BIDZ.com rises after company investigates alleged naked short selling
BIDZ.com, Inc. (Nasdaq: BIDZ) shares are soaring after the online jewelry auctioneer announced it is investigating possible wrongdoing by editor Andrew Left of Citron Research and will report trading activity to regulators. Left wrote a scathing report on Monday that sent BIDZ.com shares plummeting. He accused the company of irregular bidding and said one of the firm’s major shareholders and suppliers has a criminal past.
After publishing the report, Left said his website was hit with a denial of service attack that left Citron Research inaccessible for a period of time.
BIDZ.com said recent trading activity may have constituted “naked” short selling, or when traders sell borrowed shares without having borrowed them first. Because the practice falsely creates more sellers than buyers and usually artificially lowers a company’s share price, the practice is considered illegal under Securities and Exchange Commission rules. BIDZ.com said in a release that it reported recent trading activity to the Nasdaq and the SEC.
The Culver City, Calif.-based firm also warned investors that trading will be “volatile” over the next several days as sellers continue to short sell shares or cover their short positions. BIDZ.com said it “believes and is confident that the market will ultimately recognize the value in Bidz.com shares and the regulators will evaluate the recent trading activity and address any wrongful conduct.”
Ben Homer, who worked in Bidz.com’s customer service department during 2004, said he isn’t surprised at Citron’s report.
“There were countless complaints that a piece of jewelry a customer purchased appeared used, had an engraving, or came with a photocopied or otherwise altered certificate of authenticity,” Homer, who now works as a client services coordinator for New York-based CSTV, said on his website OnlineVideoWatch.com. “I never myself saw shill bidding, but I did see a number of user accounts with hundreds of thousands of dollars worth of merchandise purchased at prices way above what a reasonable person would pay for them. Frankly I’m amazed none of this came out sooner, I never thought the company would be around this long.”
BuyIns.net, a company that makes software that helps traders take advantage when short sellers cover their positions, announced Thursday morning that it initiated coverage of Bidz.com. The company said it expects a short squeeze—a situation in which the price of a stock causes short sellers to scramble and buy shares in order to cut losses—when Bidz.com shares close above $13.77.
In afternoon trading, BIDZ shares are up 12.48%, or $1.26, at $11.36. Over the last 52 weeks, shares have ranged from $4.90 to $22.50.
