Note: The KBIO shares shorted were covered at an average price of $18.50 according to Campbell, but the GoFundMe campaign has been taken down. Which is odd because Campbell successfully collected over $5,000. Why not try to get more?
"Desperate" Novice Trader May Be Suicidal If He Didn't Cover: KBIO Short Squeeze Goes "Full Volkswagen"
Courtesy of ZeroHedge. View original post here.
Our post yesterday about the "devastated" novice E-trader Joe Campbell promptly went viral. Campbell went to bed on Wednesday night with a $18K short position in the biotech pennystock KaleBios, only to wake up with a $106K margin call when overnight insolvent KaleBios announced it would get a last minute rescue by the infamous Martin Shkreli.
And, as was to be expected, many were curious just how Joe – who swore he would never again short low float stocks again – had done in his GoFundMe campaign. The answer – not bad: in the span of 24 hours, with the aid of massive media coverage, he had managed to raise $5,310, or more than he had hoped.
At least one part of Joe's plan worked out. However, the real question is whether he was also successful with the other, far more difficult part of this plight, namely paying off the E-trade margin call.
While yesterday the stock of KBIO drifted lower all day to close just above $10, overnight KBIO went 2 for 2, when the company announced it would name Martin Shkreli as its new CEO.
The press release also said that Shkreli and other investors have committed to an equity investment of at least $3 million in KaloBios and additionally to a $10 million equity financing facility, the company said in a statement late Thursday.
In other words, Shkreli's consortium had acquired 70% of the company, and should they decide to pull the borrow, on the odd chance that the short interest had soared to above 30%, KBIO – which until a few days ago – suddenly has the potential to become the next Volkswagen: a company which has more shares short than there is float available to cover them.
As a reminder, this is what Volkswagen was sued for by numerous hedge funds in 2009, who alleged the company management had devised a massive manipulation scheme to destroy shorts, only for the lawsuit to die down eventually without the company being found guilty.
However, the infamous VOW squeeze did lead to the suicide of German billionaire Adolf Merckle who committed suicide on 5 January 2009 by throwing himself in front a train.
Well, a quick look at KBIO stock reveals that while not the +400% juggernaut from yesterday, the stock is up another 80% this morning on the latest news and has led to another short-squeeze bloodbath as countless more "novice" traders get hammered.
Which brings us back to Joe Campbell and his now famous margin call: did he liquidate enough other assets to cover the margin call? What about the hundreds of other shorts who piggybacked and shorted at the close yesterday only to wake up with comparable massive margin calls? [Note: ETrade sold Campbell's shares already, see the previous article.]
And what happens if Shkreli's plan is indeed to rerun the "Volkswagen" scenario and unleash an epic short squeeze that sends the price of the company into the stratosphere, unlinked from any fundamentals, but merely soaring ever higher as desperate shorts pay any price just to get out.
We hope to find out as suddenly this until-recently-bankrupt company whose price has exploded in the past two days, has become not only a poster child for everything broken and manipulated with the market (think 2014's CYNK one year forward) but has the market following along to find out how the tragicomedy of "Shkreli vs the Shorters" concludes.
