The Big EasyPertaining to my suspicions and allegations communicated to the OSC and RS of stock manipulation, the following excerpts from the court documents are interesting:
(l) Wellington is not a "promoter" (as that term is defined in the Securities Act (Ontario)) (the "Act") of the Corporation; and
(m) the Corporation (Samsys) is not a "market intermediary" as defined under Securities Laws.
The above from pertains to the $6 million secured debenture – specifically the attached warrants - not the $1 million floorless convertible. My concern is these points, particularly item (m) were used to allay any suspicion of stock manipulation undertaken to increase the number of shares the convertible could have acquired, had Wellington permitted the unsecured lender to go that route. Not that the judge presiding would have considered the matter, but rather these clauses just gave her more reason not to.
As far as point (l) goes, we know Wellington is not a promoter of SAMSys, if anything they did just the opposite in serving notice of default. It’s obvious now that they set this up for a takeover by Sirit. Their first ploy might have been to devalue SAMSys’ shares so much as to make a buyout by Sirit affordable, but now we see they took it one step further by getting SAMSys to agree to “insolvency” and shut out the shareholders altogether. And it appears interestingly the owner of the floorless convertible either was shafted as well, or quietly payed off on the side as that debt was not mentioned at the insolvency proceedings. Somehow, that debt mysteriously “disappeared”.
I believe point (m) refers to Section 204 of the Ontario Securities Act – I couldn’t find a ready definition although with more time I could. I did browse some documents however and I gathered from the context it means not a market maker per se, but rather an entity that is legally entitled to broker trades in a stock. In other word SAMSys does not broker trades in its own securities. Obviously that would represent a conflict of interest in the exercising of warrants by its own lender (Wellington), so it’s a necessary and sufficient condition in that regard. OTOH, does anyone know of a company that brokers trades in its own stock? Talk about the fox guarding the hen house. Even PP’s are underwritten by third parties. Seems to me item (m) is redundant - it’s just saying the obvious.
Anyway a moot point insofar as the warrants were priced at a level that Wellington couldn’t benefit from given the trading history of SAMSys since last August (a point I posted earlier when I suggested Wellington was miffed at not profiting, at least immediately, from an equity participation).
What concerns me however as that both (l) and (m) above were used by both SAMSys and Wellington to distance themselves from any responsibility for the dramatic decline in share price we witnessed over its last weeks. They can both claim it was just a “natural” market reaction to the bad news that came out, glossing over the fact that they sourced the bad news themselves.
What troubles me additionally is that the published short statistics don’t support stock manipulation. These stats are reported twice monthly however and since they’re just snapshots on reporting day I believe it’s quite possible that they can be manoeuvred to hide the level of shorting that occurs between those days. The other explanation is the shorts were naked and therefore not reported, although SAMSys’ float was large enough that I doubt naked shorting was necessary. The other explanation, or perhaps one in addition to, is that some of the sales were free stock granted to insiders, most notably Horowitz which, as I’ve already mentioned hasn’t disclosed his cost base, if any, of his initial SEDI declaration.
One thing I do suspect is that the shorting complied with the “uptick” rule and therefor would escape detection of being in violation of exchange rules. As one poster, who may have had Level II access observed, a wave of sellers came on board every time the stock went up a notch. Panicking longs looking to minimize their losses on an uptick? Or traders watching the markets every move in real time and capitalizing on that, shorting to buyers who still believed that Samsys could beat default and couldn’t resist the “cheap” price? Still, trading was halted well in advance of the TSX’s scheduled notice of delisting (if I recall it was to trade to the end of May), so this may mean an investigation could bear fruit.
It’s my contention that these traders, or at least one or some of them, were working on Wellington’s behalf (for the reasons above and/or maybe to help settle the SAMSys debt with extra cash taken from the market) as third parties in a not-so-arms length relationship. Those that weren’t just took a free ride.
One wonders if MGI Cap and Haywood were among the “market intermediaries”…
Diz