Hobbling your own horse
It's no surprise to me that Pegasus Wireless (NASDAQ:PGWC) is delisting from the Nasdaq. The novelty is that it seems to have made the decision to do so on its own. Normally, getting tossed off the Naz onto the Amex, or the OTC Bulletin Board, would be a mark of shame, but Pegasus CEO Jasper Knabb claims that this move is "in the best interests" of the company or shareholders. Read a bit more of the press release and you'll see why.

Knabb is, once again, trying to fight the shorts. He's dismayed at the volume of trading on his stock, the release says, and even worse, the price decline.

Why Knabb, or anyone, for that matter, believes that moving the stock to a less liquid market can possibly help with volatility is beyond comprehension. I can't believe he could even make that argument with a straight face, but I'm sure it will play well with the message-board peanut gallery, which has been screaming about shorting (and alleged naked shorting) for weeks now.

Me, I like to savor the hypocrisy: Neither Knabb nor his cheerleading shareholders seemed so concerned about the volume and price increases that occurred earlier in the year. Let's be clear here. The run-up was completely unwarranted. The move tripled the stock of this marginally profitable company -- an outfit that has sported negative free cash flow since 2004. At $18 a share back in May, Pegasus was worth nearly $1.5 billion, or about 18 times trailing revenues. In other words, this thing was horrendously overvalued.

Wait, stocks can go down, too?
But, hey, no one cares about crazy trading when the stock goes up. When things turn the other way, though, watch out. The first hint that Knabb was concerned about the share price was probably the warrant scheme, which was an attempt to pull borrowed shares back from shorts by promising shareholders a warrant only if they took their stock out of street name. The next was the abrupt halt of Knabb's previously well-publicized "insider buying" campaign.

The warrant scheme was the catalyst that convinced me to dig a lot more deeply into the histories of Knabb and CFO Stephen Durland, and what I found was pretty ugly. Overhyped companies that rise and fall to near zilch. Penny stocks galore. Lawsuits. Paid promoters. Disbarred lawyers. Get the full story here.

Short story, tall tale
But in this day and age, even a CEO and CFO with an amazing record of microcap tomfoolery can find a sympathetic ear out there -- at least if they've got a market story with sufficient nudity.

Enter Forbes' Liz Moyer, who seems to have swallowed the Pegasus peanut gallery's short story hook, line, and sinker. Worse yet, she believes the Pegasus corporate party line -- that an unproven outfit like Pegasus is going to outmaneuver Apple (NASDAQ:AAPL), Hewlett-Packard (NYSE:HPQ), Cisco (NASDAQ:CSCO), and everyone else playing in the hotly contested PC-to-TV video-streaming market. I'm not kidding. She opens her Monday night article with this line, "Jasper Knabb and his streaming video technology is [sic] about to beat Steve Jobs to the punch."

Beat Steve Jobs to the punch? Trust me, they're not quaking in Cupertino. Nor is anyone else. That's because Pegasus isn't beating anyone to the punch on this. PC-to-TV streaming products already exist. Among current providers is a little company called Microsoft (NASDAQ:MSFT), which already sells two separate systems that can stream video from a PC to a TV, one of them being the very popular Xbox 360.

Down the rabbit hole
Pegasus is already 50 shades of weird, but it gets crazier all the time. Recently, I've noticed that one of the biggest message-board knuckleheads out there, a guy who pumps Pegasus relentlessly at Yahoo! Finance, seems remarkably well informed about Pegasus' upcoming press. I mean, he sometimes seems to know what's going to happen before it happens. I normally don't pay too much attention to the rantings of folks like this, but recently I've had to wonder. How does a guy who can't find and deactivate his caps lock key know this stuff?

In the past, he's told me about Pegasus PR hours before it hit the wires. And over the past few days, he's been promising a sympathetic article from a well-known business magazine. Was he talking about the Moyers piece for Forbes?

Is management feeding him this info, or is this all just a lucky coincidence?

Hey, maybe it's nothing, but it sure looks strange, and it doesn't do anything to instill my confidence in Pegasus' management.

Foolish bottom line
As I've noted before, battling the shorts via warrant grants or other manipulative means is not likely to be a successful approach. (The research is here.) Shareholders take note: According to that research paper, investing in companies that battle shorts is a good way to generate returns of -2% per month.

In fact, I'm convinced that Knabb brought most of the recent downward pressure on himself. His short-sighted crusade against the shorts certainly made headlines, but of the wrong kind, alas. Smart shorts out there know that CEOs with something to bring to the table -- for instance, sustainable growth and earnings -- would just shut up and bury the shorts with results.

Trying to fight shorts by releasing short-busting PR is like trying to restore your severed finger by dipping your bleeding hand in a shark tank.

Adding it all up, things look pretty bad for anyone with faith in Pegasus. The stock has dropped as much as 28% already today. And if the price history of other companies fronted by Knabb and Durland is any indication, I wouldn't be surprised to see Pegasus trading for even fewer pennies very soon.

Don't be suckered in by Knabb's exchange-swaps or Forbes' reassurances, Fools. Moyer is just plain wrong on this one. There are plenty of good reasons for Pegasus' huge fall, and unless Knabb can deliver something other than gimmicks and PR, Pegasus will be no phoenix.

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At the time of publication, Seth Jayson was long Microsoft common and calls but had no positions in any other company mentioned here. View his stock holdings and Fool profile here. See what he's Digging these days. Microsoft is a Motley Fool Inside Value pick. Fool rules are here.