CEO Jasper Knabb acknowledges that he thinks shorts have "attacked" his company. While he denies his plan represents retribution, the plan is likely to punish the shorts.
Here's the plan:
The company is issuing a dividend, of sorts, in the form of a warrant to buy more common stock, but the warrant is only being issued to shareholders who hold their stock in their own name, not in the name of their broker. This creates an incentive for the owners to request certificates from their brokers. Once the shareholder holds the stock certificate, it can't be loaned to a short seller.If enough of the common shareholders request certificates, brokers will be forced to get the stock back from the shorts to whom they've loaned the shares, requiring the shorts to buy the stock to cover their short position, enabling them to return the borrowed shares.
The company also noted that there is concern that as many as 22 million phantom shares in the company may be trading--this would explain how 9 million shares could be short.
According to the Times article:
Mr. Knabb said he was working with regulators, including Nasdaq, on the mysterious share imbalance. But regulators seem more focused on the legality of the warrant.
“Nasdaq is working with other regulators to ensure that securities laws are being appropriately applied,” a Nasdaq spokeswoman, Silvia Davi, said. “This is a process that is independent of the company.” The S.E.C. is also examining the issue, said one person briefed on the inquiry.
Whatever the outcome, it is clear that the market is becoming increasingly sensitized to the costs and impacts of short selling.
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