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Manipulated by "Empty Voting"??
By Ian Cooper
When it comes to Wall Street, nothing surprises me any more. Spread a little fear, get people juiced by greed, and manipulate a situation here and there… no big deal. Right? But just how fair is it to ordinary shareholders and corporate firms when some firms have reportedly figured out how to profit by swinging outcomes via “empty voting”?
According to the Pittsburgh Post Gazette, “In some cases, the strategy has allowed speculators to gamble that a company's stock will drop, and then vote for decisions that will ensure that it does -- without their ever having to own any stock themselves. Some outside interests have used the strategy to hide their voting power within a company until the last moment. Often, individual shareholders don't realize their own stocks, and their voting rights, have been borrowed from their brokerage accounts, until it's too late.”
The practice is referred to as “empty voting”. And believe it or not, it’s a booming business when it comes to lending shares. In fact, this practice now brings in about $8 billion a year for the big Wall Street honchos, banks, and institutional investors. Of course it’s big business. Voting rights go along with the bought shares.
Here’s an example of where “empty voting” may be occurring. U.S. Global Investors Inc. (GROW) believes it is happening with regards to its plans for a 2:1 stock split.
In a January 30, 2007 press release, the company announced that, “absent receiving the votes necessary to approve the proposals to amend its Articles of Incorporation, it intends to adjourn its January 31, 2007 Special Meeting and continue the conduct of shareholder voting. We are also concerned that there may be an attempt by hedge funds and others to secure voting rights to GROW shares to ensure that the proxy amendments are not approved and that the stock falls as a result.”
As of Thursday, the company, according to Briefing.com, said, “We have seen high volatility in GROW shares that we believe may be amplified by such tactics. We do, however, expect to prevail in our effort to obtain shareholder approval for a stock split, which we believe is in the best interests of our shareholders. We recommend that GROW shareholders ask if their brokers are loaning out their GROW shares to these rogue hedge funds.”
Are you really surprised that this happens?
Take care,
Ian L. Cooper, Editor, Early Alert Trader