"The Case of the Curious 'Corner' "
http://query.nytimes.com/gst/fullpage.html?res=950DEFD81338F931A15752C0A96F948260&sec=&spon=
"Cornering a stock is a maneuver capped by a one-two punch. This is how it works:
One group acquires not just all the available shares of a company, but more than all of them - an arrangement made possible because some investors sell the shares short. Those investors, betting the share price will fall, borrow shares and sell them into the market.
Then comes the one-two punch. Having accumulated the shares, the group controlling the securities demands that the shares it has lent to short sellers be returned. With other shares unavailable, the shorts cannot honor that demand.
This allows the group controlling the securities to buy shares to satisfy the obligation, using the short sellers' money. That is known as a ''buy-in.'' Since the group is the only one with any stock that can be sold, it can set any price it wishes. The stock is thus cornered and the shorts are squeezed.
In the war between bulls and bears, longs and shorts, a stock corner is the ultimate victory for the longs - or at least it seems that way to those who dream of corners.
But historically, that victory has often been Pyrrhic. Those who corner the stock own a company for which they often have severely overpaid, because in accumulating their position, they have sharply bid up the shares. Often they can sell only at a much lower price.
In two celebrated corners of the 1920's, involving the Stutz Motor Car Company of America, an auto maker, and Piggly Wiggly Stores, a grocery chain, the men who engineered the corners went bankrupt.
Since then, regulations and legislation have been implemented to discourage corners, and such transactions have become a rare phenomenon. That is why the Chase case has gained attention exceeding the size of the company involved.
To be sure, there has been no allegation by regulators that anyone tried to arrange a corner in Chase Medical, an obscure Florida-based chain of health clinics. But from what is known, it is clear that those buying the stock - customers of the brokerage firm Moore & Schley, Cameron & Company - came very close to producing a corner, whatever their intent. The only thing that kept the situation from progressing further was the trading halt.
Although the issues raised by the case are complex, one fact is clear: Millions of dollars in profits and losses may be gained, or lost, as a result of whether the Government allows the apparent corner in Chase Medical to proceed to its conclusion. Since there are few precedents, the S.E.C.'s options are not clear. Louis Loss, a former S.E.C. official and retired professor of law at Harvard University, said someone who planned a corner might be charged with violating Section 9(a)2 of the Securities Exchange Act of 1934. That bars trades when the intent is to raise the price of a stock with the purpose of inducing others to buy it. The normal remedy in such cases is to bar sales by the violator until the effect of his actions is no longer present in the market. Whether such a step would prevent a buy-in is not clear. "
