Our Arbitrage exists on a few fundamental textbook principals:

• An efficient stock market is one in which stock prices reflect all potentially available information that is relevant to the economic value of the stocks.

• Arbitrageurs are traders who identify and eliminate disparities between price and value or as in this case between today's price and tomorrow's price where the difference cannot be attributed to any prospective change.

• When a company enters into chapter 11 bankruptcy the public looks at the bankrupt company as what it is… a company that needs federal protection under the laws of the land to reorganize. The public markets are efficient and adept at valuing a company entering into Chapter 11 reorganization. When a company files a reorganization plan the market often views the price of the emerging company stock as "low," and think that they are getting in on the ground floor rather than climbing aboard a sinking ship. The only reason a stock does not plunge immediately is that many brokers and investors do not read the plan of reorganization carefully--it is a long, complex, and jargon-ridden document and hence many of them do not at first, or perhaps even at last, realize that the old stock in the company would indeed be worth only a fraction of the current price after the reorganization is completed.

That is what Scattered does: by selling short we bet on a declining market, trusting that we have better information or better instincts than other traders, those who will buy from us. There is nothing unlawful about trading on an information advantage, provided that it is not based on inside information. Scattered merely has a better understanding of the information about the reorganization than the investors with whom it trades.

It is a matter of a superior interpretation of public information, the information contained in a plan of reorganization.