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Could the New World & Gas naked shorters really make £5million from the havoc they caused?

By Ben Turney | Sunday 14 June 2015

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

If New World Oil & Gas’ (NEW) board of directors gets its way and saves the skin of the naked shorters, then this group could stand to make at least £5million from this fiasco. As disgusting as this figure it, what is most troubling about it is that the group of naked shorters must include a number of regulated firms, who have acted incredibly recklessly and irresponsibly. Will the London Stock Exchange and Financial Conduct Authority stand by and allow this to happen?

From a regulatory perspective, the most pressing concern surrounding the New World fiasco is why the stock was permitted to continue trading. Between April 29th, the day New World announced its unconfirmed placement, and the close on May 1st over 3.3billion New World shares changed hand. This was nearly four (4) times the company’s issued share capital. How anyone could have viewed this as an orderly market is almost beyond belief.

But New World was allowed to continue trading and the suspicion was that the naked short position grew and grew. Thursday’s announcement from New World seems to have confirmed this.

In announcing its plan to offer clawback on 3,888,873,028 shares, New World’s board has suggested how large it believes the naked short position in its stock could be. After all, what possible other reason could there be to offer clawback on such a large number of shares?

The fact that New World’s board went on to say if even this allocation isn’t enough to deal with the “settlement issues in its Ordinary shares”, causing it to take further steps with Cornhill Capital to “deal with such settlement issues”, this suggests the true figure could be even higher. The maths certainly support this argument.

Let’s start with some assumptions:

  1. The upper bound of the naked short position is 3,888,873,028 shares, as indicated by the size of the clawback provision.
  2. Not all of Cornhill’s clients are greedy fools. Let’s just assume 80% of them are and forward sold their allocations in New World’s unconfirmed placement at an average of 0.075p. This would have meant 2,181,818,182 unconfirmed placement shares were forward sold.
  3. Deducting the number of placement shares forward sold from the upper bound of the naked short, means a further 1,707,054,846 shares were naked shorted from May 5th to May 18th (when New World was suspended). Based on the exceptional volume over this period, this figure is entirely feasible.
  4. The average price on the additional 1.7billion New World shares naked shorted was 0.4p. Based on evidence I have seen from a large number of shareholders, who bought stock during the period, this figure could prove to be conservative, but let’s stick with it for now.

Accepting these assumptions generates the following results:

  1. Total proceeds from the naked short selling equal £8,464,583.
  2. Deducting the £3,499,986 generated from the proposed clawback placing and open offer leaves a profit of £4,964,597 for the naked shorters.

Given that the architects of the New World forward selling fiasco are regulated market participants, how can it possibly be acceptable that these firms stand to make as much as £5million from the havoc they caused?

It will be most revealing how the authorities ultimately respond to this question. 

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  1. This is a test

  2. Yes that is exactly what is likely to happen.

    Your company lawyers have told your board they no choice. You say it every way except the right way. Your company fucked up, it issued a false/misleading RNS and then further fucked up the clarification RNS.

    It could have requested a share suspension, again it fucked up because it didn’t. If they now bankrupt the short positions it will create a conflict, and the short market have the right to slam NEW through the courts.Your company that you own, is not allowed to issue false/misleading RNS, it is an illegal act, go read the rules.

    Forward selling placement share is not an illegal act, What has made it illegal was your companies fuck up of a false/misleading RNS, and a habitual failure to issue a correction clarification, your company is liable.

    I doubt the AIM regulation will allow your company to bankrupt shareholders because it committed an illegal act, and your lawyers certainly won’t allow it either. The short market lawyers will go back in NEW, right back to the start and prove to the courts this is just another of a series of feckless irresponsible actions by an irresponsible, feckkless board, and if you want to check how many then simply check out the previous posts about NEW on SP, , it appears to me they have a more than a good case.

    It cannot be in your interests to risk your company being taken through the courts, because they issued an untenable RNS. This company quite simply has a long term habit of fucking up..

    I stand my original post, unpalatable as it may be

  3. How dull.

  4. Ben Turney

    @phil – always a good sign arguing with someone when they resort to expletives…


    While I agree New World’s board made serious mistakes in its RNSs (both in terms of what it said and didn’t say), the forward selling of the company’s placement is not it fault. The forward sellers did not have an appropriate (or viable, as it turned out) settlement plan and the company’s advisors are responsible for what transpired in the market.

    You need to read up on the London Stock Exchange’s “When issued dealing” guidance

  5. ‘It will be most revealing how the authorities ultimately respond to this question.’

    They won’t

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