Naked shorting: Stung by the German connection

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Naked shorting: Stung by the German connection

Thousands of US stocks are being traded on a little-known Berlin exchange, without the knowledge of many of the companies involved. Have the naked short sellers exported their practice overseas?

A YEAR AGO Ted Noble, chief financial officer at Advanced ID Corporation, a Calgary-based microchip-tracking company, received some surprising news.

"We were congratulated by a third party who saw that our shares were trading on the Berlin Stock Exchange," he recalls. "That came as news to us because we'd not done anything to get listed in Germany. I talked to a few people and we couldn't figure out whether it was good or bad."

Noble soon found out when his company's shares started behaving oddly on the US OTC bulletin board. "April 29 [2004] was a slow day, and only about 10,000 of our shares had traded. Then 370,000 shares traded in the last 20 minutes before the close. It knocked our stock price down from 58 cents to 41 cents, before closing nearly 20% down at 48 cents. That was very unusual for our stock. I'd never seen anything like it."

Noble was not the only interested party shocked by what had happened. "We had a number of very angry shareholders calling us, wanting to know what was going on. But there hadn't been any negative news about the company, so we couldn't explain it."

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