Sirius Lessons in Stock Manipulation

I was asked Monday my opinion on a certain nameless penny stock. As soon as I pulled it up on a chart, my immediate reply was that “I would not touch it with YOUR money!” I recounted a certain experience I had as a broker-in-training many years ago, which I would now like to share with you, the reader.

The broker I worked under had a certain client who we will call Dr. Economics. This particular client had a net worth of many millions of dollars and held some very high quality investments in his portfolio. There was one exception, however; Dr. Economics liked to play with a certain penny stock called Panther Mountain Water Park which was worthless. That did not stop Dr. Economics from amassing a small fortune in the equity at the expense of less educated investors, also known as suckers.

Dr. Economics would suddenly begin buying PMWP at under a nickel a share and would do this using various size blocks. Some small, some large. He would accumulate over the course of a few days of buying, millions of shares at an average cost of less than .25. People who had no idea that only one person was buying the stock, would begin to notice that the volume and price had suddenly begun to move up sharply. Uneducated investors would automatically assume that some major news catalyst was on the horizon, as the press began to pick up on the increased activity. A buying frenzy ensued on the still worthless equity which Dr. Economics was now all too willing to sell for .90 - 1.00 a share! This is why no one should ever invest in a penny stock.

It was then pointed out to me that Sirius XM (SIRI) is a penny stock. To a certain extent that is true, if you look at the stock price only. There is a huge difference in SIRI in that there is a very active market for the stock. Penny stocks have very little volume to speak of, which makes them prime candidates for manipulation. Technically, the market cap of SIRI alone disqualifies it from penny stock status.

Unfortunately, neither volume nor market cap disqualifies SIRI from the same sort of manipulation that occurred with PMWP. Every day there are thousands of 100 share trades executed which all have a purpose; to keep the stock price of SIRI artificially deflated. The question that needs to be asked is, why? The recent short covering in my opinion reveals the answer. Short sellers needed to cover and these 100 share transactions kept the stock price low enough for short sellers to cover their positions and lock in a tidy profit for themselves at the retail investor's expense.

I believe that even more short covering is occurring now that the threat of bankruptcy has been removed. Short sellers have made a fortune on the stock and with the downside risk/reward being so low at this time, continuing to hold the stock short will only result in profits being eaten away. Already SIRI shares have climbed over 300% from their lows. Until all short sellers have covered, I expect more of this type of manipulation to occur.

I never received as much hate mail as I did when I suggested that a reverse split would be the best thing for Sirius common stock, but recent events have only reinforced my position that the stock has too many shares outstanding at too low a price. In my opinion, the only way for the company to avoid this sort of manipulation in the future, is to go ahead and execute the already approved reverse split. There are times when reverse splits are a good thing and for Sirius XM shareholders, this is one of them.

Position: Long Sirius XM

Comments

[Far away:]

This comment has been removed. General discussion of SIRI can be found at seekingalpha.com/mb/to...

Mar 03 08:35 AM

[mydogniles:]

This comment has been removed. General discussion of SIRI can be found at seekingalpha.com/mb/to...

Mar 03 09:31 AM

[KiIIerKaul:]

This comment has been removed. General discussion of SIRI can be found at seekingalpha.com/mb/to...

Mar 03 10:36 AM

[Far away:]

This comment has been removed. General discussion of SIRI can be found at seekingalpha.com/mb/to...

Mar 03 10:57 AM

[BigVinnie:]

NASDAQ has continually shown that sirius/xm is just in a bad position in the market place and that it's stock price at this time does not reflect on it's daily operations. I believe that NASDAQ wants this company to thrive especially when you look at its revenue and growth. This year won't be sirius/xms best year, but it won't be there worst either.
I don't think that the possibility of dilution would be possible since more than likely Liberty will own 40% of common shares. I think at this time there could be a reverse split. Which is good for share consolidation and increases the power of the common share..

Mar 03 11:03 AM

[sl62:]

This comment has been removed. General discussion of SIRI can be found at seekingalpha.com/mb/to...

Mar 03 11:08 AM

[Doobz26:]

This comment has been removed. General discussion of SIRI can be found at seekingalpha.com/mb/to...

Mar 03 11:17 AM

[357519:]

OldDruid,

I have been a faithful reader, so I know what Cos brings to the table. BELIEVE me I appreciate it! For the record, it is not my read on his personality either...the reason why I said please don't take offense. But the perception could be made. Maybe I was out of line for saying it; maybe I'm just frustrated because it is more of the same with this stock. All that said, I'm tired of getting my but kicked and I'm concerned that he is seeing something here.

Mar 03 12:23 PM

[IBuriedtheU...:]

I guess all of those Sirius people know how XM subscribers felt now when the merger caused the removal of alot of popular radio personalities and song selections. It made alot of people mad, but most Sirius subscribers just shrugged it off as too bad for you.

Ha. Doesn't feel too good when it happens to YOU, does it? How does it feel to have something you like taken away? Now multiply that anger by the cost of multiple radio subscriptions and you might see why Sirius XM shed many, many, many paying customers.

Mar 03 02:29 PM

[Bababooie:]

SPECIFIC TO THIS ARTICLE ABOUT MANIPULATION OF PENNT STOCKS AND SHORT INTEREST!!!

The disclosure of the short interest will go a long way to support your argument. Have the Short interest stabilized, gon down, or gone up since the announcement of the BK.

Mar 03 04:43 PM

[connorport:]

This is the worst time to RS! Shorts would drive the stock back down below a dollar again just on the regular market news. They should wait until the last minute to RS to see where were at by then. Exhaust all possible's first. Get the stock up as much as possible as to RS with as minimal impact as possible. Maybe 10/1 VS 50/1.


On Mar 03 11:03 AM BigVinnie wrote:

> NASDAQ has continually shown that sirius/xm is just in a bad position
> in the market place and that it's stock price at this time does not
> reflect on it's daily operations. I believe that NASDAQ wants this
> company to thrive especially when you look at its revenue and growth.
> This year won't be sirius/xms best year, but it won't be there worst
> either.
> I don't think that the possibility of dilution would be possible
> since more than likely Liberty will own 40% of common shares. I think
> at this time there could be a reverse split. Which is good for share
> consolidation and increases the power of the common share..

Mar 03 07:42 PM

[kris23:]

What is going on in the comment stream here? Anyhoo, I liked this article and from the little knowledge I have on this subject, I thought your argument was straightforward and made sense.

Mar 04 01:50 PM

[jpau:]

I must be missing something. When a short seller covers, he or she buys stock, correct? How, with the gazillion shares of Sirius that exist, could anyone buying blocks of 100 shares keep share price down????

This article makes no sense. Sirius' stock price is low because they diluted the common to the point of homeopathy.

Mar 04 09:58 PM

[Mrcody:]

If you buy the penny stock before the manipulation is done, you are OK. If you buy at the pumped price of .90-1.00, then you are the sucker.

Mar 08 11:24 PM