That’s close to what I think but not exactly.
so the basic short concept is me or you long investors have shares. We see them in our account and believe we have them. What happens is At some point brokers got this great idea. How about creating a side business where I loan out your shares collecting dust in you account to make some extra money. The broker loans out your share to a short who sells your shares And promises to return them While you are none the wiser. You still see the shares in your account but they were actually secretly sold. Now the short hopes the price will drop. If so, he can now buy the shares back cheaper. Return them to you. You never missed them and the short made money. Sold your shares for say 10, bought them for 8 and kept 2$.
what is wonky here is the dividend. Shorts holding before Jan 9 borrowed shares that now include .141 scilex dividends. Again, me, you other longs expect to see that dividend because as far as we know we own. Shares and have no idea our shares were secretly sold by our brokers behind our backs. So, what’s our short to do. By the 19th they were supposed to deliver .141 scilex shares into our accounts because us longs have no reason to expect otherwise. The pickle here is there are around 60M srne shorts which have to deliver around 9M scilex shares to us before us longs realize the stock we see in our accounts was actually sold Secretly behind our backs and our good natured brokers don’t want to fess up And say sorry I don’t have your stock. I sold it without telling you. The problem for shorts is if they go out into the market to buy these shares there are according to Jionly 2.5M shares out there,and my opinion is some smaller % are actually for sale. And there are some warrants, that give you the right to buy shares but Ji bought up 1.5M of those leaving by my guess around 3.5M. So, 9M potential buyers and something less than 6M shares that someone might be motivated to sell.
How did our brokers decide to deal with this? It seems collectively they said, well since the scilex dividend shares are currently restricted, me you and other longs can’t sell them. So, let’s just say they are wortheless placeholder until the restirction on selling falls off may 11th. They again assumed us flatheads would say what’s the difference can’t sell them till May, but by saying they are worthless our friend the short who Sold our shares Doesn’t have a negative liability, doesn’t have to return them. Their hope, I think, is that after May with 7M shares getting added to the float there will be plenty of shares available for shorts to buy and secretly return with all of us none the wiser. And our friendly brokers can all sleep well knowing that they will get invited to the citadel christmass party with the free oyster bar.
My view as a long is that sorrento was clear. They transferred to shareholders as of January 19th sclx shares. They are restricted sclx shares, but they are shares not worthless placeholders. And, if our brokers secretly loaned our srne stock to someone who sold before the ex-div date they need to go get some scilex shares to put back in my account To pay me my dividend on Jan 19th not May 11th when the restriction drops off.
i analogize this to employee stock options. I have a grant date, a cost basis, and a vesting date. Then there is the whole naked short story which is even more murky. At the end of the day, I am looking to see actual shares, with an actual value and an actual cost basis in my account damn soon. If it doesn’t happen, I am going to do as sorrento suggested and have my shares taken out of street name and put in my name directly. That will force our Brokers to go get the restricted shares and put them in my name. If we all do that they are screwed. Will be interesting to see how this plays out.