Monday, August 06, 2007

Novastar Proves VIrtues of Reverse Split

Naked shorting poster child Novastar Financial, the struggling subprime lender, has proved the wisdom of the 4 for 1 reverse split that it inaugurated last month.

Reverse splits are, as I explained at the time, the last refuge of a corporate scoundrel. This stock-pumping artifice, which really should be illegal, artificially pumped up the price of Novastar shares instantly by 400%.

And it was well-timed at that! At the time the split was announced on July 16, Novastar was trading at $7.51, or $30.04 adjusted for the split.


This afternoon -- its stock already up 400% because of the split -- it was $6, and had been as low as $4.17. The stock declined because (surprise suprise) an analyst reiterated his underperform (translation: "this is a piece of garbage") rating. Here's Herb Greenberg's take on the day's events.

If it hadn't been for the split, in other words, Novastar would be a $1.50 stock.

Talk about great timing! But what the heck, you know why this has happened. Subprime lending woes? Not on your life. It's naked shorting, you see.

Which reminds me: I wonder what naked shorting nutcase Phil Saunders a/k/a "Bob O'Brien," Novastar booster and founder of the wacko "Sanitycheck" website, thinks about all this? He was Novastar's No. 1 fan and founded a website dedicated to advancing the cause of Novastar, "NFI-Info."

Ditto for Mary Helburn of "Enron was a naked shorting victim" fame, another Novastar booster who heads the National Coalition Against Naked Shortselling.

These two characters have some explaining to do.

UPDATE: The stock closed at $6.78. Woop-de-doo! It's down only 77% since the reverse split was announced.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

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