Entertainment Arts (OTCMKTS:EARI) Crashes Even Harder

Entertainment Arts (OTCMKTS:EARI) lost another 31.15% of its market cap yesterday in a corkscrew nosedive of a plummet that threatens to leave the ticker in double zero land before long.

Enterprising investors that keep an eye on the OTC Markets already know the cause of EARI‘s crash. However, even if you haven’t looked at its charts, it’s not difficult to guess why the ticker is falling as hard as it is.

Nothing can bring a company’s market value crashing down like a failed pump campaign, and the effects of the one that EARI was targeted by can rightly be summarized with one word – disastrous.

Then again, the fact that the company has been targeted by pumps is enough of a red flag in and of itself – and unfortunately it’s not the only one.

Here’s a riddle for you – what goes hand to hand with pumps on the OTC Markets? If you guessed “toxic convertibles” – congratulations, you got it right. Large amounts of debt getting converted into shares and then finding its way on the market is the leading cause of horrific crashes of pumped-up tickers. This is why when an investor sees that a company is being pumped, the very next thing he ought to do is check to see if the company has any toxic convertibles.

A quick check reveals that EARI has notes outstanding with provisions as toxic as to allow conversions at a discount of 40%.

One logical conclusion may be drawn from these facts. It seems like the noteholders were just waiting around for an opportune moment to make a quick buck, but unfortunately for them, the pump targeting EARI failed. The ticker nevertheless buckled under the pressure, and is now headed down on residual momentum.

Investors should think long and hard and weigh all the risks involved before deciding to commit to EARI under these circumstances.