But that's not the thing that caused Cost Financial to tumble from where it traded on May 20th, the last time I wrote about it. The real problem is that the FDIC has hinted that Coast's bad loans are much larger than what it reported in its most recent 10Q filed May 10th.

In particular, the company said it had $66 million worth of problem loans. But the regulators gave Cost Financial 90 days to reduce its problem loans to $155 million. This means that the problem loans must be several times greater than the level it reported.

In a nutshell, it is impossible to rely on any of the financial information Coast has provided to investors. Its cash balance could be overstated. And its need to write off a much larger-than-reported balance of bad loans is likely to create a substantial loss.

It's no wonder to me that Lee wrote a letter to bank customers last Friday noting that "this order does not affect your deposits, loans or other aspects of your banking relationship with Coast Bank, nor does it impact our ability to continue to serve your financial needs."

If I had any money deposited there, I would certainly withdraw it. If the FDIC takes over the bank, there could be some operational glitches. And who needs that aggravation?

So while I would not fault an investor who chose to take a 184% profit by covering an April 4th short position in CFHI, it would not surprise me at all if an accurate accounting of Coast's operations and resources revealed that it was actually bankrupt.

The only thing likely to save this equity is a buyout. But at this point I think a buyer could get Coast's operations at a lower price out of bankruptcy court.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Coast Financial.