GOIH Global Capital Markets: Etrade Financial (ETFC) down sharply in pre-market. Currently trading at $6.05 in the pre-market. We went short on ETFC at $9.00 for 250,000 shares last week. We are adding to the position by creating a put with our counter party G1 Structured Credit Corp. leveraged against the S&P 500 Financial Index. We are short the S&P Financial Index with and overweight against ETFC and CFC. We expect see the trade gain as the Dow drops and the dollar continues its weakness against the major currencies.
G1 will hedge the put by taking the premium on the option and going long the volatility on ETFC and CFC options.
As we have reported here in earlier posts, ETFC is the worst performing stock in the S&P 500 Financial Index. Moreover, ETFC is facing mounting pressure in the class action litigation concerning their subprime loan portfolio. It was reported in the WSJ that ETFC would take a $3.0 billion write down on the portfolio.
Market Manipulation
In addition to the sub-prime litigation, ETFC we are hearing rumors, will face a new wave of class action lawsuits concerning the trading in OTCBB stocks, i.e., front running and phantom trades assigned to their customers’ account. We are also hearing rumors that Ameritrade will also be named in the phantom stock assignment fraud of OTCBB stocks.
It rumored that both Etrade and Ameritrade when a buy order for an OTCBB stock was made by their customer, they would not go into the market and purchase the stock, but would “assign” the customer the stock virtually and keep the purchase price of the trade and take a commission on the phantom trade. This was ok until the OTCBB stock stated going up in price, which if the OTCBB stock rose too fast both Etrade and Ameritrade would have to actually go into the market and purchase the shares and actually place the shares in the customers’ accounts. They would have to buy the stock at the increased market price causing a loss in their trading portfolio.
Both Ameritrade and Etrade would then place the OTCBB stock on restrictions preventing the purchase of the shares by their customers, only allowing the sale of the stock. This would create selling pressure on the OTCBB stock causing the stock to drop in price where both Etrade and Ameritrade would come into the market and buy and “actually” place the shares in the customers’ accounts.
We have heard rumors that Ameritrade’s trading book is short more than 200 OTCBB stocks valued at more than $500,000,000 dollar in fair value.
