Spherix's Toothy Smile

In an attempt to raise some badly needed funds, Spherix this summer turned to Cornell Capital Partners, a Jersey City, N.J., hedge fund. Over the next two years, Cornell is investing up to $4 million into the company through a financing vehicle known as a PIPE -- shorthand for private investment in public equity.

Last week, TheStreet.com reported that Cornell Capital is being investigated by securities regulators for its trading activity in shares of nine companies that it allegedly provided financing to. There's no indication that regulators are looking into the Spherix deal.

In many respects, the PIPE deal makes sense for Spherix because it provides it with a regular source of cash and because the company has few places to turn for financing. The deal is also good for Cornell because it gets to buy 2.38 million shares at a discount to their market value and can then quickly resell them.

But the flood of new stock is bad for current stockholders. In a filing discussing the deal, Spherix says its "common stock price may decrease due to the additional shares in the market."

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