Some of you are somewhat cynical. Whenever one talks about authorities, be them the SEC or the Fed, you crumble into a ball and just criticize, criticize.
Yet, this time Cynk Technology (OTC:CYNK) proved different. After a session when this behemoth attained a $6 billion market capitalization on what was essentially air, the stock took a slight intraday tumble. This happened due to the machinations of a non-believing CNBC as well as my own article.
In a market that's pre-ordained to march ever higher, backed by the full faith and credit of the United States, this intraday tumble had the potential to wipe out significant amounts of wealth. It was a wealth-destroying move which menaced the well-being of all-American entrepreneurs who gave their best to produce this enterprise.
Hence, it was only fair that the authorities would step in and stop the bleeding. It was only fair that the malicious short sellers behind this wealth destruction be punished. While we cannot as of yet jail these wrongdoers or even, for unfortunate lack of proper legal grounds, fine them at the appropriate rates, the authorities found a way.
The clever mechanism
So what could the authorities do in such a sensitive situation where quick action was needed to protect the righteous and deserving?
Remember what I wrote before. Borrowing stock on this magnificent enterprise was a bloody expensive endeavor. Indeed, when I checked it, the short rebate fee was running at 120%, but later that day it went up to at least 360%, and even today it stands at 144% right now (Source: Interactive Brokers)
So what did the authorities do, in the face of the massive intraday reversal, the wealth destruction, and the massive short rebate fees? They suspended the stock from trading!
What does it mean, in practice?
It means the stock doesn't trade. You can't trade it, in or out of positions. But remember, there are open short positions. Those short positions are paying interest at 144% per year on their present value, which might well greatly exceed the cost basis of the short position.
A short position established at, say, $4, is paying an annual 144% interest rate on the stock at $14. This means it's paying interest at a 500% annual rate on the original cost basis. And this money mostly flows to those lending the shares - that is, those who took the stock into the stratosphere!
In short, if the authorities keep the stock suspended, the short sellers are massively punished by having to pay incredibly usurious interest rates on a position they cannot close, and which cannot drop in price either!
Put simply, the authorities, in their snail's pace race to help, actually did the perpetrators bidding!
It's getting very hard to differentiate the crooks from the cops.
Some sarcasm might have seeped into this article. The authorities can still redeem themselves if the suspension of the stock is quickly withdrawn and the situation properly investigated.
Disclosure: The author has no positions in any stocks mentioned, but may initiate a short position in CYNK over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.