So both Alan and David made the seemingly reasonable suggestion that companies whose stocks are heavily overbought should issue more shares. That feels like it should obviously be right in a mental framework where the company is managed for the benefit of a broad set of stakeholders, but would Milton Friedman agree? It’s not so clear to me that screwing one set of shareholders for the benefit of another amounts to “maximizing shareholder value”. But I could very well be wrong. I never thought all that much about corporate finance.
A couple of things on that, which you, Alan, and David probably know, but for the benefit of the conversation:
Issuing new shares depends on the company's constitution. From legal sources: If the company's constitution prevents new shares from being issued, the restrictions can be lifted if the decision is approved by the majority of shareholders. This is done through a special resolution, and at least 75% of shareholders must agree to the decision for it to be valid and allow the new shares to be issued.
Further and in addition to that, the company's board members have to agree to all the terms regarding the issuance and conclude that all the conditions are equitable for everyone involved
. If a person's liability with respect to the company increases as a result of the new shares, or if it creates a new liability that way, then the issuance must be done with that person's full consent, otherwise it will be considered void.
So, the board members and senior executives are on the hook here (and the SEC is watching). Also thinking about Form 8-K (significant changes at company) and if that or any other regulatory filings would be in order here.
(For benefit of quants who may not normally think about these things: An 8-K is a report of unscheduled material events or corporate changes at a company that could be of importance to the shareholders or the Securities and Exchange Commission. Form 8-K report notifies the public of events, including acquisitions, bankruptcy, the resignation of directors, or changes in the fiscal year.)
Very boring how the sausage is made, I know, but....
As an aside, here is a list of SEC Stop Orders (not
Stop-Loss, but stop IPO orders). Not too common, as companies would normally withdraw if things were not going well with the S-1 filing and process. SEC Stop Orders (IPOs) since 1995
Follow-on issues have a different process and more of an automatic green light this way, but looking into that a little more. If the story could be seen as pump, dump, issue, repeat, the SEC would not be amused.
SEC Public Statement of Acting Chair Lee and Commissioners Peirce, Roisman, and Crenshaw Regarding Recent Market Volatility - January 29, 2021
"In addition, we will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws. Market participants should be careful to avoid such activity. Likewise, issuers must ensure compliance with the federal securities laws for any contemplated offers or sales of their own securities."
They are not a fun-loving, let-it-roll kind of bunch there, as you can see.
The spectacle is not a collection of images, but a social relation among people, mediated by images. - Guy Debord