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Expert Financial Analysis and Reporting

Could There Have Been Hundreds of Millions or Even More Than a Billion Counterfeit Shares of Northwest Biotherapeutics Created Through Illegal Naked Shorting?

I am often asked how I can hypothesize that there may be such an unbelievably large number of counterfeit shares of NWBO that have been created through illegal naked shorting? A look at the GameStop short squeeze gives a real world example suggesting that the hedge fund Melvin Capital could have been short the equivalent of a number of shares equal to or greater than the 63 million issued and outstanding shares of GameStop. If this was the case with GameStop, it might also be the case with Northwest Biotherapeutics.

We saw in the case of GameStop that Melvin Capital lost over $6 billion in a short period of time with much of this purportedly due to a short position in GameStop. We don’t know how much was lost on GameStop and how much on other positions. We can only guess at how many shares were shorted, at what price they were shorted and at what price they were covered. So we have three unconstrained variables making for an impossible to solve equation. Of course, one subpoena from the House Financial Services Committee could fill in the blanks quickly.

For the sake of argument, let's assume that Melvin was short 63 million shares which shockingly is equivalent to the number of legitimately issued shares. If the difference between the shorting price and the cover price was $10, Melvin would have lost $630 million. If the difference was $50, Melvin would have lost $3 billion on the position. Comments made by CEO Gabe Plotkin on CNBC suggest that the loss per share was less than $50, but he did not explicitly say so.

We know that in total Melvin lost over $6 billion with much due to the GameStop short so that both of these calculations out of an infinite number seem intuitively to be a reasonable possibility. Also, reasonably possible is that Melvin could have been short 126 million shares, twice the number of legally issued shares. If we assume the hedge fund covered with a loss of $30 per share. Melvin's loss would have been around $4 billion as compared to the overall $6 billion that was lost. Again intuitively, this seems possible. Hence, we can come up with some reasonable scenarios in which Melvin shorted the entire company once or even twice over. However, I want to emphasize that these are just a few of an infinite number of possibilities.

Obviously, Melvin could not have shorted this number of shares by borrowing them in a legal shorting maneuver. How could you borrow all or more of the outstanding shares and in any event the interest carrying expense would have been astronomical? However, if they sold counterfeit shares, there is no limitation to the number of shares that can be counterfeited and since they weren’t actually borrowed, there would be no interest expense.

This real world experience strongly supports but does not prove my hypothesis that illegal naked shorting has created an unimaginably huge number of counterfeit shares of NWBO. The market capitalizations of GameStop and NWBO are comparable so if Melvin was short the equivalent of one or two times the number of legitimate shares of GameStop, could it be the case that the wolfpack in the aggregate has done something similar to NWBO? If so, there could well be hundreds of millions or perhaps more than a billion counterfeit shares outstanding. The wolfpack appears to be at great risk if the phase 3 data leads investors to conclude that DCVax-L is approvable. This would be poetic justice.

Do you find it curious that hedge funds Point 72 and Citron rushed in to save Melvin? I thought they were ruthless competitors.

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