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Crumbs Speculators Feeling Buyers' Remorse as the Cupcake Crumbles

NEW YORK (TheStreet) --So this is how the cupcake crumbles.

Last Thursday, Crumbs Bake Shop (CRMB) hit an all time low of 2 cents per share, a few days after the cupcake chain shuttered all its stores and found its stock delisted from the Nasdaq stock exchange. By mid-morning on Friday Crumbs was trading at a high of 75 cents per share on the OTC market, a remarkable 2,500% return in a few short hours, and 3,700% in a few days.

The last time Crumbs traded at 75 cents was on March 20, right before it began its death spiral down the price charts. And that spiral appears to be back.

Monday the stock was at a high of 46 cents at 10:35 a.m., after opening at 28 cents. But it's about to get worse.

The reason for the large advance in Crumbs was a report from CNBC that Crumbs had garnered the attention of an investor group led by Marcus Lemonis, star of the CNBC reality TV show The Profit. Such a high-profile mention from CNBC, along with the star power of Marcus Lemonis, was enough to stoke the speculative juices of traders looking to profit themselves.

By the close on Friday, Crumbs was trading at 65 cents per share. Then more bad news hit.

Crumbs had indeed attracted the money it needed to survive -- except the lifeline came with a catch. The company would need to accept prepackaged Chapter 11 bankruptcy. Lemonis Fischer Acquisition will provide pre-petition secured financing to Crumbs as well as debtor-in-possession financing. This deal is considered the initial stalking horse bid in the court-supervised auction process under Section 363 of the bankruptcy code.

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Traders who bought into the hype are now sitting on substantial losses, as deals like this rarely, if ever, offer anything to shareholders.

This should come as a warning to traders chasing the hot story. Those who are familiar with The Profit are well aware that Marcus Lemonis takes control of the companies he invests in for very little money. As of last week when Crumbs closed its doors, the company was sitting on $13.1 million in debt.

The only logical conclusion to this story was bankruptcy all along. On Monday, that reality is painfully obvious to those who have been chasing Crumbs last week and this week.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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