By Parke Shall
NYSE Regulation has determined that the Company is no longer suitable for listing. NYSE Regulation commenced delisting proceedings pursuant to Section 1002(c) of the NYSE MKT Company Guide that applies when a company has sold or otherwise disposed of its principal operating assets, or has ceased to be an operating company.
NYSE further went on to say,
The Company has a right to a review of staff's determination to delist the common stock by a committee of the Board of Directors of the Exchange. The NYSE MKT will apply to the Securities and Exchange Commission to delist the Company's common stock upon completion of all applicable procedures, including any appeal by the Company of the NYSE Regulation staff's decision.
Many investors seem confused about what happens in a situation like this. We wanted to write a small article just to talk about reasons the company may have been delisted, along with what it means now that the company will be trading on the OTC Markets (OTCM).
Judging by the reasoning given by the New York Stock Exchange for delisting shares, this move does not seem to be a vote of confidence for the company. It appears as though the New York Stock Exchange had moved to delist shares due to a lack of an underlying fundamental business. MGT is in the process of trying to create business operations for itself, through its Bitcoin mining operations and licensing new hardware, but until now did not appear to have any meaningful sources of revenue and this may be part of the reason why the NYSE delisted the company.
There is also the potential that the New York Stock Exchange is working with other regulators and that this delisting in and of itself is part of a bigger action to come against the company. We really should have been on our guard for this delisting since the New York Stock Exchange stepped in and halted the company's issuance of new shares for its latest proposed acquisition. We wrote about this in a previous article and we stated,
First, and most obviously, it is proof that these regulators seem to be communicating with one another and working with one another. We do not think it is a coincidence that the SEC issued a subpoena and the NYSE halted the company from issuing shares a day later. Whether one was done in reaction to the other is certainly possible, but we're fairly certain that these two regulatory agencies are in communication with one another and until they are both satisfied that shareholders are being protected and that no wrongdoing is taking place, it doesn't look as though either of these clouds will part ways anytime soon. It also wouldn't surprise us to learn that other regulators are looking into the business.
We do believe this delisting is a sign that regulators are watching the company very closely and that there may be for the regulatory risk coming down the pipe for the company.
Part of the reason for the delisting may have also come from questions surrounding soon to be CEO John McAfee after Showtime's "Gringo" documentary recently aired. But until we get a statement a further explanation from the New York Stock Exchange, it is going to be difficult to speculate further about the delisting past what has been disclosed as the official reasoning.
What will happen from here? Remains to be seen, but risk is elevated.
It is likely that the delisting will result in a loss of confidence behind the stock and we expect the price of the equity to fall from here. The stock will now be listed on the OTC Market and should trade pretty freely and with relatively close to the same liquidity as it did on the New York Stock Exchange. There are really no advantages to being on the OTC Market, but the disadvantages are that lots of retail brokerages do not allow access to the OTC Markets for their clients.
There's also been a misconception floating around on social media that because the stock is listing on the OTC Markets, it is unable to be shorted. This simply is not true. We have shorted, as have many of our peers, numerous companies that are listed on OTC Exchanges. There will be no new options offered by the CBOE, and finding borrow may be a little bit more difficult and costly than it once was, but we are 99% sure the stock will still be able to be shorted from here if borrow stays plentiful.
With that said, we do not have a short position in MGT nor do we intent on taking one. We also think it is simply far too risky to be long here.
In terms of what we are looking for from business operations, this doesn't change too much. We left our last article about Sentinel saying that we would like to get a real look at how the company plans on generating cash going forward before we would ever invest in MGT. Assuming that this delisting is not part of a broader move by regulators, which it very well may be, we will certainly not be purchasing shares unless we get a crystal clear idea of how the company plans on getting and staying profitable.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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