Thursday, January 3, 2013

Market Manipulation, or Perfectly Innocent?

A couple of weeks ago, we saw what appears to be a mistaken filing on the part of a shareholder of Meade. Today, we take a look at another strange filing from a large shareholder of the company.

Lance Laifer's Wapiti Capital is listed as the owner of 7.65% of Meade's shares on the company's latest proxy statement. Recently, Wapiti filed a document listing its ownership at only 4.6% of Meade's shares. That's not the strange part; I, too, thought Meade was undervalued at one time but recently changed my opinion as the company's balance sheet and operations have taken a turn for the worse.

What is odd is the manner in which Wapiti reduced its stake in Meade. It appears to have done so by both buying *and* selling, sometimes on the same day. For example, on November 6th, the company purchased 100 shares at $1.98, only to sell 500 shares at $1.90 on the same day! There are other examples; for every 2 selling transactions, there is almost 1 purchase transaction.

Clearly, however, the intent was to sell: the size of purchase transactions was much smaller than those of sale transactions, which is how Wapiti has reduced its stake in Meade so dramatically. Also, the company lost money on most of these purchases (i.e. it purchased stock on the same day for a higher price than it sold these same shares). The question I have is: why buy shares at all, especially at a loss, when the intent is to sell?

My best guess is that it's an attempt at fooling other investors into thinking there's interest in the stock, and then unloading shares into that interest. For example, if there aren't a lot of limit sell orders, someone looking to unload shares might buy up those sell orders to move the price up, and then sell his shares into the buyers who seek to profit from a rising stock. My understanding is that this constitutes market manipulation, but since I don't know that this was Wapiti's intent, I'm not in a position to conclude that this is what is happening here.

I sent a direct message to @LanceLaifer requesting comment, but have not heard back at the time of publication. I'll update this article if he provides any comment.

Do readers have any suggestions of what may be going on here?

Disclosure: No position


Anonymous said...

I owned shares of Meade, but after reading about the issues with their new telescopes on the various amateur fora I sold them (one of my better mistakes, of which there have been many). This has since trickled down into the financials. I doubt how this company can recover from the poor launch and execution of their telescope line. This was supposed to have been their lifesaver, but they flunked it. Very high risk of default. The weird filings also do not inspire.



Anonymous said...

I sold shares in Meade after reading about the poor quality of their new telescopes on various amateur fora. Sometimes simple scuttlebutting helps. One of my better mistakes, of which there have been many. I doubt that this company will be able to survive given their weak financial state and their ruined reputation. The dubious filings also do not inspire. thx for the continued updates.


Anonymous said...

Interesting, so you worked this out from the fillings?

Have to say I have never heard of this hedge fund did you come accross them because you were interested in the stock and they were already owners of it?

I have noted in the past that some hedge funds try to hide losses when
filing SEC statements, I have seen Third Avenue do this a few times.

Saj Karsan said...

Hi Anon3, yea it's all in the filings. Found it because it's a company I used to own

Anonymous said...

It does sound like market manipulation. But they should have known this would all be documented in SEC filings, so I guess the question is "how dumb are they"?