A joke where everyone is making fun of everyone in grand & crazy pump-and-dump schemes. But I can’t blame AMC. I blame the Fed.
By Wolf Richter for WOLF STREET.
AMC Entertainment Holdings – whose shares became the incredibly spiking #1 the-zoo-has-gone-nuts meme stock in recent days, multiplying by a factor of 6 in seven trading days, before plunging today – announced in an SEC filing early this morning that would try to sell 11.55 million shares to retail investors, with B. Riley Securities and Citigroup Global Markets as sales agents.
Let the cold-calling begin. AMC will pay the sales agents “up to 2.5% of gross sales” in commissions plus reimburse them for certain expenses. The share sales will be conducted whenever, in bits and pieces, via this “at-the-market” offering.
The fun thing about the updated prospectus is the explicit acknowledgement that the zoo has gone nuts, that the insane movements of AMC’s shares are proof of it, and that investors should not touch this thing with a 10-foot pole.
This is a class-act CYA, much needed during the securities lawsuits that are likely to follow. It will be able to tell stiffed plaintiffs: “We told you so.”
But it also shows that AMC is counting on these traders to not read the warning, and to not heed it if they read it. AMC is counting on these traders to instead buy those shares, with those traders relying on their Reddit crowd to bail them out of those shares later at a much higher price – the social-media-organized pump and dump.
With a palpable sense of astonishment, AMC points out the crazy share price movements that it is now going to take advantage of:
“For example, during 2021 to date, the market price of our Class A common stock has fluctuated from an intra-day low of $1.91 per share on January 5, 2021 to an intra-day high on the NYSE of $72.62 on June 2, 2021 and the last reported sale price of our Class A common stock on the NYSE on June 2, 2021, was $62.55 per share,” it says.
Well “was $62.55,” now is $44 at the moment.
“We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” it says.
And in bold is says: “Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.”
“Extreme fluctuations in the market price of our Class A common stock have been accompanied by reports of strong and atypical retail investor interest, including on social media and online forums.”
It warns that its shares “may continue to experience rapid and substantial increases or decreases unrelated to our operating performance or prospects, or macro or industry fundamentals, and substantial increases may be significantly inconsistent with the risks and uncertainties that we continue to face.”
It blamed the spike in the share price on “retail investors,” their hype-mongering “on social media sites and online forums,” their access to data about “the amount and status of short interest in our securities,” and their access to leverage and options.
It also blamed the “short squeeze” itself and “coordinated trading activity” that caused the spike in the price of its shares, and warns how this may end:
“As traders with a short position make market purchases to avoid or to mitigate potential losses, investors purchase at inflated prices unrelated to our financial performance or prospects, and may thereafter suffer substantial losses as prices decline once the level of short-covering purchases has abated.”
These “retail investors” are the very people that AMC is now ruthlessly taking advantage of by selling them 11.55 million more shares at those short-squeeze-and-coordinated-social-media-hype “inflated prices” that it says could get wiped out.
AMC says its new-found market capitalization, based on the idiotic price of its shares, is idiotic itself, dressed up in its CYA legalese:
“Our market capitalization, as implied by various trading prices, currently reflects valuations that diverge significantly from those seen prior to recent volatility and that are significantly higher than our market capitalization immediately prior to the COVID-19 pandemic,” it says.
“These valuations reflect trading dynamics unrelated to our financial performance or prospects,” it says.
“Purchasers of our Class A common stock could incur substantial losses if there are declines in market prices driven by a return to earlier valuations,” it says.
And AMC concludes is warning that the price of the shares it’s going to sell “may fluctuate dramatically, and may decline rapidly, regardless of any developments in our business.”
I can’t blame AMC. They’re in a tough business. They’re losing a ton of money. They got close to a bankruptcy filing last year, had it not been for their ability to extract more cash from those crazy markets.
The decisions makers in this deal are just ruthlessly taking advantage of people that are desperately eager to be ruthlessly taken advantage of, and that are willfully and eagerly participating in one of the grandest-ever pump-and-dump schemes, organized and coordinated in the social media, particularly on Reddit.
But it does show how ridiculous the entire stock market has become, thank you halleluiah to the Fed and its grandest ever shenanigans.
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