by Wolf Richter, Wolf Street:
It’ll take many more sell-offs and the collapse of many more iffy stocks before this hyper-enthusiasm, after nine years of central bank nurturing, is finally wrung out of the market.
Shares of “blockchain” company LongFin (LFIN) plunged 17% today to $14.31, the sixth trading day in a row of plunges. Intraday on Friday, March 23, shares still traded at $73. The astonishing thing isn’t that they’ve plunged 81% over those six trading days, but that they had more than doubled over the prior two weeks, and that they’re still trading above penny-stock status to begin with.
LFIN started trading on December 13, following their IPO. On December 15, LongFin announced – with what I called it “a mix of gobbledygook, hype, and silliness” – that it had acquired a “Blockchain-empowered solutions provider,” namely a website that belonged to a Singapore corporation that is 95% owned by Longfin’s CEO and chairman.
Though neither the announcement nor the transaction passed the smell-test, shares skyrocketed 2,700% to an intraday high of $142.55 on December 18, giving it a market cap of $7 billion and making it the role model for a bevy of other “blockchain” companies. Then, as stock jockeys grappled with reality, shares plunged. As did the shares of other “blockchain” companies.
But then on March 12, it started all over again, when index provide FTSE Russell announced that LongFin would be added to some of its indices, including the widely-tracked Russell 2000, effective March 16:
Then all kinds of things happened.
On March 26, short-seller Citron Research tweeted: “If you are fortunate enough to get a borrow, indeed $LFIN is a pure stock scheme. @sec_enforcement should not be far behind. Filings and press releases are riddled with inaccuracies and fraud.”
That day, Russell announced that Longfin would be removed from its indices, including from the Russell 2000, effective March 28, only days after it was added to the indices.
Russell justified this one-eighty by explaining that the company had misrepresented its free float of shares. In an SEC filing published on February 13, just before the Russell US Index rank date of February 14, Longfin “confirmed that up to a maximum of 1,140,000 of the shares offered had been taken up by the public,” out of 10,000,000 offered, meaning the public held over 11%. But Russell then “determined that LongFin failed to meet the minimum 5% free float requirement as at the 14 February cut-off date.”