A Convertible Debenture (CD) is a loan that can be converted into shares of public company. If lender loans public company a million dollars at Prime plus 3, they will make a profit. A CD loan allows lender to convert loan into shares of company. If CD allows loan to be converted at $4/share and company's share price goes to $10, lender makes more money on stock sale than from conventional loan. Convertible Debentures are popular in Canada because stock issued is free trading. They haven't been popular in States, because lender gets restricted (144) stock.

Toxic Convertibles are Convertible Debentures with an unspecified exercise price for shares. The lender can convert stock at current trading price of shares. This allows lender to sell short stock against CD while recovering loan and interest. The short sale of stock depresses company's share price. The lower share price allows lender to sell short more stock. It's a downward cycle for public company's stock. The CD is used as insurance against an upward surge in company's share price. The Toxic Convertible lender can't lose.

If a public company does a toxic convertible, by time they repay loan, their stock is trading for pennies a share. The public company fails and lender makes a multiple of principal of their loan.

The moral of this story is that public companies should be wary of Vulture Capitalists. Read and understand every word of every Agreement, before you sign it.

To contact author: Visit Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit Global Village Investment Club Website: [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]

For nearly seventy years, SEC's mistake has been to focus on form rather than substance. Attorneys believe that you can pass a law or regulation that will protect Society from its crooks. It can't be done. Whatever Law you pass, there is always a loophole. Closing loophole creates other loopholes. The process is cyclic. It's never ending.

There are good aspects to American Securities Laws, like full disclosure. However, Law must serve best interest of public. The SEC should ensure that crooks only get one shot at defrauding public. They should have policies that reduce costs of going public rather than be driving force for higher costs. The SEC should require investors to take a "street smart" course in risk capital investing before they can open a brokerage account. It should be taught by SEC, after SEC becomes "Street Smart."

The SEC serves itself. While Bear won't walk Wall Street now, it will eventually return size of Gonzilla. By that time, we'll have had eighty years of SEC regulatory failure. I doubt attorneys working at "Death Star on Potomac" will get another chance to serve public and honest business people.

Common sense isn't common. This axiom is truer inside Belt Way than in small town America. When you can't afford to raise money for your business, blame SEC. When you learn that you can't raise money for your private business and can't go public, blame SEC. When you lose your retirement money in Market, blame SEC. The SEC serves itself. You pay them to do it.

To contact author: Visit Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit Global Village Investment Club Website: [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]