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Novastar Financial (NFI), the struggling subprime lender, has been at the center of a merry-go-round of self-generated hype in recent days, as this "naked shorting victim" poster child struggles to rescue itself from its self-generated horror. But yesterday we got the coup de grace:

Novastar is ducking into the last refuge of the corporate scoundrel--the reverse stock split. So says an announcement Monday, which has the 4 for 1 split buried in a happy-talk press release.

Reverse splits are famed throughout microcap stockland as an artificial means of boosting share prices, in this case by 400%. Hey, you got to increase the share price some way. If you can't generate profits, why not the stroke of a pen?

Seems that Novastar won't be filing for bankruptcy soon, but is being bailed out in a dog's breakfast disguised as a "bailout." Herb Greenberg observes: "The nature of this deal, which sounds eerily like a death-spiral financing, suggests just what terrible shape the company is in." Seems that all this "bailout" does is keep the company's furniture from being auctioned off. Investors are still screwed.

As fans of corporate train wrecks may recall, this company was a center of small-investor hysteria generated largely by a former used medical equipment salesman named Phil Saunders. Saunders was revealed by the New York Post to be the crackpot who runs an anonymous stock market conspiracy website called "sanitycheck" under the pseudonym "Bob O'Brien." Amazingly enough, this moron -- who hyped Novastar as a center of lurid "naked shorting" conspiracies -- managed to suck in a sizable number of rubes to buy this faltering stock and not sell when things started looking bad.

His website was mercilessly hyped by Overstock.com (NASDAQ:OSTK) CEO Patrick Byrne -- who went so far as to push his site on CNBC, and to hype the site on every Overstock.com web page. That over now, and the result is a major victory in the fight against mental illness. Readership has trailed off dramatically since the Overstock promotions ceased, according to Alexa. (Click on the three-year chart to see the magnitude of the decline since early last year.)

Working with Saunders in pumping Novastar was a Howard B. Hill, who works on the fringes of Wall Street and is known mainly for mindless hype of the stock on stock message boards. His rants were republished as "The Best of HHill" on a stock-hype website called NFI-info.net, founded by Saunders and now defunct. Fortunately, his tireless overoptimism is preserved for posterity on the Wayback Machine.

Gretchen Morgenson of the New York Times noted the other day that Hill is affiliated with one of the entities involved with the "bailout." Seems that every dog, and every shameless stock pumper, has his day. Perhaps Phil Saunders should be paid a finder's fee?

Source: Novastar Financial: The Last Refuge of a Corporate Scoundrel