Thats an unfortunate result of the con game here.
I mentioned previously that another stock im watching the board issued mgmt preferred shares. Oddly, seemingly counterintuitive, they did so just before a reverse split. That RS increased their conversion price and subsequently increased their cost basis, thus reducing the amount of shares of common as it should. Why would the board issue mgmt preferred before said RS knowing all that? Well it just so happens those preferred have a clause that rounds the conversion to the nearest whole share, so regardless of how many reverse splits occurs, they still get 1 common per preferred while the cost basis increases. Since these preferred didnt cost mgmt any money, it seems, they included an original price of $2 to establish a cost basis.
Now management of that company has incentive to see the stockprice drop and additional reverse splits executed. Why, because their potential paper loss increases with each consecutive RS while they still get 1 share per preferred because the conversion is always rounded up to the nearest whole share.
If I am understanding things correctly, when they go to finally sell those common, they'll potentially have a much larger cost basis (paper loss) to tax shelter any real profit from the sell of those shares. It'll be interesting to watch and confirm what i suspect.
I predicted the first RS, that companies board had already determined the ratio while management said it had no intent to RS. I predict there will be another one by Spring next year for this company. I wouldnt be surprised if the board issues another tranche of preferred before said RS.
AI
