Novastar Proves Virtues of a Reverse Split

| About: NovaStar Financial, (NFI)

Naked shorting poster child Novastar Financial (NFI), the struggling subprime lender, has proved the wisdom of the 4 for 1 reverse split that it inaugurated last month.

Reverse splits are, as I explained at the time, the last refuge of a corporate scoundrel. This stock-pumping artifice, which really should be illegal, artificially pumped up the price of Novastar shares instantly by 400%.

And it was well-timed at that! At the time the split was announced on July 16, Novastar was trading at $7.51, or $30.04 adjusted for the split.

This afternoon -- its stock already up 400% because of the split -- it was $6, and had been as low as $4.17. The stock declined because (surprise suprise) an analyst reiterated his underperform (translation: "this is a piece of garbage") rating. Here's Herb Greenberg's take on the day's events.

If it hadn't been for the split, in other words, Novastar would be a $1.50 stock.

Talk about great timing! But what the heck, you know why this has happened. Subprime lending woes? Not on your life. It's naked shorting, you see.

Which reminds me: I wonder what naked shorting nutcase Phil Saunders a/k/a "Bob O'Brien," Novastar booster and founder of the wacko "Sanitycheck" website, thinks about all this? He was Novastar's No. 1 fan and founded a website dedicated to advancing the cause of Novastar, "NFI-Info."

Ditto for Mary Helburn of "Enron was a naked shorting victim" fame, another Novastar booster who heads the National Coalition Against Naked Shortselling.

These two characters have some explaining to do.

The stock closed at $6.78. Woop-de-doo! It's down only 77% since the reverse split was announced.