I may have a problem. I think I’m obsessed with this CVI Investments mystery.
This is continuing the saga of the last post on CVI. I want to stop, I really do. But, I just can’t help myself. I need to know what’s going on with CVI Investments. They seems to be the biggest culprit, but probably not the only. From here on out I will say CVI. Unless explicitly stated otherwise, I mean CVI Investments, LLP.
A lot of this will sound like that last post, but I found something interesting that may verify a few things. CVI seems to have this formula. I can’t say they do it in all cases, but they do it more than they don’t. SGYP is one of the do’s. Here is a list of their 13G’s. I randomly looked at some of these and, for the most part, it went like this:
- Buy an offering and file the 13G showing the new ownership
- The offering includes some sort of warrants or convertible product
- On 12/31 of the year the offering was bought, file and amended 13G (13G/A)
- On the 13G/A add a clause, something to the effect, that warrants can only be exercised if doing so doesn’t give you more than some maximum % ownership in the company
- Also on the 13G/A show that shares were sold and the remaining shares added to the warrants gives you just under the allowed % ownership in the company
It’s all pretty cookie cutter. I’m pointing this out because if we can figure out what they are doing in one of these companies, it’s a good chance it’s the same thing they are doing in all of them.
The Alleged Breakthrough
I say alleged because everything I’m about to explain is based on court documents who’s cases have not been settled yet. However, in our case, a verdict isn’t very relevant. What is relevant is the process in which CVI operated, and as I previously stated, if we could verify how they operated in one company, then it’s very likely it’s how they operated in all the companies using that formula.
Before I link to these documents though, I feel like I should explain something else. When you read these documents you will see it’s about a company who is now in bankruptcy due to the actions of CVI and other hedge funds… “allegedly”. You’re first reaction may be, “Holy shit we’re all going to die!”. Bad guys who read this will use the term “bankruptcy” and associate it with SGYP because of CVI’s involvement. So, let me explain the differences between them and us and why their involvement with CVI “allegedly” resulted in bankruptcy and ours will not.
- The deal they made with these hedge funds was through a “private placement in a public entity” (PIPE). This means it was not through a public offering and therefore this deal did not need to be registered with the SEC. That is why, if you look at that list of 13G’s I linked to, you will not find this transaction. When you enter into an unregulated transaction, some shady shit can be done and the only thing you can do is go to court after the fact, which is the case here. You cannot report these transactions to the SEC and have them drop the hammer on it. So, entering into a PIPE agreement is all pink sheet style and if you’ve ever played with those, it’s scam city!
- In our case, it was a public offering that is regulated by the SEC. That doesn’t necessarily make it fool proof, but it greatly limits the possibility of getting scammed. There are 13Gs filed with the SEC which make the terms of the offering transparent to us and the SEC, unlike the PIPE where its a wild West free for all.
- One of the biggest reasons Patriot had to file for bankruptcy was because they essentially lost control of the company. To make a long story short, along with buying common shares, the hedge funds also got warrants. As you probably know, warrants can be exercised and converted to common stock. When this is done, each share is newly created from the authorized shares. Therefore, warrants are dilutive because they add supply to the outstanding shares after the conversion. Also, it increases your ownership in the company. In this case they had series A warrants and series B warrants. That basically means there were two groups of warrants, each having different conversion rules. The series B warrants is where they screwed up. The amount of these warrants to be receive was based on a formula tied to the stock price. The gist is that the lower the stock price the more warrants you were eligible to receive. The agreement had no floor, so the amount of warrants you could get was basically limitless. You can see the problem. The hedge funds shorted the hell out of the company driving the price way down. This gave them access to way more warrants than Patriot could convert and the hedge funds could take control of the company.
- In our case there is only one class of warrant. There is a stipulation that the warrants can only be exercised if upon doing so the warrant holder does not own more than 4.99% of the company. So, we do have a floor to prevent what happened to Patriot.
Now, don’t freak out and try to relate CVI with us and bankruptcy. Our situation is very different. However, you should see that CVI is not on anyone Christmas card list.
I’m no lawyer and there is a lot of legal mumbo jumbo in these filings, but it’s clear enough to get the point.
First, CVI filed a suit against Patriot back in 2016 because Patriot refused to exercise those series B warrants. Scroll to the very bottom of this page and click on the PDF icon to see the document.
Then, just recently in 1/18 Patriot filed a complaint against CVI and others which explains how the hedge funds drove the company to bankruptcy and why they wouldn’t exercise those series B warrants.
If anything, I suggest you at least read the overview in that second link.
How does all this apply to Us?
Let me begin with a pretty big accusation. Gary Jacobs and CVI have some kind of connection. Yep, that’s a pretty bold assumption, but here is why I say that. In my last post I brought up Gary and the whole ContraVir (CTRV) fiasco. I concluded that it wasn’t something shady, more likely a bad decision. I’m now second guessing that statement. I’m not saying that it was something shady, but I also think it was more than just a bad decision.
I know Gary was involved with CTRV and is a director at TrovaGene (TROV). If you look at that list of 13G’s I linked to, you will see that CTRV, TROV and SGYP are all on the list. Perhaps its just a coincidence, or maybe Gary does know of CVI, but in some benign way. I didn’t look this up because I just thought of it, but it could also be that the same underwriter brokered the offerings in each case and they have the relationship with CVI. So, I’m not saying this connection between Gary and CVI is good or bad, direct or indirect. I’m just pointing out that there is likely some sort of connection. You can run with it from there.
That there is a very confusing looking chart. This is the big picture and I will dissect it below. Unlike most charts, I’m not tracking price action here, I’m tracking time and events. I’m looking at where CVI entered and exited the market related to other events that happened at that time. I am also showing my Wyckoff mark-up which clued us in to this whole twisted mess in the first place.
Wyckoff’s intention was to follow the smart money through typical phases of accumulation and distribution. My assumption, with what we knew at the time, was that we were under accumulation. The idea being that smart money is taking long positions at the lows to sell later at the highs. A while back, before all of this was known, I got pretty in depth with the BOP and tracking dark pool activity. If you were to go back and read it, you’d see the tools were pretty accurate. We may have been able to analyze what was going on, but there was no way of telling why. That is where I made my mistake, assuming it was accumulation.
With new information and revelations. I think I now have a better idea why. Now, we have to figure out what it means going forward.
Let’s start with that blue area. Somewhere in that range between 10/30/17 and 11/13/17, the short interest went up 11 million shares. Several people, including me, suspected that someone on the inside knew about the offering before it was announced and started selling prior to it. With the knowledge we now have from the CVI and Patriot battle, it’s pretty strong evidence that CVI was our culprit.
Just like with Patriot, CVI was buying the offering, so was aware of it and when it would be announced.
That quote above is from the Patriot complain filed in the courts. It is the guy who brokered the deal acknowledging that CVI, and other hedge funds, shorted Patriot into their PIPE. If they did it then, I’m pretty certain they did it now. You can see the price started to fall on Friday 11/10. The announcement was made that following Monday on 11/13. That down move was CVI, and it wasn’t selling, it was shorting, which accounts for the big increase in short interest.
Then, on 11/13, CVI bought the offering and at the same time bought another 10 million shares through Susquehanna in dark pools. This is where they got me.
Here is a summary of everything I just said:
10/30/17 – 11/13/17
- Somewhere in that range of days, the SI goes up 11 million shares.
- Take a short position on the public exchange before the offer is announced to the public. This gets the ball rolling to the down side as CVI starts their short at the very top of the drawdown
- Announce the offering and the shit really hits the fan. CVI is instantly making a killing on the short position.
- CVI buys 9.7 million shares in the offering and gets an additional 9.7 million warrants
- Curiously, CVI buys another 10 million shares through Susquehanna in dark pools
Originally I was focused on that 10 million shares bought through Susquehanna. I thought that was part of the great accumulation. Then, in the last 13F’s, there was a lot more selling than buying, which puts the whole accumulation idea in jeopardy. That is why I’m backtracking now to see where I went wrong.
On the next chart I’ll show you what I think that 10 million shares through Susquehanna was all about. It’s obviously not what I originally thought.
Let’s start with the easy part. You can see on the chart where they sold 7 million shares at the end of 2017. I’m not sure the exact date, the amended 13G says 12/31, but that was a weekend, so I’m guessing 12/29. The exact date and price isn’t very important. The point is, per the formula, they sold 7 million shares from the offering so their remaining 2.7 million shares and the 9.7 million warrants would decrease their ownership from over 7% to 4.8%. That puts them just under the max allowed ownership of 4.99% which means they are now able to exercise those warrants. I should also mention that when I’m taking % ownership, that only applies to this transaction from the offering. That purchase through Susquehanna was a separate transaction, so those share aren’t counted in the percentage rule.
Now for the harder part, the mysterious 10 million shares. If you were to look on Fintel it claims they sold the position at $2.03. I don’t think that’s correct. In order to figure it out, you would need to know the value of the transaction after the sale. As mentioned in the last post, Susquehanna filed the previous 13F for CVI, when they first bought the shares. The current 13F filed by Susquehanna doesn’t include CVI at all. Last time I said that may mean CVI hasn’t sold, they just didn’t report. That still could be true, which would make this whole thing moot, but I’m thinking now that they did sell and didn’t report because they don’t own anymore shares. Never the less, there is no entry for CVI on the latest 13F. This means there is no value of their holdings after the sale and it’s impossible to know at what price they sold at.
What we do know is that it took place between 1/1/18 and 3/31/18 and it was for 11.8 million shares (The 10 they just bought plus some they previously owned). There are only a few days in that range that could handle that kind of volume. The most logical day would be 1/25/18 as shown on the chart. I just guessed at $2.75 because it was at the top of the range. Here is why I say it’s the most logical:
- This was the day the second indication got FDA approval, so it was a very high volume day
- Back then I posted that a sell-off was expected, but not to that extent. I mentioned then that I thought the volume was used for a major sell-off. That would explain my suspicions.
- Looking back at my relationship to price, dark pool activity and changes in SI chart, during that sell-off the SI was starting to go down. It went down bigly during that blue section. So, if the SI was going down, but the price was also selling-off, that means the covering was being hidden in dark pools while the selling was being done in public to affect the price down. That tells me the selling was deliberate to move the price down to lows where shorts could be covered. You can see in the chart, that’s exactly what happened.
- If they did buy those shares in the $2.50 area, then the area I have pointed out, $2.75, was pretty much the only time they could have sold and made a profit.
I must stress that I don’t know for sure if that’s when they sold the 11.8 million shares. It a best guess, but it aligns with those things.
Finally, as I just mentioned, the ensuing drawdown from the selling of those shares led to a new low, where 10.4 million shares were covered in dark pools. That low is shown in the blue area where the SI dropped by those 10.4 million shares. It is my belief that this was CVI covering the short they took back on 11/10/17 and ending their short position in SGYP. If you look at the first chart that shows the whole thing, you will see that on 3/2/18 they bought 1.8 million shares through CVI Holdings.
So, here is a summary of the whole shorting and covering process:
10/30/17 – 11/13/17
- SI increases 11 million shares
- The last trading day before the offering is announced.
- CVI takes a short position, probably in the range of 10 million shares. Per their shenanigans with Patriot, they know SGYP will be announcing the offering the following Monday so they take the opportunity to short big that Friday. Also, that Friday falls right in the range shown above where the SI increased 11 million shares.
- The offering is announced and the price falls precipitously, all while CVI is holding a big short position.
- CVI buys 9.7 million shares in the offering at $2.58 a share, which also gives them 9.7 warrants exercisable for $2.86 a share which expires 11/15/19. Upon exercising those warrants, they would own over 7% of the company.
- CVI also buys 10.4 million shares in dark pools through Susquehanna.
- Of the 9.7 million shares CVI bought in the offering they sell 7 million shares as shown in an amended 13G. They also add the clause stating that the warrants can only be exercised if by doing so doesn’t give more than 4.99% of the company. Previously, the warrants an the shares bough in the offering would give them over 7% ownership, meaning they couldn’t exercise the warrants. Consequently by selling those 7 million shares, exercising the 9.7 million warrants with the remaining 2.7 million shares would now give them 4.8% ownership and comply with the clause. This is a common practice for CVI in other companies too.
- The FDA approval of the second indication is announced as expected.
- I’m making the assumption that this is where CVI sold 11.8 million shares, the 10.4 and some previously owned shares, into the market to kill any kind of rally caused by the news. They would have then sold at the high of the year and, most likely, made a small profit on their long position. Then, by selling that many shares publicly, it would send the price back down to new lows and decaying sentiment.
1/29/18 – 2/12/18
- SI goes down 10.4 million shares
- CVI covers their short position in dark pools at the lows caused by the big selling on 1/25/18.
- Q4 earnings are announced
- CVI buys 1.8 million shares through CVI Holdings
- Note: This event has nothing to do with the covering, but I’ll mention it again later
This explains why they actually bought those 10.4 million shares through Susquehanna. I was wrong to assume they were accumulating, but how could anyone know their reason at the time.
Back on 11/13/17, it was already known that the FDA would be announcing a decision for the second indication in the coming months, and that it would most likely be approved. CVI purchased that large long position to sell into that news, not accumulate for a long hold. They anticipated that the price would be at a high due to a run-up heading into the news. They also knew the news would cause lots of volume. They used those things to their advantage to sell their shares in the public market at the highs and effectively kill any break out and destroy retail sentiment. The result would be the price going to new lows where they could cover their short position in dark pools for a hefty profit.
So, you see, it wasn’t accumulation. It was the gathering of ammunition to mow down the price when it was about to break out. It killed the price and the sentiment which led to new lows where they covered their short position.
CVI has potentially been out of their short position since mid February. They killed any rally and sentiment by selling those 11.8 million shares, and we are still feeling the effects of that today. Since then it has been low volume and low volatility. That leads me to believe that CVI has indeed been done with their fuckery since February which has left us in this slow bleed driven by depressed retail.
Nothing worked as expected because I was looking at it from the view they were manipulating to accumulate low and eventually sell higher. That is what happens in your typical accumulation phase. But, if what I’m saying is correct, it wasn’t manipulation to accumulate. Yes, they manipulated to keep it low, but not to buy, but to cover shorts. The selling climax was all about taking a short position, not buying. Therefore, since the intention was to cover lower, everything was backwards. It worked more like a distribution phase where any attempt to rally was deliberately crushed.
The good news, if I’m right, is that the manipulators are done manipulating the manipulation… whatever that means?! Maybe now we can get back to the normal manipulation we all know and love!
Here are a few random thoughts in no particular order:
- No matter what CVI did with their short, there are still 60 million more and that’s way too high. CVI may have been a big player and the one focused on, but they aren’t the only ones.
- I brought up CVI’s last buy in March through CVI Holdings. I take that as other evidence that they are done with their short and perhaps now accumulating like a good little manipulator.
- Something is up with those warrants. I had a conversation on StockTwits with isam1974. At the time I was suggesting that CVI will want to exercise those at some point, and sooner rather than later. My argument was that because they lowered their ownership to 4.8%, they were setting up to exercise. They don’t expire until 11/15/19, but they can do it at any time. He brought up the fact that the warrants were free, so even if they expire worthless, it’s no loss to them. Therefore, exercising the warrants isn’t necessary. He was right! However, if the price gets above $2.86, I’m sure they will, but there is no urgency by them for that to happen. On the other hand, there is an incentive for SGYP to make it happen because if CVI exercises, SGYP will get paid.
- We know they sold 7 million shares that they bought in the offering, which left them with 2.7 million. I don’t know if they still own that 2.7 million or not. If so, they just bought those 1.8 million shares in March, so they are sitting on at least 1.8 million shares, but potentially as much as 4.4 million. Not to mention 9.7 million warrants.
- One last thing about the warrants. I get the impression that when CVI buys these offerings, in SGYP and the others, they are not buying it for the shares. They are buying it for the warrants. I think that is why they always file the 13G stating they bought, then later file a 13G/A that they sold some of the shares. They are buying enough shares to get a specific amount of warrants, then going back and selling the excess shares. Why would they do that?
- This really low volume since mid February is a good sign that CVI is done. Other than the Q4-17 and Q1-18 earnings, it’s been a ghost town.
- This coming Monday the next SI will be reported. It will tell us what all that volume was about on 5/11. I’m anticipating a nice drop in SI as there was covering going on, or perhaps now some accumulation.
- I think the spring I have been talking about did a pump fake on 5/11. I talked about all the heavy ownership between $1.80 and $2.10. I imagine most of those owners are more than willing to sell at break even which will make getting through it hard. The spring got right in that range and died. It didn’t have the backing to push through. If it did, then people would be less likely to sell and would hold out for gains as it surpasses $2.10. The spring broke back below $1.68, which was bad, but I think the low volume and tiny price movement since is it just getting ready for another go. If we are back to normal manipulation, then the days since 5/11 have likely just been low volume testing and absorbing supply. All the fear mongering on the board is likely just retail shorts late to the party. That’s usually how it works, the smart money (CVI) gets out long before retail and then retail gets stuck with the bill. That goes for the long side and the short side. Besides, the more retail short the better. They will be the ones who get squeezed and help provide the fuel to get through that $2.10.
- The board at StockTwits has become grotesque! Not because anyone says what I don’t want to hear, but because it’s just people toying with your emotions and being down right rude about it. But, then again, that’s how they play your emotions by getting you all roweled up. It’s true, we have several fundamental things blocking our way, but remember where you are. We are invested in a small cap speculative bio. People don’t buy these for fundamentals. Hell we are ahead of the game, even if they are not so pretty they are better than none at all, which is exactly how much most other bio’s of this size have. People invest in these companies’ future potential, not their current reality. You have to look past what these people are throwing in your face.
- As always, the SI is the most important number of them all. Sure scripts are great, but unless they are trending down or make a huge increase, they aren’t much concern.at this stage in the game. They will go up slow and steady with highs and lows along the way. But, this stock price isn’t going anywhere until the big SI foot gets off our chest.
- There is lots of talk about future dilution and offerings. Realistically, yes its going to happen. But, right now they have roughly 140 million in authorized shares. If they needed to do an offering they could have done it already. I guesstimated that 40 million of those 140 are reserved for warrant and senior note conversions. All those conversions create new shares, so they need to have the availability to do so. Will there be an offering further down the line, like before their next meeting? It’s pretty likely, let’s just hope CVI doesn’t get in that one too. At least now, if they do, we will know their game and what to look for.
- Finally, I’ve witnessed a lot of crying, pissing and moaning on the boards lately. Many are quick to criticize what myself and others are trying to do in our own ways. I read how some are sick of this theory and that theory and this indictor or that tool. You know what? You’re right! Because crying like a little girl is so much more helpful.