Submitted by Frank Rollins as part of our contributors program.
I prefer to stick to original, investigative articles (such as this one that preceded a 317% two-week rally), but some critical events have prompted this short update. Namely, 1) Barry Honig bought Neuralstem at $0.40 before it rallied to $1.96 within a month, 2) one of his other investments doubled in price, and 3) on Monday, he bought two million shares of Continental Resources Group (CRGC).
The reason for my uncharacteristically short update today is due to this CRGC purchase. As some of you are aware, I have been tracking the untold story of a hedge fund manager named Barry Honig. With minimal press coverage, Honig has been been consistently earning hundreds and thousands of percentage points in a series of small-cap investments. All of my past work based on SEC filings can be found here on Trefis.
Now, the reason I find Honig’s purchase of two million shares of CRGC interesting is because it demonstrates his obvious confidence in a hidden arbitrage opportunity. The arbitrage is between Continental Resources Group (CRGC) and Pershing Gold (PGLC).
Arbitrage is the attempt to profit from buying something in one market and selling it in another market for a slightly better price.
Currently, there are separate markets for CRGC shares and PGLC shares, i.e. the two companies trade independently. Between these two markets, there are circulating rumors that one share of CRGC is worth 80% of one share of PGLC due to a pending merger.
This means that with PGLC trading at $0.375, CRGC “should” be trading at $0.30. However, uncertainty over the merger’s eventual completion is causing CRGC to lag PGLC in price. Indeed, CRGC closed today at $0.269. With that closing price, CRGC is offering an 11% “arbitrage” yield.
Thus far, SEC documentation reveals only a very complicated capital history for CRGC. I have not yet been able to certify — nor contact management regarding — the alleged .8-to-1 merger between CRGC and PGLC. Nonetheless, from my reading of SEC filings, it is clear that CRGC is a non-operating entity in which PGLC has a controlling equity stake. It would make logistic sense to consolidate CRGC and clean up the PGLC share structure through a final registration of CRGC shares under PGLC ownership.
Honig apparently prefers CRGC to PGLC, at least based on his most recent SEC filing. Although, perhaps to characterize it more appropriately, Honig seems confident in both companies. In total, he now owns 9.9% of CRGC and 6.9% of PGLC- a position he has been building for months.
If Honig can continue the success he has seen with Neuralstem and his other investments, CRGC and PGLC will not be trading anywhere near their current price levels in 2013. I will continue looking into this arbitrage opportunity. Regardless of the yield, I should repeat, Honig is certainly a significant believer in both companies and has never sold a share in either company. I would be remiss to not mention that the same goes for the CEO Stephen Alfers, billionaire Dr. Phillip Frost, and neighboring Coeur d’Alene, all of which are holding (and adding to) multi-million dollar positions in Pershing Gold.
I have already outlined on Trefis my thoughts as to why Honig is investing so many millions of his personal wealth.