ok.
1. who is Equities First Holdings? start typing in google... the first suggestion that comes up is ... "scam", complaints, lawsuit
2. how does the scam work? read here: it is considered a scam as it's a special system for giving a loan against stock. the lender is praying on the beneficiary when the value of their shares in collateral decline.
it was very bad in GFC when share prices plummeted https://abnicholas.com/nonrecourse_stock_loan/
Let’s examine how the nonrecourse stock loan house of cards fell in the last decade with an example. Suppose a client had a portfolio valued at $100,000. Suppose also they provided an 80% loan-to-value nonrecourse stock loan at 7% interest. The client is given $80,000 in loan proceeds after the lender receives and sells the portfolio. The lender then keeps the 20% remaining for himself. (A small portion goes to the brokers as a finder’s fee).
The lender hopes the client will walk away from repayment in many cases. He may set the interest rate high enough to make the loan annoying, but mostly he hopes the value goes down enough such that it will not be worth it for him to pay it off. In short, he the nonrecourse stock loan lender does not want the client to perform.
Again, nobody knows this other than the lender himself. Everyone else assumes it is a normal loan, that the client will seek to pay it off and recoup his shares afterwards. But that is not the reality. The reality is that the lender is praying that the stock doesn’t go up so the client has very little incentive to pay off the loan and regain his shares.
When a client walks away from repayment and gives up his stocks as full satisfaction of his loan, the lender keeps the x% as his profit. It’s locked in. In the above example, he’d keep $20,000 (minus a small amount for the referring brokers). Profit locked in, plus any interest the client paid.
The danger is when that same portfolio rises in value over time. Suppose the same portfolio at $100,000 now rises to $150,000 or $200,000. Now it makes excellent sense for the client to pay off the loan, as soon as possible. In so doing, he’d be paying off the remaining principle (perhaps a little under $80,000) and he’d be getting back his portfolio worth now $150,000 or more. It makes sense to the client.
To the lender, however, this is the worst possible outcome. Now the lender will have the client’s payoff money in hand — say, $80,000 in this example. But to obtain the same number of shares as he sold earlier, he’d need to but it in the open market at market rates — say $150,000 or $200,000. He would, in short, have to reach into his own pocket to buy enough shares to reach the original number and return them to the client.
3. however ALAN - the genius - must have known (or been convinced) that his Unilife shares WILL go up and he will come out from this loan with an upper hand! WOW - either very smart, or very lucky!!! he actually diddled the scam company!!!!
UNS Price at posting:
26.5¢ Sentiment: Hold Disclosure: Held
