OVER 100% OF DIMI'S FLOAT SHORTED!
DiMi Telematics stock collapses 99.5% in an abusive bear raid! Under an UNBELIEVABLE volume of short selling over 100% of the public float is shorted. Whodunit? Failure to deliver (naked short selling) in DiMi stock already has become an issue, according to Buyins.com.
By Robert J. Flaherty
On June 15 I picked DiMi Telematics International (DIMI-0.03) as a strong buy at $0.84 and was also featured in a promotional MagaLog. As disclosed in our own newsletter disclaimer, Flaherty Financial News Inc. received a check for $15,000 to feature DiMi in our Flaherty Special Situation #30 from a third party Cloud Focus Group.
Earlier my son Brian and I went to the Harlem, N.Y. -based Fata family's real estate office to interview co-founder and DiMi system creator Roberto Fata. After a lengthy interview Roberto demonstrated how his DiMi system could monitor and control office buildings from any place at any time. We walked through the halls as Roberto varied the positions of his mobile devise to put on a show.
While being the property manager for his dad's large commercial real estate business in Manhattan, Roberto needed to travel to indulge in his passion for car racing. He dreamed of becoming a champion. He did it in 2008 becoming the North American Ferrari Challenge champion.
In between out of necessity Roberto created his unique DiMiSpeaks software and a two way DiMi M2M service enabling service communications hosting platform. DiMi software is hardware indifferent which he believes is very important. It is also patent pending.
Earlier on October 19, 2010 The New York Times wrote a delightful article "A landlord learns from his son" The writer described how Roberto showed his father that by installing sensors in each of his properties he no longer had to go from building to building with a piece of paper and pencil in order to monitor his each one. He could monitor his properties remotely by using a computer or mobile phone. That year, Roberto installed water sensors to show when toilets were backing up, temperature sensors in every living room and oil sensors to provide evidence if a delivery was 200 gallons short.
Roberto, who discovered that he had a talent for tinkering with things when he was a child, saw the enormous cost-savings potential that could be generated by the sensors that he developed a web-based system around the sensors and called it DiMi. "Dimmi" means "tell me" in Italian. He developed the DiMi solution so that it's able to capture and integrate real-time data from virtually all of the standard networked control systems, sensors and devices.
The DiMi solution is now actively monitoring property management systems in seven of Fata's commercial and residential buildings in East Harlem, NY - all beta sites which have served to successfully prove the technology and M2M communications platform. Fata family private residences elsewhere are also being monitored with good results.
Subsequently, Roberto has put in over $6 million to constantly improve his DiMiSpeaks software system. We were impressed and came away liking what we saw. We thought this brand new DiMi start-up had a good chance, especially in the huge commercial real estate market.
Before I issued our Flaherty Special Situation #30 on DiMi at $0.84 I expected the stock would fluctuate, but I naively figured that the crucial period for the company's success or failure would come in the first half of 2013. That is when the DiMi M2M service enabling service system now being upgraded from the test stage and being stylized is scheduled to go commercial in mid-2013.
This debt- free developmental company already had the money in the bank to complete the task. The critical points would be whether outsiders wanted to use and to buy the new improved DiMi M2M system. If so, the next key challenge would be whether management could raise a few million in new capital to staff up for marketing. If not, the start-up would fail. These are problems common to many new companies.
Then a savage bear raid with naked short selling started! After soaring up 133% to as high as $1.96, partly inflated due to short seller buying and covering, DiMi stock collapsed 99.5% to as low as one cent.
I was as surprised as you when on Monday July 16 DiMi stock plunged 77.8% to $0.08 on huge volume in just one day. Yahoo.finance showed 10.5 million more traded on Tuesday, 32 million on Wed. 14.6 million on Thursday and 10.5 million on Friday. So during that week over 77 million shares were traded. The following week another 58 million shares traded. For the two weeks share turnover was about 388% of the public float! That is crazy.
Most of the classy brokers won't permit customers to short stocks under $5 so there has been very little attention by journalists or regulators about what is going on in this most speculative and dangerous part of the micro-cap stock market. Besides the SEC has put in protective rules to make shorting mini-priced stocks and dangerous day trading shorting of them more limited. I didn't think a new problem of naked short selling could pop up here. As the crazy explosion of short selling proved, boy, was I wrong!
BuyIns.com warns fails to deliver the required borrowed shares have already become a problem in DiMi. There are about 327 million shares outstanding adjusted for a 100 million share give back covered in a press release. No shares owned by insiders or investors have had their restrictive legends removed. The only free trading shares that exist are the 35 million from the previous shell but 38 million shares are short. That is 108% of the float! Without illegal naked short selling how could more stock than exists in the float be shorted? I can count! So can you. Someone is cheating.
For tiny start-ups like DiMi short selling pressure including shares which don't exist can destroy a start-up's stock value overnight. Of course, bear raiders typically blame the promoters and insiders (including those whose shares are locked up) for most of the selling. However, entrepreuners have no incentive for shares to get pounded down to almost zero. They want shares to go up so they can raise more seed capital and make acquisitions. Most of the downside selling and shorting comes from short sellers.
In his online article "DiMi Stock Scam" trading educator and bear raider Timothy Sykes disclosed that he had been trading in DiMi both long and short. He also disclosed to the reader/pupils of his four short -oriented newsletters he was shorting and in a few words made DiMi appear to be a joke.
After the stock crashed, Tim crowed DiMi was his best short call ever. With over 100% of the stock short no wonder!
Let The Sunshine In.
Also Tim copied one of our disclaimers and then asked for more information. What a hypocrite! One early posting of his online article did not show a disclaimer at all. In a recent update if you click on his own disclaimer it does not tell you much. What about disclosing the size of his own shorting? What about more disclosure of the extent of the trading coming out of his affiliates who pay him fees? Not to mention how many shares are being shorted offshore. Let the sunshine in.
He is affiliated and receives fees from brokers who will handle the shorting of mini-priced stocks. Questionable techniques he suggests or are referenced in the online material from his affiliates are criticized in an older online article "Timothy Sykes-Watch Tim Sykes Scam exposed in my review" by pennystockalerts.com.
If you have read one of these still posted "scam" articles, I suggest you read the other for balance. Together they create a fascinating, fuller and fairer overview. Skip the one calling Tim a cancer. That is too extreme for me. Marquis of Queensberry rules!
Tim wrote his main reason for shorting DiMi was that DiMi's investor relations firm was headed by a lady, whom Bob Flaherty has never spoken to or met. Tim stated that this lady had been involved in many previous penny stock promotion campaigns where the stocks crashed and notorious figures were involved.
Her current online photo reveals she is an attractive red head. Instead Tim's piece included a mug shot of her from a routine old SEC filing where alas she looked like a young girl who had just been nabbed for shoplifting and was as upset as she could be. (That's no way to treat a lady!) He listed only powerful negatives. Using guilt by association, he dammed DiMi mainly because her firm was listed as its IR contact. The panic was on.
The penny stock promotion market offers a rich field for short selling. Besides often having too many shares and being overpriced, many penny stock start-ups lack proper financing and good management. In addition these tots face all the other hurtles new companies face.
The majority will fail. Buying penny stocks is a form of gambling and not where 90% of an investor's money should go. Still, like lottery tickets there will be a few spectacular winners and also a lot of limited successes.
New enterprises are fun. I like to at least wait to see what happens when a start-up company reaches the commercial stage before I decide if it will make it or not. Others are not so patient.
One is Tim Sykes. He won early fame by starting a hedge fund which skyrocketed and then collapsed spectacularly because of liquidity problems. Because of his failure to appreciate risk, he was rudely disinvited to a "30 Under 30 Party" as his fund lost 35% of its value. He had to shut it down. Now around 31, he has turned into an online guru and penny stock newsletter short selling newbie trainer. Besides his own trading, he makes his money by selling instructional DVDs and from four online bearish newsletters plus undisclosed fees from affiliated brokers.
But has Tim learned anything? Currently Tim is steering his trading pupils toward higher risk and to set up accounts offshore.He recommends using one of his affiliates, Guy Gentile's SureTrader as "the new best broker for shorting penny stocks."
A serial entrepreneur Guy Gentile has founded a number of high frequency, black box and day trading firms. Clients of SureTrader and its parent Swiss America Securities Ltd. are offered an edge over domestic accounts at his U.S. trading firm SpeedTrader based in Carmel, N.Y. The little lambs ( or are they little wolves?) can avoid many of the trading and shorting rules not only of the SEC, but of Canada and Europe. But is it better in the Bahamas? These offshore high- leverage, low -minimum accounts also lack SIPC protection if the dough in your account suddenly disappears. Buyer beware!
As a Bahamian- based operator licensed as a broker dealer and investment advisor by The Securities Commission of The Bahamas SureTrader clients are not subject SEC's Patent Day Trader Rule which prevents investors with less than $25,000 from performing more than three trades in any five day rolling period. Another advantage Gentile offers in Bahamas is the "wide margin or leverage." In Canada you can leverage: 3 to 1, while in the U.S it's 4 to 1. He offers his clients an edge of 6 to 1 and a new product called Flexi-Leverage will give clients a scary 20 to 1 leverage.
SureTrader permits Joe Six Pack to trade more often starting with a minimum balance as little as $2,000 and to pay lower prices to short shares versus the "regulation strapped" firms here in the U.S.
Check this out: SureTrader's "offshore environment" allows clients to get around the "pesky rule" of shorting stocks under $2.50 a share." U.S brokers are required to charge you $2.50 to short a stock under $2.50 even if it falls to a penny or lower.That sure discourages dangerous excessive speculation. SureTrader drops that $2.50 to $2. This allows you (Oh, thank you God) to short more than 1/5 than you could have with a "regulation strapped" U. S. broker.
SureTrader clears through multiple firms allowing them to find shares to short on many difficult to borrow stocks where other brokers fail. Hmm. How do they do that?
In volatile up or down markets high leverage can make you feel like a genius. But stock markets can and do change direction overnight. When the market gets hot and everything goes up it's the overleveraged bear speculators who pay the price. As Tim Sykes affiliate short-selling enabling networks grow larger they will inevitably become less nimble and more vulnerable. With growing success the bear raiders will need to attack larger companies to put the ever increasing amount of bear money to work.
Tim and Guy's network enables Tim's trader pupils to set up offshore accounts and then come back and attack U.S. companies. If they can successfully side step the rules, others will imitate them. At some point the sleeping regulators will wake up. I may be wrong. In the past I often turned out to be right.
In the sound and fury of a bear raid, the underlying target company is often overlooked. It takes time to build a company. This DiMi start-up is just out of the gate and has stumbled under the short selling attack. Co-founders financier Lyle Hauser, Chairman Barry Tenzer and entrepreneur Roberto Fata, whose combined shares are still locked up, remain determined to make the DiMi system work. Clearly most of the trading on the upside and certainly in the short selling on the downside during the week of July 20 did not come from them. Operationally the system is still on schedule to go commercial in the first half of 2013.
The co-founder trio thinks DiMi is in a good spot to defend itself and survive this bear raid. DiMi has sufficient funds to update and stylize a commercial model. It has no debt, cash of about $888,000 and a current ratio of 60 to one. Assuming the DiMi upgrade succeeds and people want it, the team should be able to raise the few million needed to staff up for marketing. DiMi may not be able to use shares to finance if its stock is still excessively low after the battering but there are other ways.
We will simply have to wait and see if managment has the ability and guts to go commercial and prove DiMI can perform in the real world just like every other baby new enterprise. The old timer's definition of how a concept company becomes a real company is still true today. A new company must generate sales and profits and then repeat the profits the following year. There are no shortcuts. I still think the DimiSpeaks Software has a chance.
Today DiMi stock is down 95% from my Buy at $0.84. Readers would have been better off if I had picked another stock. No excuses. I struck out. Sorry folks. -RJF.