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Monday, August 7, 2017

Bitcoin Exchange Had Too Many Bitcoins

Bitcoin Exchange Had Too Many Bitcoins

A few months ago we talked about a weird legal dispute over the Dole Food Co. buyout. Dole's chief executive officer, David Murdock, had taken it private for $13.50 a share in 2013, but shareholders thought it was worth more. So they sued, and won, and Murdock was ordered to pay shareholders an extra $2.74 a share plus interest, and shareholders were told to submit claims for their money.


But there was a problem: People submitted more claims than there were shares. This turned out not to be fraud, or carelessness: People really owned more shares than there were shares! It's just that other people owned negative shares. In rough numbers, there were 37 million shares outstanding, and people owned 49 million shares, but other people were short 12 million shares. The way short selling works is that X borrows a share from Y and sells it to Z. So Y owns one share, and Z owns one share, and X owes one share, and everything balances out and there's only one share outstanding. So the millions of extra shares made complete sense.


But that doesn't answer the question of what to do about it. When the buyout closed, back in 2013, it was straightforward enough: If you owned a share, you got paid $13.50. If you were short a share, you had to pay $13.50. So shareholders got paid 49 million shares times $13.50 a share, and short sellers paid 12 million shares times $13.50 a share. (And David Murdock paid 37 million times $13.50 for the shares he was buying. 1 ) But in 2017, it was more complicated. If you owned one of the 49 million shares back in 2013, you were due the extra money in 2017. If you were David Murdock and you bought 37 million shares in 2013, you had to pay the extra money in 2017 -- but only on the 37 million shares you bought. But what if you were short the stock in 2013? Was your obligation discharged by paying the $13.50 in 2013, or are you still on the hook to come up with more, four years later?


Full story at https://bloom.bg/2hAE7cC


Source: Bloomberg


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