There has been much debate and consternation in the past 24 hours following yesterday's embarrassing for the SEC (and Edgar) fake tender offer [11]for Avon Products by the non-existent pranksters at "PTG Capital", most of discussing how it is possible that the SEC can possibly allow someone to play such a cruel joke on a company which had some 80 million shares short (20% of outstanding) leading to massive losses for those who were stopped out when the algos reacted to the fake report.
Couple of points: what happened yesterday is in no way new. Recall from June of last year when the same SEC said an investor [12]who was accused of a fake gold bid fled to China.
The U.S. Securities and Exchange Commission said the man behind a fake $750 million bid for Allied Nevada Gold Corp. profited from selling an undisclosed stake in the mining company and has fled the country.
Another such fake "buyout" took place in 2012 when a different British investment firm, PST Capital Partners which had the same people behind it as "PTG Capital" submitted a buyout proposal [13]for Rocky Mountain Chocolate Factory in 2012. The offer also was made in a filing that appeared on the Edgar database.
As the NYT adds [14], there are "similarities between the Avon and Rocky Mountain Chocolate bids. Both filings used language from the websites of two big private equity firms on their websites. The S.E.C. database lists the place of incorporation for both PTG Capital and PST Capital as the British Indian Ocean Territory, an archipelago of more than 2,000 small islands."
In other words, whoever did it in 2012, did it again in 2015 and will likely do it again.
Second, the SEC does not, has not, and never has pretended to police what documents enter the Edgar database, which gets 4000 of inbound documents every day. NYT reports [14]:
“Under the federal securities laws, filers are responsible for the truthfulness of their filings, and they are subject to enforcement actions when they are false or misleading,” the S.E.C. said in an emailed statement.
The agency added that it received about 4,000 filings to the Edgar system each day and made them automatically available to the public.
In other words, not only is the market broken by HFTs, manipulated by central banks, but now shorts - if any are left - have to be worried about random squeeze raids like the one in AVP yesterday by criminal pranksters, because as we summarized yesterday [11], "while the days of the short-squeeze ETF have come and gone, the next big thing on Wall Street are robot-generated fake LBO letters targeting the most shorted stocks."
Which brings us to the point of this post: since in this market no fundamental analysis will lead to profits until the central banks and the HFTs burn, and the SEC actually does its job, the next best trade is to do the opposite of what makes sense (see "The Broken Market Chronicles: For The Third Year In A Row, The "Most Shorted Names" Generate The Highest Return [15]"), or failing that to expect even more illegal activity.
And since yesterday's fake AVP tender offer was nothing but a targeted attempt to force a short squeeze in one of the market's most shorted stocks, the best way to be positioned for future such criminal activity is to go long precisely the most shorted stocks, the names which in any other universe would be the first to crash, burn and file bankruptcy, but in this parallel centrally-planned universe may just be the biggest winners.
So, without further ado, here are the 30 most hated and shorted names, ranked in order of declining short interest as a percentage of float, for both the S&P 500...
[16]
... and the Russell 2000.
[17]
Because when all else fails, putting on an equal-weighted long basket of these 60 names may be the best hedge for these rigged, criminal times in which one has to think like a market-manipulating criminal (or said otherwise, a central banker) to make any money.
