to a giagantic shell game where even the con artists can't tell the real from the imaginary. Trouble is - when the bubble invariably bursts - it's the poor schmuch consumer who has to pay the tab, in the form of higher prices, higher interest rates and bogus taxes, the revenue of which being forwarded to the fat bastards in bail-outs, the same fat bastards who caused the crash in the first place.

--

http://i.imgur.com/AlKzP.jpg

http://www.rense.com/general82/carrlin.htm

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Coat

Requirements

It just means wall street needs some government (law) regulations to prevent the ability of selling something you don't already own (naked short selling). Selling off shares that you borrowed (loan) is "acceptable" however, since you took the responsibility for the loan. Would buy like borrowing $1 million at 3% interest and loaning it back out at 5% (think of a bank that offers savings accounts). However, writing sensational documents (false even) to cause a stock crash after having shorted stocks? Make it illegal. How to catch people? They sold X stocks just prior to the dump, and bought back X+y (y being an offset with intent to "hide" their practice) shortly after the dump. Especially telling if they recently borrowed the stock. A bit of regulatory overhead (logging who borrows what, in addition to who sells what), but would smooth out the problem. Or at the very least, make it harder to do.

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Shorting, artificial?

It's really not. A 'short' is ultimately just a delayed sale: the key to a short is agreeing to sell something to someone later, say a week later. It's pretty hard to design a system where you couldn't short; you could require all sellers to have whatever they're agreeing to sell on hand right now, I guess, but that's as 'artificial' a restriction as shorting is an 'artificial' transaction.

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Anonymous Coward

Re: Actually...

You haven't got a clue what you're talking about.

The stock market was built on shorting, futures and more complex securities. When people exchange money for goods you don't need intermediaries. When you pay a farmer for 3 years worth of crop before he grows it because he's willing to exchange cash up front for a good deal, or when you fill a ship with multiple cargoes because one cargo might not be ready but it's still cheaper to pay some sort of prearranged 'fine' than sail an empty ship, or when you want to reduce your chances of ending up with an empty warehouse so arrange to fill it three times over from different famers with a get out clause, you get a stock market.

Collaterised debt is only the latest way that the educated greedy cunt sells stuff to the uneducated greedy cunt. All those people who took out unfeasibly large mortgages are just as guilty as the book cooking bankers. Just as in every other bubble and Ponzi scheme of the last x millenia.

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@AdamWill

Err....requiring people to have legal title (or at least, license) to sell stuff is an artificial restriction?

It's that kind of thinking that has caused the economic problems. Building markets on thin air.

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Go

IANAL

IANAL but surely there is something hugely illegal about releasing false information to the market in order to cause a stock price to crash in order to make a profit. At the very least anyone who sold their stock at a loss would probably have a good case to bring before the courts against Copperfield Research...

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It is in the UK

See http://www.fsa.gov.uk/pages/doing/regulated/law/focus/conduct.shtml

However, the statements made were not entirely false or misleading. I think it would be quite difficult to prove market abuse in this instance.

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Boffin

Not false information...

Here's the interesting thing.

The underlying information was actually factual.

OCZ also did misrepresent some key numbers in their report which caused the individual to question the veracity of the information.

OCZ said that they were correcting the reports however they do stand by their stated positive statements. (Meaning even though the numbers weren't correct we believe that we were correct in stating our future looks good).

Because the facts were correct, its not a black and white situation.

Did the individual who put out the report indicate that they held a position and that they were currently shorting the stock?

If they gave any disclosure about their position, they are in fact clean and no laws were broken.

If they didn't disclose that they held a position... things get a bit murkier.

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Grenade

So was fraud commited?

I have to ask as when somebody puts news out with intent to gain financialy and said news is somewhat overstretched then isn't that fraud?

Either way the OCZ products I've brought and used have been top notch great value for money and i can't say that about cosair from a personal buying experience. What more do we need to know.

I think what is more worrying about this is that there are enough idiots out there who will listern to other idiots who can have an effect on your share price, whilst for many this is not news it does put the whole company model and share holders over employee's perspective in a more colourful light.

Just remember - those with criminal records are just bad criminals, don't mean there bad businessmen, just bad when it comes to doing things wrong. It's the criminals that are never caught that you have to worry about.

Who would you trust - somebody who has a proven track record of not being very good at doing bad things or somebody who has no record of being bad. It's something to think about on many levels.

For what it's worth this whole story has had absolutely no effect upon me picking OCZ products in a negative or positive way, indeed it has no effect what so ever but for some reason when a company sells a product and the customers like it then who else's oppinion counts.

Next time can we sell the story short and say nothing to see here, move along. perhaps a Southpark PC icon is needed!!!

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Anonymous Coward

No title

> I have to ask as when somebody puts news out with intent to gain financialy and said news is somewhat overstretched then isn't that fraud?

No, thats called journalism and nearly every journalistic enterprise puts out news that is somewhat overstretched. Their financial gain comes from the increased circulation and advertising revenue.

Just because the increase revenue does not always materialise doesn't mean the intent isn't there.

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"... Capitalism just doesn't work."

Unregulated or laissez faire capitalism exploits the weak in society. Centralised planning stifles innovation. But surely a middle ground could be reached?

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Pirate

Buy, buy, buy

So if the stock is still down after the note has been proven to be untrue, surely the stock is currently a bargain?

After a 25% drop, even a small portion of that value being returned equals a tidy profit. It wouldn't surprise me if the fraudster who shorted is now going long...

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WTF?

so you're long

I'm guessing someone at theReg holds OCZ shares long to actually publish something like this. It's nice to know, but hardly news worthy, things like this happens all the time.

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Holding OCZ shares

No OCZ shares held by this puppy; only Overland and CommVault.

Chris.

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WTF?

I'm puzzled...

... as the value of OCZ stock changed based on the criminal background of its CEO, instead of being based on the fact of its either current or future technology works (or will work) or how big was its revenue.

That's not capitalism. That's like those gossip magazines betting on the next VIP scandal.

Oh wait...

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But that would have a bearing

People may be less inclined to invest in a company who have a former criminal at the helm, if there is less chance of investment then they may have a longer time to market on a new product.

Look at the brouhaha over Mr Jobs and the succession plan at Apple, when an individual is perceived to have such a bearing on a companies performance then they will be the focus on speculation as much as quarterly earnings forecasts.

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Anonymous Coward

Not necessarily a bad thing

OCZ's stock closed at 7.53 today, down 1% from yesterday. It is at it's lowest point in 3months though it was much lower up until the end of 2010. Increased sales now, because of the low price, will only bring it back up again.

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instability, engineering, Marx

The solution to short-term market instability is to include sufficient cost in the process. This makes the short term market less efficient (the price will be at the wrong level because of the drag), but makes the total market more efficient (because the prices won't be as volatile)

Oscillation, instability, boom and bust are the natural behaviour of under-damped feedback systems. Observing this, and that capitalism is a positive-feedback system, Marx predicted that capitalism would become more and more efficient (under damped), until it destroyed itself.

He wasn't an engineer, and didn't understand that systems could be designed for optimum damping. And he didn't appreciate that capitalism is economically inefficient at both the boom and bust ends of the cycle, so that there is an economic incentive to correctly dampen financial systems.

Of course, it looks like most regulatory economists still don't understand engineering or undergraduate maths, as seen in the "Global" financial crisis, and in regular short-selling scandals.

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