Sirius: Lessons in Manipulation, Part II

My recent article regarding stock manipulation left many questions unanswered. I have received numerous requests as to how it may work more specifically to Sirius XM (SIRI) and who may be involved in such manipulative practices. Allow me to introduce to you a means of manipulation that I believe is occurring with Sirius XM common stock; the Wash sale:

A wash sale involves a person, either directly or indirectly, being both the buyer and seller of securities in the same transaction, that is there is no actual change in ownership of the securities. The manipulator will undertake frequent trades hoping to attract other investors who note the increased turnover in the security. The manipulator aims to gain financially through creating a small price differential between the buy and sell rates of the security in question.

Sounds a lot like Sirius XM common stock, doesn’t it? Over the course of the last 2 years, every Wall Street analyst maintained a buy recommendation on Sirius. All that is, except one. Mark Wienkes of Goldman Sachs. In what could only be described as amazing insight, Mr. Wienkes was the only analyst that was right about Sirius, albeit always for the wrong reasons.

During this time we learned that Goldman Sachs (GS), which had a conviction sell rating on Sirius shares, had quietly acquired many millions of shares of the equity and that Goldman Sachs owned most of the February debt used by the media as “evidence” of Sirius XM’s recently averted doom. You read that right. They owned most of the bonds that were supposedly going to be defaulted on and they owned the very shares of stock which they recommended selling.

They hedged their short position by going long the stock, and hedged the bonds by shorting the stock. Seems to make sense. Enter Charles Ergen…

According to the press, Mr. Ergen had been “quietly” buying up Sirius XM’s February debt for some time. In acquiring the bonds from Goldman Sachs, Charles Ergen would have done what any prudent investor would have. He would have shorted the stock. The leak of potential bankruptcy created a scenario in which both Ergen and Goldman Sachs were able to cover their short positions at the expense of the retail investor, for as little as .05 a share. They were then paid full price for the bonds they had acquired for pennies on the dollar. We may never know who leaked that information, but the media sure did run with it by making claims that bankruptcy was coming within days.

Hindsight manipulation is easy to see. As rumors spread of Sirius XM’s potential bankruptcy, the bond prices retreated and were scooped up by Ergen, who by now had to have knowledge that Sirius XM was in talks with Liberty’s (LCAPA) John Malone. Had this been made public during market hours rather than over a three-day weekend, the scheme would have been ruined. The weekend gave the media time to be manipulated into putting out stories that minimized its impact.

I think it’s probable that Goldman bought and held those bonds on Ergen’s behalf. Goldman’s position (along with their hedge fund buddies) in the equity made it entirely possible for both Ergen and Goldman to cover their short positions as Goldman and friends sold off an equal or greater number of shares from the long positions they had accumulated. Hence, the wash sale.

With the prior knowledge of events to come, client recommendations could have been made by Goldman to facilitate the scheme and the retail investor was again fleeced, with absolutely no fear of retribution by the SEC. Credit market and automaker woes facilitated the scheme.

This could be a scenario in which the stock was intentionally artificially suppressed. It could have no merit whatsoever (Legal Dept Put This Here). Is it more likely than not? Probably so.

I believe this is continuing in that there remain over 150 million shares short in the equity, which still need to be covered. Our old pal Jim Cramer gives us a clue into who the new manipulator of Sirius XM may be.

Disclosure: Long Sirius XM, no position GS

Comments

[PaperGains:]

Similar to a daisy chain. When are regulators going to step up and protect the retail investor! Over the past few years it seems as if the SEC and others have done everything hedge funds and 'hedge fund like' firms have wanted, thus one of the reason we find ourselves in this mess now. There's been little to no enforcement and the old safety nets have been removed. Volatility wouldn't be nearly as high if regulators would do their jobs. One of the reasons the market will likely stay down for a while is the retail investor has been shell shocked and scared away.

PaperGains

Mar 07 04:52 PM

[bill blattner:]

Mr crammer
If my SIRI goes into bankruptcy and my stock becomes worthless I will not renew my 4 radios.
And a lot of others I know.

Mar 07 05:09 PM

[wobatus:]

I think you should look more to the fact that sirius loses money hand over fist for why the price of the shares went down. They had too much debt. All the rest is just a consequence of that. When you are over a barrel, people take advantage. Get used to it.

Mar 07 06:01 PM

[chimney:]

wow

Mar 07 10:40 PM

[Content seeker:]

It still amazes me that the naive folks at Terrestrial Radio still have their cronies like wobatus and friends spreading negative comments on Sirius . They have crap for a product and should be spending their energies into making their product better. I suppose they know that there time would be better spent bashing Sirius, because they are doomed.

Get ready for a surprise on March 17th when you see a surprisingly increase in subscribers. In this economy one might think that cancellations will out number new subscribers. After all there is a choice for free radio. Get real you paid off bloggers. I am interested in seeing your spin once these numbers are released. Any prudent investor will realize that there must be something to this company when just about everyone else is losing business/clients. This will be the start of setting the stage for added interest in owning this stock. March 18th 20 + and holding until the next good news surfaces. I still believe that Sirius will be bought out by a cash cow company and John Malone will get back his loan and cash in on his 12 million shares. He will have made a great deal of fast money and will have thwarted his competition to the point where they will no longer exist and he will have the entire Sat TV spectrum.

Mar 07 11:06 PM

[fpcat1:]

is this wash sale, which is a trading manipulation, legal?

if not, should'nt sec be interested and check out this report?

Mar 07 11:09 PM

[Content seeker:]

SEC is lame ... They have demonistrated that they are a sleep at the switch. They should be investigated especially their previous chairman Christopher Cox. This man tenure in office has been a sham. Corruption is every where in government. There has been many small growing companies that have fell to the unethical dealings of the short sellers and hedge funds.

Mar 08 01:22 AM

[mogami_99:]

Hi, A wash sale is when you sell shares at a loss and then turn around and buy them back. You can't claim the loss now.

The wash sale period for any sale at a loss consists of 61 days: the day of the sale, the 30 days before the sale and the 30 days after the sale. (These are calendar days, not trading days. Count carefully!) If you want to claim your loss as a deduction, you need to avoid purchasing the same stock during the wash sale period.

Mar 08 10:56 AM

[mogami_99:]

when it dawned on me SIRI was going to continue down I sold my shares at a loss. When I thought the price had hit bottom I rebought them (actually I was able to buy more shares with the same money)
I actually repeated this process several times before the price finally began the .11 to .14 cycles in Dec where I could sell for a gain and buy back in later at the lower price.
Since the SP kept falling even though I was doing wash sales the only change was I was adding shares each time. (I sold the shares I bought at .60 at .28 and bought twice as many at .14)
All this lowered my average per share. When I finally started selling at a postive the old wash loss was subtracted from my profit. (even though I sold shares bought at .10 for .17 the record still knew the .10's were bought after selling at a loss)

Mar 08 11:07 AM

[mogami_99:]

The main point about wash sales is you won't get to claim the loss unless the 61 day period is up or the SP goes up to where you sell the replacement shares at a profit. (Then you get the deduction for shares sold at loss)

example
buy 100@1.00
sell 100@.75 (loss=25.00)
buy 150@.50
sell 150@.25 (another loss=37.50)
buy 375@.10
sell 375@.20 (plus 37.50 but it is subtracted from previous wash loss of 52.5 that you could not claim before you sold. Remember you can't claim a loss on stock before you sell it and if you rebuy it is like you never sold it.


Make sense?
It's all legal you gain no benifit from this except YOU CAN INCREASE YOUR POSITION while a SP declines without introducing new money.

Mar 08 11:21 AM

[NotGonnaTak...:]

That's because these hedge funds will be their future employers.


On Mar 07 04:52 PM PaperGains wrote:

> Similar to a daisy chain. When are regulators going to step up and
> protect the retail investor! Over the past few years it seems as
> if the SEC and others have done everything hedge funds and 'hedge
> fund like' firms have wanted, thus one of the reason we find ourselves
> in this mess now. There's been little to no enforcement and the old
> safety nets have been removed. Volatility wouldn't be nearly as high
> if regulators would do their jobs. One of the reasons the market
> will likely stay down for a while is the retail investor has been
> shell shocked and scared away.
>
> PaperGains

Mar 08 12:53 PM

[fpcat1:]

mogami

thank you for your replies to my query re wash sale.

fpc

Mar 08 02:50 PM