CVSL and the “Prescription” for Naked Short Position

January 14, 2016 at 4:02 pm 5 comments

The GrooveVC  “Call to Action” for CVSL Management that was published earlier this week led to the opportunity to speak directly with CVSL Chairman John Rochon and Investor Relations head Tucker Gagen about our concerns. Mr. Rochon was very receptive and said that he understood our point about speculators spreading a number of negative narratives, including one that suggests that the company is on the verge of reporting a subpar Q4. He indicated that while he was obviously unable to speak of specific numbers, he was “very pleased with the company’s performance during Q4” and indicated that he was working with BDO to see if we can get the report released earlier than usual. He also addressed each point that we made and confirmed that the company has more than enough cash on hand to buy back the entire public float of CVSL at a significant premium to current prices. Mr. Rochon said that the stock is trading at a level that does not believe “…in any way represent what the company is worth” and that this is simply what can happen with a micro cap stock when a speculator is making a move he thinks the market can not counter to try to make an easy profit.

Additionally, Mr. Rochon indicated that the company is very aware of the 2 million share naked short position and he said that there is a “prescription” for dealing with an aggressive naked short position that includes some of the steps we suggested plus a few more and he made it very clear that he believes the prescription can cure the problem. In discussing what can happen when a naked position like this is uncovered, Mr. Rochon pointed out that these steps will cause a speculator to have to prove that there is a borrow and he alluded to a nearly identical situation that occurred when he was on the board of a very small coffee company. That company (YGYI) company had only $5 million in revenue and a $27 million market cap when the short position was discovered. In Mr. Rochon’s words “…we were in exactly this same situation and by the time the guy covered we had an $800 million market cap.” It is interesting to note that CVSL had the exact same market cap ($27 million) as that small coffee company just 48 hours ago when we posted our management “call to action”, even though CVSL has a revenue run rate of $150 million vs. YGYI’s $5 million in revenue when that short position was uncovered.

The bottom line here is that CVSL is keenly aware of the naked short position, they are very familiar with the “prescription” for dealing with naked shorts and there is a great example of what that looks like when it occurs. My overall takeaway from the conversation was that our “call to action” is being answered, that Mr. Rochon and the board knows exactly what action needs to be taken to cure the situation and that we might start to see that prescription get filled very soon.

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CVSL Update – Management Call to Action CVSL Update – 14% of Float Acquired & Meeting With Management Today

5 Comments Add your own

  • 1. P. Warren  |  January 14, 2016 at 4:24 pm

    Thanks to the Groove VC folks who were able to contact CVSL management. Thanks also for representing the smaller retail investors. Hopefully we will see the issues resolved soon and have an opportunity to see our investments grow.

    Reply
    • 2. jwbuffett  |  January 15, 2016 at 7:30 am

      You are very welcome. While the broader market looks particularly scary right now it is great to be holding shares of a company like CVSL whose fortunes actually improve in an economic downturn scenario.

      Reply
  • 3. Ian Jones  |  January 15, 2016 at 10:07 pm

    How often are naked short sellers successfully forced to cover? Is it of your opinion that the manipulator in CVSL’s case intends to cover their liability? Because if they’re never identified, they may never cover…is that how it works?

    Reply
    • 4. jwbuffett  |  March 4, 2016 at 7:18 am

      Very good question Ian. It is a fact that they will have to cover at some point and there are things that can be done that could effectively force them to cover due to actions taken by their broker.

      Reply
  • 5. Colt  |  March 10, 2016 at 12:06 am

    If longs put in sell orders way above the market it traps those shares from being shorted.

    Reply

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