Replies to post #125403 on Fortress Financial Group fka FFGO

[SevenTenEleven]

This is how it will apply to FFGO when the dividend is paid out to 75B shares of record:

Figure 3C shows the situation immediately after the execution of a short sale. There are still two shares outstanding that were issued by Company X. Persons J and L are now the shareholders of record for these two shares. While person K is no longer a shareholder of record, she has a beneficial interest in a share of stock, an interest that has been created by the short seller’s promise to return a share and to make-up for any cash distributions paid by the company in the interim. In this sense, we say that person K owns an ‘artificial’ share created by the short seller.

To illustrate the short seller’s role in creating an artificial share it is convenient to review what happens in the event that Company X makes a dividend payment while the short sale is in place. The company only makes a dividend payment on two shares—to its shareholders of record, persons J and L. However, three persons—J, K and L—believe themselves to be beneficial owners of a share and expect to enjoy the benefit of any cash distributions made by the company. It is the short seller who makes the third dividend payment, the one to person K.

In this sense the short sale has resulted in an apparent expansion of the beneficial ownership of the company’s shares. Where previously investors had held beneficial ownership in only two shares of the company’s stock, now investors hold beneficial ownership in three shares. This expansion is only apparent, however, as it must be. The short seller who issues a sort of ‘artificial’ share creates the apparent expansion in the beneficial ownership. He takes the mirrored position, paying a dividend when the corporation pays a dividend, enjoying a loss when the third shareholder enjoys a gain and vice-versa. After netting out the short seller, the total beneficial ownership matches the number of shares actually issued by the firm. There is an expansion of beneficial ownership when the short seller himself has been left out of the equation, but taking the short seller’s offsetting position into account there is no expansion.

http://schwert.ssb.rochester.edu/short0110.pdf