A few months ago I suspected someone was stealing from our company. We hired Wes Christian, the lawyer famous for fighting illegal naked short selling, to investigate. In the last two weeks, he’s come back with proof that yes, we’ve got crooked funds and brokers selling $GNS shares out of thin air, with a massive amount of counterfeit shares being created in the process. In eight months they’ve stolen more than $300 million from me and my $GNS shareholders, and they’ve done it from under our noses. Now we’re going to get it back.
If you are new to the idea that Wall Street has found a loop hole in the trading system that allows them to simply print and sell shares, have a watch of this documentary, the Wall Street Conspiracy, (https://youtu.be/26_IcexvePA) which features Wes. Unbelievably, this was released a decade ago, yet FINRA and the SEC have still not closed the loophole.
We had Wes speak directly to our shareholders on how our $GNS shares are being attacked, and what we can do about it. I released the video on Friday and it’s already been viewed over 35,000 times with over 800 comments from investors who have been wanting something done about this for years: https://youtu.be/KuNm8Ij5V3k
So how did this illegal trading happen to $GNS and why does Wes Christian describe this as “outright theft”?
How to steal $300 million in broad daylight
- After our IPO in April 2022 when our shares were priced at $6.00 per share, we completed on five acquisitions and reported over 60% year on year growth at our last earnings report. We have analysts giving us price targets of over $11.00 (Diamond Equity https://ml.globenewswire.com/Resource/Download/54091e07-adea-4671-81c4-64f059828e8e) and over $19.00 (Zacks https://s27.q4cdn.com/906368049/files/News/2022/Zacks_SCR_Research_09212022_GNS_Sorensen.pdf). By all measures, we believed we were doing all the right things to justify a rising share price
- Despite that, and despite announcing two funding rounds – amounting to $40 million – and growing a balance sheet to $60 million in net assets, our share price dropped to under $0.40, valuing the company at less than 25% of the cash raised and less than 20% of our net assets.
- This didn’t happen gradually. It happened in two month intervals from our IPO, in June, August, October and December. Each time, over a period of a few days, massive selling volume that was a multiple of our float (As most of our shares are on lock up, only around 4 million are tradeable) was sold into the market, making our share price drop by 50% or more.
- We’ve since learned how illegal naked short selling makes this happen, and we have proof of it in December, when we had Wes Christian and a company called Share Intel track our shares and any counterfeit shares in real time.
- Here’s how it works: One or more crooked funds get together with a crooked broker, and they sell shares in a target company that they don’t own, with the goal of getting the share price down 50% in a short period of time. They focus at small cap firms where they rely on low buying volume and where they can scare away the buyers that are there. The broker doesn’t bother to find shares to borrow. They simply sell shares they don’t have and after a few days book them as FTDs (failure to deliver) or hide them as long sales instead of short sales. The people who bought the shares have no idea they bought a fake share, and suddenly there’s plenty more shares in the market than there should be.
- The DTCC and FINRA rules are that if you register an FTD, you should look to make good on it within two months. So now the crooked broker and fund aim first to scare buyers away given the big price drop, and then to quietly buy back shares over two months to cover their position. If for example if they sell 6 million shares from $12 to $6, and then buy back over 2 months at under $6, they double their money and make up to $30 million out of thin air. They then repeat the process two months later. If they don’t buy back all the shares, they simply leave them as FTDs or hide them in offshore accounts. At no point do they need to put up any cash to make this happen, as they’re making money from the moment they start selling fake shares.
- As a result of this, they can keep pushing the share price down to pennies, and their ultimate goal is to drive the company into bankruptcy so they never have to cover any of the fake shares. As a result, the company and all its shareholders are the ones the suffer. In our case, a company that would be worth between $300m and $600m based on analyst valuations, is worth less than $10m, and they’ve stolen all that value from under shareholders’ noses.
What can be done about it? There’s huge frustration from retail investors and high profile cases like GameStop and AMC and many more small cap companies like ours. The problem is, according to SEC rules, CEOs and company management are not meant to spend time talking about (or complaining about) their share price, and so most feel handy capped. It’s like getting robbed in a library where if you shout “Thief!” the librarian points to the ‘silence’ sign and kicks you out.
As for me, I think it’s about time CEOs speak up for their shareholders. If we’re being robbed, CEOs and company boards have a fudiciary role to take action on behalf of their shareholders. This shouldn’t be optional. We already have to by law report and take action against any illegal activity inside our companies, and so of course we should take action against any illegal activity outside – and against – our companies.
The good news is thanks to having Wes Christian on board, and thanks to the conversations I’ve already been having with other CEOs affected by naked short selling, we’ve found that there are mechanisms we can use to fight against these criminals.
We have a board meeting this week to go through all the options and choose the ones we’re going to use for Genius Group. I’m sharing them here so other CEOs and boards know this is not a lost cause and there’s a playbook that has worked for companies who put it in place.
The Top 10 actions companies can take to fight naked short selling
Action 1 – Be EBITDA positive and cash positive. If you don’t need the money, they can’t achieve their No.1 goal which is to bankrupt you. This buys you time but it doesn’t solve the underlying issue.
Action 2 – Get your investors on your side. This might sound obvious, but even in our case we have all been worried of saying the wrong thing and getting in trouble with the SEC. So too many CEOs and boards stay silent. That’s what the criminals want, as their goal is to scare your investors away. Get them on side and if they believe in you most will stay for the fight.
Action 3 – Take legal action. These guys are super clever at hiding their tracks. Wes Christian, his firm Christian Levine and the company Share Intel opened my eyes to the sophisticated systems that can now track who’s doing what to your stock. The number of nine figure settlements he’s achieved is equally eye opening. The success rate on cases, for those who decide to fight, is truly amazing.
Action 4 – Issue a special dividend that’s trackable. When a company issues a dividend, all brokers are forced to declare to DTCC how many shares their clients hold and dividends to pay. In theory, this exposes the over-sold shares and brokers are forced to cover. In reality, as Wes says, crooked brokers will simply not declare the fake shares they sold and then pay the dividend out of their own pocket as cost of business. If you issue a dividend that isn’t straight cash – such as a spinoff of a company so you are issuing shares, or a blockchain based asset, then the brokers can’t do that are a forced to either cover or be exposed.
Action 5 – Do a merger with another public company. This also exposes the crooked brokers and funds in the same way as action 4, and is a strategy that $TRCH took and $CRTD is currently taking.
Action 6 – Do a dual listing. Listing on a second exchange, especially one in which short selling is more tightly regulated and in which the DTCC loophole doesn’t exist, makes it more difficult for short sellers to push down shares on NYSE or Nasdaq as arbitrage traders will trade the delta. If they try and to push a share from $6 to $3, someone else will buy and $3 and sell back at $6, bringing the price back up.
Action 7 – Have share buybacks approved. If the criminals can’t bankrupt you, they’ll try and delist you. Once share price is low enough, that’s a danger on any exchange. By knowing you can always bring upward buying pressure by buying back your own shares makes it more difficult for them to achieve this.
Action 8 – Have reverse splits approved. Similarly, if you have the ability to quickly shrink the number of shares and increase the price through a reverse split, by having a reverse split already approved by your Board and Shareholders, it takes away the risk of delisting in the event your exchange gives you notice to increase your share price.
Action 9 – Issue shareholder perks. Ultimately, naked short sellers are betting on being able to issue fake shares and then buying back legitimate shares at a lower price over time. If they can’t do this as the price goes up before they can cover, we win. So reward the shareholders who are willing to fight with you by rewarding them, whether it is through discounts to your products or opportunities that they enjoy simply by virtue of being your shareholders and sticking with you.
Action 10 – Delist and list again. If all else fails and you have the cash, know that you always have the nuclear option of buying back the company, which will expose the fake shares, delisting from the exchange where you are infected, and then relisting on a better exchange or with more safeguards in place. In such a situation, you can bring all the legitimate shareholders with you.
Action 11 (bonus) – Be awesome. Elon Musk went for over a decade fighting naked short sellers. To the extent that he called the SEC the “Shortseller Enrichment Commission” for not taking action to enforce the illegal short selling impacting Tesla. His solution – Just keep building an awesome company that can change the world, and never, never, never give up.
Which of these will we adopt for Genius Group at our Board Meeting? We’ll discuss them all this Wednesday and decide, and then share with the market.
I’m new to this, and as time goes on I’m going to add to this list. On next week’s blog I’m going to share the steps your investors can take. Wes already goes into this in the video above. If you’ve got any suggestions or if you’re a CEO yourself ready for the fight, please do connect with me. DM me on Twitter and let’s talk.
his is a fight worth fighting, and a fight we can win.
NB: If you’re one of our investors and you missed our Investor Call last week, you can watch the full replay including conversation with Wes and the Q&A that followed here: https://ir.geniusgroup.net/news-events