When is a buyback not a buyback?

If you review REFR's archive of press releases, and go back to 20oo and earlier, you'll find a couple of releases announcing that REFR was buying back shares of its common stock. Besides those explicit releases, other reminders of the ongoing buyback were put out from time to time.

Now, a stock buyback is something a company normally does when it has large amounts of idle cash and wishes to use it to the benefit of its shareholders by permitting those who wish to sell to do so all in one shot, thus absorbing some of the supply of stock and allowing whatever demand there is to subsequently drive the stock price higher.

This is all well and good for large corporations with billions of dollars. But what is one to make of it when REFR, a company with just a handful of millions to its name and no net income, announces they are doing it?

The obvious question is, where is REFR getting the money to do such a buyback? Many shareholders jumped to the conclusion that REFR must suddenly be awash in cash as a result of some kind of as-yet unannounced deal.

The truth, however, was quite insidious, and only available to those who scanned REFR's SEC filings. REFR's stock buybacks were being funded... by sales of stock! Yes, REFR was buying back and "retiring" stock and making a big deal out of it, but at the exact same time issuing new shares of stock and not highlighting that fact at all. Worse yet, the total share count not only increased, but REFR was at the same time losing money with its share transactions. It was lose-lose for everyone involved and the only reason nobody cared was because the market was in a rampant bull phase and the share price was soaring regardless of anything else.

The fact that such obvious fraud was never met with so much as a public reprimand from the SEC, just goes to show how low REFR is in the food chain of targets regulators are going after. Mind you, it's not necessarily the case that the powers that be don't care. REFR did, after all, cease the buyback nonsense in 2001. But whether that was because of market conditions, or because someone from on high has them in their crosshairs, is something we don't know at present.

Regardless, whether anyone is watching or not, the fleecing of naive investors continues.