Everyone puts their big boy diaper on when they enter the arena of the capital markets and this guy / firm knew the risks (and screwed the pooch pretty badly on this), but I still hate to see this. CYNK was such an obvious scam that it’s disheartening to see someone lose their job over the SEC not doing theirs.
This quote pretty much sums up the entire ordeal:
“I came home and was trying to explain [CYNK] to my oldest son; he’s a smart kid. He’ll be a senior at William & Mary. That’s when my 10-year-old jumped in and said it was a scam. If a 10-year-old knew it was a scam, why didn’t the SEC know?”
Indeed sir, indeed. 10 year old > SEC at fraud detection.
As a part time career coach, I hate seeing people lose jobs when my goal is to help people get jobs, like the six or seven figure salary type jobs. That said, I personally think he was irresponsible, as was the firm’s risk manager, for not having a stop loss on the short position. He cost his firm a lot of money and should be fired, regardless of whether CYNK was a scam. How should the outcome be different if he got caught in a short squeeze shorting a legitimate company, and lost money for the firm that way?
I see so many people talking about shorting this or that, and it just sounds like amateur hour. Most people have no business short selling anything because the dynamics, both trading wise and fundamentally, are very different from longs. One key difference is that short positions get bigger as they move against you, so trying to press the short really only makes sense if you have a view that the momentum will turn in your favor. If your catalyst or inflection point is waiting passively for the SEC to step in, I personally think there are much easier ways to make money.
Also, correct me if I’m wrong, but didn’t the cost of borrow on CYNK go parabolic in June? I’m talking about neg 50%+ with pretty constrained supply? So why even bother unless one was certain you wouldn’t get squeezed (and how could one be certain?)?
Again, I feel for this guy and his family, but the silver lining here is that people that do know how to short sell and can systematically mmake money short selling should be paid meaningfully for it. People like me and you create alpha and profit short selling, while also dodging unmitigatable disasters. To me, this guy had a major flaw in his process that had extremely costly ramifications.
He definitely messed up and this was a terrible idea to short for a lot of reasons. My point is why does this even exist at all? The SEC has a billion dollar budget. This type of scam is so easy to find, just screen for any stock that used to trade for less than a dollar and is now trading multiples of its prior volume above a dollar. Probably at least half of those are scams. It literally takes one minute to see that CYNK should never exist yet it went on for weeks.
I wouldn’t short anything based on a regulatory condition needing to be met (like HLF?!) but I still think the government should do even a basic job policing the capital markets.
I never looked at the rebate but I think the cost of borrow was around 100% or something for a while and people had to pay that during the halt, which fortunately didn’t last very long. Kind of interesting that the stock even still trades, what possible utility for anything could that have?
Really the capital markets exist (in theory) to provide the opportunity for legitimate companies to raise capital. But it often FEELS like the capital markets exist as primarily a wealth transfer vehicle between unsophisticated and sophisticated. Although I’m in the business of trying to transfer as much of that wealth to my clients and myself as possible, I still feel bad for the little guy. Not that bad because no one is forced to play and I explicitly target the little guy so I can trade against him, but I can understand why a lot of people walk away feeling like the stock market is a rigged game. Stuff like CYNK and lots of other less extreme (by volume) pump and dumps really have no place in the market and it’s not really that hard to shut these down rapidly.
And that’s not even discussing “legal fraud” in which you have, in some cases, multi-decade frauds that literally have no chance of ever meeting their promises and exist literally only to enrich insiders at the expense of (usually) the little guy. I track one that has been public since the mid-1980s and has zero chance of viability ever (short the bounce!). Dude come on SEC, let’s get with the program this is not that hard.
I have heard two tenable explanations for why the SEC doesn’t get involved in this stuff sooner. First, when they make a move on something, they want to be darn sure before causing a ruckus. Secondly, like most government organizations, things move slow as molasses. I don’t think regulators are individually incentivized to exposed frauds the way short sellers are.
Is that sarcasm? Most sub 200 companies are pretty clean as far as CORRESP filings go. Or maybe you’re saying that it’s a waste of time for the SEC to go after small fish?
Take a look at the chart. Zero volume to maybe a few hundred thousand shares. Negligible dollar volume. Not only should he be fired, he has no clue what he is doing and his supervisor should be fired as well, along with the hiring manager. All sounds very amateurish. If it can jump to five for no reason, you better be prepared for it to go to fifteen. Pretty sure if I saw a coffin open and somebody step out, I’m thinking my ability to handicap whether the zombie will return to the coffin anytime soon would be limited. Note to self, “Don’t trade when volume spikes are infinite.” I think the SEC should have let it play itself out, which they eventually did. Traders would short a box containing a c-note at $50 and go long at $200 if the chart looked “good.” Let them.
he at least had to wait until CYNK has a blowout day before shorting, like it did on the 9th. wait for consolidation, see a blowout day, then either short on the blowout day or wait another day or two before shorting, depending on the degree of the blowout. when a garbage stock hits the headlines, that’s when enough short sellers show up to push the stock back down. only then do you want to be short. the actual owners of the stock probably can’t sell anyway.
the only situation that was mostly unavoidable that i have ever seen is the VLKAY blowout in 2008. Porsche and other minority stakeholders owned over 99% of the shares (market thought it was closer to 70%) but short interest was over 10%. probably the biggest short squeeze of all time. pretty tough to avoid.