Issuing a Dividend - Topic from Yahoo Poster (bio.invest)

[otherottawaguy]

In reading the Yahoo board came across the following post, thought it might be interesting to discuss it here.

bio.invest bio.invest • 17 hours ago 

Al Mann should do what Federico Pignatelli, CEO of another biotech company did to stop short attack
Mr. Federico Pignatelli decided to offer dividend a tiny amount ($0.001) per share to activate audit and thus stop the short and start a short squeeze.
Call and/or email to IR of MNKD for attention to Mr. Federico Pignatelli's recommendation to small biotech businesses.
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Part of the SA article
...
If a company declares a stock dividend both the naked short seller and the short seller are on the hook to deliver those shares to the lender. This forces the short seller to "buy to cover" so they can return the shares to the lender. Couple this with the typical price appreciation of a dividend announcement and the fact that short sellers can get caught in a stampede that is self perpetuating because all of the short sellers try to "buy and cover" or exit at once. This phenomena is known as a "short squeeze" and drives the share price higher as shorts rush to the exits to close out part or all of their positions or at least whatever is required to satisfy the stock dividend requirement. Stocks with a high percentage of the float sold short are particularly susceptible to this phenomena.

Naked shorting can also effectively be accomplished via an illegal option strategy abusing the market maker exemption for short sales called a "reverse conversion". The SEC has caught onto this scheme and recently put out a "Risk Alert" detailing how to identify this activity but few think this "risk alert" will amount to any additional enforcement. The net result of illegal reverse conversions is a flood of fake shares that the short seller pours onto the open market in an attempt to quash rallies or stifle the stock price. These option pirates would be affected, just like a naked short seller, by a company issuing a stock dividend. Less

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I replied:

"would even give him the $400 to cover the dividend. Bet ya I would make it back a fifty fold in the resulting clown car dismount that would ensue as the short clowns pile out...

This would be a hilarious thing to do...say maybe on a weekly basis?"

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If MNKD granted a dividend of something like $.000001 per share (yahoo posters PFG's suggestion), that would currently amount to about a $400 payout.

Questions to the board: 
Would this actually be a viable thing to do to keep the shorts in check?
How often could it be implemented?
How much would it cost per application?
Could it be done and then a secondary announced (ATM exercised)?


Enjoy,

OOG

[StevieRay]

I really don't believe it would apply in our situation since we don't have any naked shorts. We did have on the warrants (MNKDW) for awhile but that has already cleared. Shorts do serve a purpose and in most cases have given us longs greater opportunity to buy at lower prices. Naked shorting is altogether different. It's like what our government does when it decides to print more money. Very dilutive.
Here's the link to Regulation SHO and you can go back and review the history too. Only MNKDW was ever naked shorted and is no longer an issue.
www.nasdaqtrader.com/trader.aspx?id=RegSHOThreshold

[babaoriley]

Not that easy, if it were, you'd hear about it being done a lot more.  Of course, there are statutes that prevent issuing dividends when the company is, essentially, upside down; I doubt MNKD could legally issue a dividend currently.  If it could and if it did, my understanding would be that rather than have to cover, a short would merely have to pay the dividend, just as a long would receive same.

[mdcenter61]

Personally, I'd rather they just sell the hard assets and intellectual property for around $15 to $20 billion and then declare a $50 per share liquidating dividend. That should take care of the shorts. Oh well, back to reality.

[Deleted]

We can use the old accounting measure A = L + SE. SE = SC + RE - TS. This is just noise. MNKD will issue no dividend until sales roll out..

[mdcenter61]

Not to belabor the point, Douge, but Assets should equal Liabilities plus Equity; therefore, Assets MINUS Liabilities equals Equity, not plus. Agreed on no dividend for a number of years; the original thread was just discussing a theory on possibly how to handle naked shorts.  No retained earnings, no dividends, unless in liquidating form.

[Deleted]

Aug 21, 2013 16:21:37 GMT -5 mdcenter61 said:

Not to belabor the point, Douge, but Assets should equal Liabilities plus Equity; therefore, Assets MINUS Liabilities equals Equity, not plus. Agreed on no dividend for a number of years; the original thread was just discussing a theory on possibly how to handle naked shorts.  No retained earnings, no dividends, unless in liquidating form.

Thanks for the correction! Will edit!

I agree, this topic was discussing how to handle naked shorts, however if we're to say we'd be able to handle shorts by issuing a dividend... well it's not likely. It's like saying  we can stop China from passing America's GDP by nuking them off the map. Plausible... yes but likely... no.

[Deleted]

Aug 21, 2013 9:06:30 GMT -5 StevieRay said:

I really don't believe it would apply in our situation since we don't have any naked shorts. We did have on the warrants (MNKDW) for awhile but that has already cleared. Shorts do serve a purpose and in most cases have given us longs greater opportunity to buy at lower prices. Naked shorting is altogether different. It's like what our government does when it decides to print more money. Very dilutive.
Here's the link to Regulation SHO and you can go back and review the history too. Only MNKDW was ever naked shorted and is no longer an issue.
www.nasdaqtrader.com/trader.aspx?id=RegSHOThreshold

Stated perfectly.