N21) Why This Micro-Cap Company Is Targeting Naked Short Sellers

 Why This Micro-Cap Company Is Targeting Naked Short Sellers


Why Created Is Going After Naked Short Sellers

Created (CRTD) - Get Free Report is a holding company in the communication services industry that provides opportunities for brands and creators to multiply their impact across platforms, people, and technology.


The company, headed by Jeremy Frommer, has a market cap of $22 million and was recently delisted from the Nasdaq. Created failed to meet the exchange's minimum bid requirements because it trades below $1 per share. Currently, the company is traded on over-the-counter (OTC) markets.


Recently, Creatd drew the market's attention after an announcement that it would engage with market surveillance firm ShareIntel to protect its shareholders from naked short-selling activities.


ShareIntel uses a SAAS (software as a service) platform that provides public companies with access to shareholder position movement and settlement data.


According to Frommer, it's necessary to take a closer look if a company and its underlying stock are being targeted by illegal practices such as naked short selling. Furthermore, the CEO promises to escalate this topic to the top level in the financial markets.


Why Is Naked Short Selling a "Death Sentence"?

During RHK Capital's recent Disruptive Growth Conference, Creatd CEO Jeremy Frommer spoke about the nefarious practice of naked short selling.


He mentioned that from United Airlines  (UAL) - Get Free Report at the turn of the 21st century to GameStop  (GME) - Get Free Report and AMC Entertainment  (AMC) - Get Free Report more recently, the practice of naked short-selling has wiped out the reserves of many American workers.


Finally, Frommer reiterated that it is almost 2023 and still no authority has addressed the issue. His criticism also said that in the last few years, what had been just an agreement between a few stock loan departments has become an "institutionalized technology-driving money-making machine."


Naked Short Selling in GameStop and AMC Stock

GameStop and AMC investors have long urged greater transparency across the market. And with their holdings being allegedly directly harmed by practices such as naked short selling, it’s not hard to see why.


One of the indicators that raise suspicion of odd trading activities is the failure-to-deliver (FTD) data. FTD occurs when one of the parties fails to fulfill its obligations on the settlement date.


However, this metric is closely associated with naked short selling. This practice generates so-called "phantom shares" that don't exist, potentially harming the liquidity of a shorted asset and diluting its share price.


As can be seen in the chart below, throughout 2-22, GameStop's shares failed to deliver and had high peaks between May and August, surpassing the 1-million-share mark on certain trading days.


When looking at AMC's FTD data, the numbers are much higher than GameStop's. Throughout this year, failure to deliver exceeded 9 million shares in a single trading session in June, and several other times passed 1 million shares — until as recently as November. See below.


With such high FTD numbers in AMC stock, the huge community of "AMC apes" on Reddit believes that the cinema company's stock has been hurt by predatory short-selling practices, such as naked shorting.


In the middle of this year, AMC created the AMC Preferred Equity (APE) unit as a non-dilutive dividend. Their "main" purpose is to add value to AMC, but APEs can also serve as a kind of share count for the AMC's total shares.


APEs may shed light on the use of synthetic shares by AMC short sellers — as AMC CEO Adam Aron himself pointed out:



 

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