Speaking of issues of fiduciary duty, my time watching Interactive Strength taught me that Cost Basis Harvesting is a thing and its something management can profit from. I do not know if there is another term for it, but cost basis harvesting (as I call it), seems to be a ploy by all those involved that hold options and convertibles. They benefit from shorting the stock and forcing reverse splits driving up the cost basis of their convertibles/and or options. They then can utilize that higher cost basis (paper loss) to offset profits made shorting (hedging) and any capital gains made from other sources on their tax returns. If anyone wonders how the wealthy manage to no pay so little taxes, this scheme is one example.
Let me give an example. Over at IS, as I mentioned, management claimed they had no intention to reverse split and would only do so if necessary. However the board, a month earlier, already approved the ratio 10:1. This before management began claiming they had no intention to RS. Next, the board issued management preferred shares with an original price which establishes a cost basis and a conversion price. Thus when IS effectuated the RS later that month, it was already approved by shareholders, the cost basis should have gone up to $20 per preferred share. Even though each preferred share equaled a fraction of a share now, there was a clause rounding those fractions to the nearest whole share. Thus management would still get 1 share per 1 preferred while each preferred represented 10x higher cost basis. I say this because that is what happened to my warrants and nobody ive spoken with believes the size of my paper loss. Yet there it is on my brokerage statement.
Back to the subject of IS. After mgmt effectuated that RS I said I believed that IS intended to RS again before June 2026 as their RS pre-approval allows for up to 100:1 in aggregate. Meaning they could execute multiple RS that add up to a ratio of 100:1; meaning they could do 1 or more RS up to 90:1 in a 1 year period. However, in September 2025, shareholders passed another 100:1 RS aggregate resetting the aggregate ratio and time period. All the while I warned that management of IS intended to RS again as the stockprice worked its way to under 1. Right now the stock returned to be above 1 but should be back under 1 very soon and that RS i predicted will happen, benefiting all those holding convertibles/options, can move forward.
To add to this story, board of IS that issued mgmt preferred, asked for them back on December 31st, 2025 and they all agreed. Posters on ST claimed they couldnt believe how altruistic management was in giving those preferred up. However by giving them up and receiving no consideration, mgmt of IS should be able to recognize that $20 per preferred capital loss. Since the CEO received 500k preferred, that means he gets to recognize $10m capital loss for 2025. Meanwhile while holding those preferred, mgmt should have been able to hedge them allowing them to recognize a capital gain shorting against those preferred. Thus mgmt of IS benefited financially even though they gave the preferred shares up (Abandoned with no consideration received).
As i am not a tax accountant specializing in securities I cannot say this with 100% certainty. However considering the timing of the boards move to close out 2025, I truly believe this is what happened. Had management of IS not abandoned their preferred, they would not have been able to recognize that capital loss for 2025. Now as IS is facing another RS soon, im betting IS board will resissue those same preferred in 2026 before that next RS and cost basis harvesting can begin again.
AI
