When making a financial transaction, be it personal banking, buying a new home or trading shares, it always pays to triple-check everything is correct before you finalise the payment.
To put it bluntly, there’s no substitute for due diligence.
Yet on Friday, news that Tesla Motors (NASDAQ:TSLA) had acquired Michigan-based tool and die manufacturer Riviera Tool LLC caused a confusion on the stock market which saw the penny stock of of a completely different firm — a publicly traded company with a similar name listed on the pink sheets market — rise by 12,000 percent to more than $0.60 per share.
Investor confusion was made worse by erroneous reporting from several trading sites and news outlets.
The problem? Investors were struggling to tell the difference between privately-owned Riviera Tool LLC and publicly-traded Riviera Tool Company (OTCMKTS:RIVT), snapping up the pink sheet penny shares like candy in an attempt to cash out on the association with the Californian automaker. Investor confusion was made worse by erroneous reporting from several trading sites and news outlets, many of which failed to identify the subtle difference between the two firms.
Yet for the eagle-eyed, there is.
As SeekingAlpha details, those who partook in the crazy trading frenzy on Friday which saw more than 12 million shares exchange hands may have cast a quick glance at the address of both Riviera Tools LLC and Riviera Tools Company to ensure that they were the same firm. Had they done so, it would appear that the two companies shared the same address. Dig a little deeper and it soon becomes apparent that while the two firms share a common ancestry, they are now separate entities.
Back at the turn of the century, Riviera Tools Company — the original firm to bear the Riviera Tools name — was publicly traded on the AMEX exchange. But by May 2005, Rivera Tools Company was running low on cash and entered into a financing agreement with Laurus Master Fund, Ltd., which agreed to loan Riviera Tools the capital it needed for its operations at the time.
Two years later, Laurus foreclosed on the assets and intellectual property of Riviera Tools Company. During the disposal of assets, a new, privately-held firm called Riviera Tool LLC, doing business in the state of Michigan as Riviera Tool Acquisition LLC, purchased the remaining assets and intellectual property seized by Laurus in payment of the outstanding debt to it by Riviera Tools Company.
As official records at the time note:
Pursuant to the foreclosure proceedings, in accordance with the
Uniform Commercial Code, the company was released from certain
indebtedness to Laurus in exchange for the surrender of the
company’s assets and intellectual property securing its
obligations under the credit agreement.
As a result of the Foreclosure Agreement, the company has no remaining operations and a de minimus amount of cash.
The company said that after the foreclosure, Laurus sold the
assets and intellectual property in an arms-length transaction to a privately held North American company, Riviera Tool LLC doing business in Michigan as Riviera Tool Acquisition LLC.
The new owner intends to operate the company at its current facility in Grand Rapids. The majority of the company’s 68 employees will be offered employment with the new owner.
With its debt paid off and all assets now transferred to Riviera Tools LLC, all that remains of the Riviera Tool Company is essentially a non-reporting, dormant shell of a business that was worth less than half a penny a stock at the start of last week. That was until it was misidentified by traders around the world.
On Friday, shares of RIVT rose so sharply that the Financial Industry Regulatory Authority (FINRA) was forced to step in, halting all tradings for the pink-sheet company.
“Riviera Tool (RIVT) has been halted because there is significant confusion over the status of the publicly traded shares,” FINRA spokseperson George Smaragdis said on Friday. By the time the markets closed on Friday, lucky investors may have been able to cash in on the confusion. But with stock closing on Friday at $0.225 per share, a whopping 4,400 percent on its true value, many more will be coming to the slow realization that their latest acquisitions could have cost them hundreds or even millions of dollars.
You can also support us directly as a monthly supporting member by visiting Patreon.com.