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May 11

Riviera Tool Corp $RIVT does a NEST

When people ask why I prefer to trade penny stocks and preferably OTC stocks, my answer is that I prefer to trade against people who are less intelligent and experienced than I am. Considering all the smart people working at hedge funds I would likely be less intelligent and less experienced than the people trading big money on real stocks like Apple and Tesla. But every once in awhile the amount of stupidity I see in the trading of a stock astounds even me. Riviera Tool Corp (RIVT) is a recent example of this.

What happened with Riviera Tool Corp (RIVT)? After the market close on Wednesday, May 6th, the Detroit Free Press reported that Tesla (TSLA) was buying “Riviera Tool” of Grand Rapids, a tool and die supplier to Tesla. After Riviera Tool Corp (RIVT) started spiking Jason Shubnell of Benzinga reported the acquisition and specified that it was Riviera Tool Corp (RIVT) that Tesla was buying, which was wrong — it was Riviera Tool LLC that was acquired. Riviera Tool Corp had all its assets seized by creditors back in 2007 and had been an empty shell since then. For summaries of exactly how there came to be a public zombie shell Riviera Tool Corp and a private Riviera Tool LLC, see this SeekingAlpha article. After the market close on the first day Riviera Tool Corp was halted by FINRA (U3 halt)  and it remains halted as I type this. See the intraday chart of RIVT on the day it spiked.

Back in 2013 a similar situation happened with Nestor Inc. (NEST) after Al Gore talked positively about Nest (maker of the Nest learning thermostat). Dumb investors/traders bought the stock of Nestor, which at the time was essentially a shell company with no assets, thinking it was Nest Inc. Take a look at the intraday charts of NEST over the three days it ran up and then dumped back down (days 1 and 2; day 3). Here is a description of what happened. When Google acquired Nest in early 2014 Nestor Inc stock had another run. The NY Times Dealbook had a nice description of what happened then.

The Nestor / Nest confusion wasn’t even the only time that happened in 2013. In the same month that year there was lots of talk about Twitter (TWTR) going public and the company started filing paperwork for its eventual IPO. Traders then bought stock in bankrupt (and essentially worthless shell) Tweeter Inc (TWTRQ) and the stock shot up from 1 cent to 14 cents. Even after the first run up and a halt to change the ticker to THEGQ so that people would not be confused the stock had a second run up two weeks later and ran from 2 cents to 10 cents.

 

Disclaimer: This article has been edited to show that NEST had two separate dumb runs after news of Nest Inc. I am short 15,000 shares of RIVT at Interactive Brokers that I will look to cover when it reopens for trading. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

11 comments

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  1. Mster

    What happens to your short position if it does not reopen? How will you cover your short?

    1. Michael Goode

      99.95% of the time a stock is halted it will reopen for trading. The other .05%, which could very well include RIVT, has the stock canceled and then once the broker processes the cancellation the short position is removed and shorts make 100% (minus borrow fees). The reason I think that could happen here is that the company Riviera Tool Corp has not existed since 2009 (when it was administratively dissolved by the state of Michigan).

  2. Mster

    thanks. How long would it take for the stock to be cancelled?

    1. Michael Goode

      It would likely take two weeks or so and during that whole time shorts would be paying the borrow cost.

  3. Ted

    I’m also short RIVT with IB. They just told me they weren’t able to borrow the stock and may be forced to close out the position, which is of course impossible with the stock halted. Any idea what happens here? Will the closeout happen if and when the stock reopens or could the original trade be busted?

    1. Michael Goode

      I think it likely that shorts will get bought in at the VWAP when it reopens although it could be at the open or maybe by then they will decide they don’t need to do a buy-in.

  4. Jim Davis

    Now explain how they had 1 million shares for shorting, whose count did not decrement into the close, and now they can’t borrow the shares?

    Are longs (the lenders) playing games, trying to abuse legitimate shorts, or what?

    1. Michael Goode

      All are very good questions but really I have no clue.

  5. Jack

    Which promoters are the best right now? I’m not that happy with stocks psycho or fortune stocks..

    1. Michael Goode

      Stocktips.com is definitely the best remaining promoter. Their new pump (new as of today) COLV is interesting because it has already been pumped and dumped numerous times.

  6. MP

    Yikes (COLV). I think StockTips’ days as a successful pumper are over.

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