One of Falt's accusations was that ACH were 'Lapping' in order to manipulate the price of xG Technology's stock. What is 'Lapping', and does it fit in with our observed behavior of the trades of XGT's stock?
The following diagram demonstrates what lapping is:
Lapping is essentially 'robbing from Peter to pay Paul'. In financial fraud terms it utilizes the fact that the fraudster has access to multiple accounts, and that it's usual for large firms to send out monthly statements alphabetically, so people with surnames starting with A gets theirs sent on the first of the month, those with B on the second etc. This is useful to them because funds, or stocks, can be 'borrowed' from an account and won't be missed for another thirty days.
Usually a dummy account is set up, which we will call account A. Money or shares, are diverted from a regular account, B, and in order to hide this, funds from account C are put into B, C's loss is covered by D, and so on. This juggling of accounts can have a number of aims:
Firstly it enables people to simply steal money from account A, and cover this by continued transfers.
Secondly, when one is dealing with stocks, it means that the volume is multiplied significantly. If one has 30 accounts to lap through, then the volume is multiplied 30 times. If as we said before ACH are both the bid and the ask of any one trade it could theoretically increase the price every time. However the bubble bursts when at these inflated lapped prices there are more sellers than buyers from outside the lapping circle.
Does that fit our observed picture? HELL YES!
1. After IPO xG's stock price rockets.
2. There's dozens and dozens of unusual trades; selling below the bid, and buying above the ask,
3. And then when people like Marc Dannenberg boast of selling at $18/$15 a share, the price crumbles.
Summary: Falt was right, and ACH and xG are thieving bastards
Another thing is, in the recent press-coverage of the ACH bankruptcy an 'insider' said that they had ONLY 50 active customers and 2-300 actual proper accounts. That's a staggeringly small number. The rest of ACH's 6000 customers were in the pyramid/MLM scam called the Bridge Group. Bridge is, like ACH, banned in Sweden. It claims to offer the opportunity to 'buy-in' to companies *before* IPO. Like ACH its customers seem to be mostly Swedish, but as Bridge don't have a license in Sweden, when they complain about having been ripped off there's nothing the Swedish authorities can do. Each bridge member had to pay to open an account at ACH, as well as a $1,800 joining fee - And then watch what they bought plummet up to 90%....
Total Bridge customer deposits at ACH were only $7.6M. (Thankfully all of that is covered by the Swiss guarantee scheme as they are all small customers with <$80k each under deposit.) So if 6,000 people only had on average $1,250 or so on deposit, that must mean the other 300 customers are HUGE, right?
It seems that ACH weren't as large as they made themselves appear. Nothing wrong in that - a bit of salesmanship. Olof Hedengren of ACH said in the press the other day that only a 'very small' number of people would lose money in the Bankruptcy because everyone else had under the $80k threshold. Naturally as a brokerage the majority of customers would have their holdings in stock, but even so maybe there's only $30-40M in cash. [Edit: The press now reports their assets to be ONLY $10-16M!]
It does make the $10.8M that Olof borrowed from UBS a little while back in order for them, and their customers to buy stock in xG Technology seem like a MASSIVE amount! It would make xG a huge part of ACH's business. Is it any wonder they were keen to play ball with a little manipulation?