The Earlier VKNG Encounter

Flashback to the preceding post:

I started trading stocks from August 2004. Two years after that ,in 2006, while watching the trading of a small/micro cap stock I was holding I started paying attention to how the selling of shares there seemed to be part of an attempt to pressure the price of the stock rather than trying to get the best price possible. I complained to the SEC and as a result of that my name was revealed to the hedge fund guy who was the same guy here. Anyway, later I started to pay attention and recognize the same thing everywhere I go in the world of small/micro cap stock. For years and years, I also wrote about it in the message boards of these stocks and my writings sounded weird and drew very little ,if any, expressed agreement. That did not affect my believe in what I thought was very clear and I became more interested in making a lemonade from these kind of lemon. In October 2009 I noticed what seemed to me as one opportunity to apply that understanding of mine on a stock that seemed to be played in that same way on the stock of a public corporation (at that time) called Viking Systems which was trading under the ticker VKNG. I noticed that the stock was being pushed down to an extremely low prices.On 10/22/2009 I jumped in and bought over 2 million shares for less than $13000. The guy playing the stock was this same hedge fund guy here and he did not care about selling me all these shares. In fact, if I wanted I probably could have bought much more from him in the next days at also extremely cheap prices but I had to stop buying because of the filing requirement on 5 percent owners of individual investors (According to 17 CFR 240.13d-1 (b) (2) it seems that a hedge fund,on the other hand,can acquire and dispose of ownership less than 10 percent as much as it like and wouldn't have to file unless it has that ownership on the last day of the year). A few days after that the stock started to move higher and reached over $1 a share before the middle of November 2009. Along the way,this hedge fund guy continued his pressure on the stock ignoring the reality that he himself chose. He did not have enough shares to do that and as a result the stock entered the Regulation SHO Threshold Security List (SHO list) three times. The SHO regulation is related to the selling of shares without really delivering those shares to the buyers account. If these shares reach a specific percentage and remain at that percentage for a specific period of time then the seller of those shares (or his broker) will need to buy and deliver those shares .Yes, I know,it is absurd. It is like saying you can steal but don't exaggerate too much. However this the best individual investors can get from the legislators and regulators. If that was not enough, consider when was this regulation enacted? 1934?No. 1950?No.1965?No.1980?No.1990?No .It was not until 2005 that apparently they reached the recognition that selling nothing as shares is not acceptable. Anyway, returning back to the main story here, the hedge fund guy sold enough fake non existent shares to make the stock goes to that SHO list three times. At least in one of these three times it stayed long enough there to satisfy the buying back requirement of the SHO Regulation while in the other two it came very close.[(Added 9/20/2013) Checking back the record shows that actually the stock stayed on the SHO List from  11/14/2009 to 1/4/2010 continuously]. Nevertheless there was not any noticeable buying back and the pressure on the stock at low prices continued. It was not unreasonable to expect that buying back of these shares could have resulted in the stock reaching a price higher than $5 a share because of how squeezed this guy was.In fact that could be an understatement.Yet, there was not anything to indicate that even a part of that required buying of shares to be delivered to those who bought shares that were not delivered to them. Instead of that there was something that even on its own and without any of the above should have aroused a great suspicion to investigate what was going on. That thing was a sears of SEC fillings the like of which I had not and still have not seen. These SEC filings were filed on 12/14/2009, 12/15/2009, 12/17/2009,12/18/2009 by a company called Midsummer Investment Limited. This company initially filed that it sold millions of shares after the stock started moving higher starting from 11/03/2009 and filed on 11/16/2009. The newer filings on the dates mentioned above all contained this very unusual paragraph with variations only in the number of shares mentioned which I wrote in italics here

"On November 16, 2009, the Reporting Person filed 12 Form 4s reporting the disposition of shares of Common Stock of the Issuer (Accession Numbers 0001144204-09-059660 through 0001144204-09-059664, 0001144204-09-059666 through 0001144204-09-059670, 0001144204-09-059672 and 0001144204-09-059663, collectively, the "November Filings"). Subsequent to the disposition of the sales, on account of the failure to obtain legal transfer of the sold shares through the issuer, the Reporting Person's broker involuntarily elected to buy 451,000 shares previously reported as sold by the Reporting Person to cover the sales disclosed in the November Filings. The Reporting Person does not consent to nor has it exercised any discretion or control over the buy-in. Accordingly, this filing reverses the previously reported sale of 451,000 shares of common stock pursuant to the November Filings"

There were 2428000 shares in total reported in these filings which probably represented all the shares initially filed as sold. [(Added 9/15/2013) There was no need to say "probably" in the preceding sentence since I did count them and they are exactly the same number]. So, there were supposedly a buying back that ,again supposedly, reversed the initial selling of all these shares. There was not any indication that this buying of shares really happened. How this buying happened?From whom? People were talking about the stock in messages boards and none of them spoke about a buying back happened to him/her. Again,there were absolutely nothing supporting that claimed buying back really took place.This made the suspicion that 2428000 fake shares sold and kept in the system unavoidable.

Less than a month later I started telling this hedge fund guy through a message board on which he posts frequently that the game he was playing with that claimed buyback should be corrected or he will be reported. I had over $2 millions of gain and a potential of a much higher price because this guy was squeezed which all were taken down and stayed down because of the support of that fake buyback claim but I still wanted to give this guy time to realize the danger of the game of he played.

I waited for more than a 100 days trying to give this hedge fund guy time to deal with reality and manage himself in a fair way. What he did instead was to go to the company and offer them financing they were looking for at terms that sounded very tempting in exchange of shares. He sent a company called Dutchess Opportunity Fund, II, LP and made that deal through it. [(Added 9/10/2013) To be fair, the agreement was signed two days before I started writing about that buy back trick] .That financing deal gives the company the right to sell Dutchess shares anytime time they want based on a price that is only discounted by 4 percent from the market price. Initially I complemented those inside Viking Systems for getting such a deal. I based that complement on what is in the deal on its face while depending on the judgment of those inside with regard to how real it was and what was behind it. After a while I realized that the Dutchess was only a face and this guy was behind it. Who would accept to put himself under obligation to buy shares based on market price chosen any time by the seller without any restrictions? I don't think Goldman Sachs would accept such a risk not to mention a small fund. Moreover, who would want to take such a risk with a stock that jumped from under a penny a to over a dollar a share within less than a month? One thing that would make taking such risk reasonable is if Dutchess was counting on someone to keep the pressure on the stock inside the market. The financing agreement with Dutchess was also contingent on registering with the SEC for resale in the market 15 million shares.The company (specifically those who get this financing the CFO and/or the CEO) couldn't get financing anywhere before that not to mention one with such terms .All these and other factors and the timing of the deal made the conclusion that Dutchess was only a face and extension to this hedge fund guy unavoidable.

After realizing this I started writing to the SEC about that earlier strange filing and the rest of the story here. But that was after over a hundred days and millions of shares were already added through this financing agreement which may at least cover the original problem at the surface level. That doesn't mean that the initial game became untraceable. But one try as much as possible not to give any excuse to that fake entity called the SEC.What really changed by the passing of time ,however, is that the hedge fund guy had already dragged with him some of those on his side who were not inclined to take the unnecessary risk he was taking but lacked the will power to refuse continuing with him. Had I started fighting back early I probably could have strengthened that side of them.

But if you think the role of the SEC with the like of this hedge fund guy is only to stay away from investigating and prosecuting them then you are mistaken. It is also there to protect and serve. It may act to protect them from justice and also to serve their unjust actions. For after sending my complaints ,to my surprise,this time I received a response. That response came from the office of the SEC in New York which claimed that they want to make a teleconference with me regarding my complaint. Although at the beginning I tried to be more optimistic, by the end of the day I could no longer keep even a modest amount of hope that their interest in my case was real. It was very clear that they did not care about my complaint. Although I would still have seen it clearly without knowing what was their real intention, I had a very strong suspicion about what they really wanted and that suspicion became firmly established after attending that conference call they wanted. What they were really interested in was serving the hedge fund guy. Although he had his suspicions because of my posting and big interest in the stock, it appears that the hedge fund guy wanted to make sure I was the one who jumped in and made that big buy of the stock and not another hedge fund and for that purpose he used the SEC to extract that information.Here is some of what I wrote about that. At that time I was still not revealing my early entry and the position I made.

http://unallowedthoughts.blogspot.com/2010/07/corruption-beyond-belief-inside-sec.html

For this hedge fund guy, with the help of the shares he was acquiring through his Dutchess face were able to keep the price continuously under pressure inside the market on the stock. Then, taking advantage of the low price in the market which he himself was causing,in May 5, 2011 the hedge fund guy came again through a third face to buy shares in private placement.Of course, it can be much cheaper to buy shares through a private placement after the stock was kept at low price all that time than at the beginning.The new face he came through was a company called Clinton Group,Inc. (the investment manager of Clinton Magnolia Master Fund,Ltd.) and acquired 12 million shares and 9 million warrants exercisable at 25 cents a share for a total of $3 millions. In addition, although he had already acquired over 10.97 million shares through Dutchess financing agreement, he also made the deal contingent on registering for resale with the SEC those 12 million shares acquired in the private placement and it was declared effective with the SEC without any problem.

Midsummer Investment (the company who made the strange filings talked about earlier), "sold" all its holding of the stock (7,223,457 shares and 5,551,034 warrants) to the Clinton Group at the same time when that financing agreement was made. That shows even more how much these actions really belong to parties who are acting as separate entities or in fact parties acting as one entity with these games.

That claimed transfer of ownership also helped avoiding a restriction on the conversion of those warrants held by Midsummer not to lead to Midsummer's ownership exceeding 4.99 percent of the total outstanding shares.

The next step after that for the hedge fund guy was to use the ownership he made in the corporation to have his directors added to the board and three of them were added.

Now that he has his directors inside ,and certainly is  even in a much better position to keep the pressure on the stock price inside the market, he came through a company called Conmed to take the company through a merger. The offer price of 27 cents a share was empowered by how it sounded relative to the market prices which he himself had been keeping down under pressure.The merger agreement was agreed on by the three added directors and only one of the original directors with the rest of the original board abstaining from voting.

After all that, he did not wait long to play the kind of manipulation he played in this case and repeat the arrogant response in the manner I described in the preceding post.

This was only a summery and more could be added and elaborated on.