We need to get out of this Fife funding.
SEC v. John M. Fife et al.
As noted above, John Fife operates a regular business through which he buys convertible notes from undercapitalized small companies. After holding the notes for the length of time required by Rule 144—usually six months, because he evidently prefers to deal with companies that are registered with the SEC—the notes are converted into newly-issued unrestricted shares of stock at a deep discount from the prevailing market price. After conversion, that stock is sold into the market, locking in a substantial profit. According to the SEC, from 2015 through 2020, Fife sold more than 21 billion newly-issued shares of stock acquired through the conversion of notes he’d purchased from approximately 135 penny stock companies. His profits were at least $61 million, most of which came from the spread between his discounted purchase price and the prevailing market price at which the shares were sold. Fife’s practice was to sell the shares he had acquired in a convertible note deal continuously on a daily or near-daily basis until he’d sold all of them into the market. He usually completed this process in a couple of weeks or less. In addition to profiting from stock sales, Fife charged counterparty microcap companies transaction fees, generally ranging from between $5,000 and $25,000 per deal. He collected at least $2.12 million in those fees.
Fife’s conduct frequently depressed the stock price of counterparty microcap companies. His practice of selling thousands of a counterparty company’s newly-issued shares into the market on multiple consecutive trading days, and his practice of converting additional shares soon after the previously-converted shares were sold, generally led to a significant decrease in stock price.
While the stocks of the companies Fife dealt with often crashed, causing losses to investors, he himself generally reaped large profits. He obtained those profits from the discounted purchase price he negotiated with the counterparty companies, rather than from any appreciation in the stocks’ price.
Moreover, many of Fife agreements with counterparty microcap companies contained true-up provisions that compelled the company to issue additional shares to him if the company’s stock price decreased in the 15 to 20 business days following a conversion. Ironically, his own sales of thousands, or even millions, of newly-issued shares into the market caused a decrease in stock price, and consequently triggered the true-up provision.
SEC v. John M. Fife et al.
As noted above, John Fife operates a regular business through which he buys convertible notes from undercapitalized small companies. After holding the notes for the length of time required by Rule 144—usually six months, because he evidently prefers to deal with companies that are registered with the SEC—the notes are converted into newly-issued unrestricted shares of stock at a deep discount from the prevailing market price. After conversion, that stock is sold into the market, locking in a substantial profit. According to the SEC, from 2015 through 2020, Fife sold more than 21 billion newly-issued shares of stock acquired through the conversion of notes he’d purchased from approximately 135 penny stock companies. His profits were at least $61 million, most of which came from the spread between his discounted purchase price and the prevailing market price at which the shares were sold. Fife’s practice was to sell the shares he had acquired in a convertible note deal continuously on a daily or near-daily basis until he’d sold all of them into the market. He usually completed this process in a couple of weeks or less. In addition to profiting from stock sales, Fife charged counterparty microcap companies transaction fees, generally ranging from between $5,000 and $25,000 per deal. He collected at least $2.12 million in those fees.
Fife’s conduct frequently depressed the stock price of counterparty microcap companies. His practice of selling thousands of a counterparty company’s newly-issued shares into the market on multiple consecutive trading days, and his practice of converting additional shares soon after the previously-converted shares were sold, generally led to a significant decrease in stock price.
While the stocks of the companies Fife dealt with often crashed, causing losses to investors, he himself generally reaped large profits. He obtained those profits from the discounted purchase price he negotiated with the counterparty companies, rather than from any appreciation in the stocks’ price.
Moreover, many of Fife agreements with counterparty microcap companies contained true-up provisions that compelled the company to issue additional shares to him if the company’s stock price decreased in the 15 to 20 business days following a conversion. Ironically, his own sales of thousands, or even millions, of newly-issued shares into the market caused a decrease in stock price, and consequently triggered the true-up provision.
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