This is a two part DD, and this is PART 2.
For PART 1, please go here:
https://www.reddit.com/r/Superstonk/comments/x29utb/how_rule_14a8_and_drsing_more_than_50_of_shares/
6. If GameStop is unlikely to recommend voting for a Shareholder Proposal, why this DD?
So if I think GameStop would be officially against a Shareholder Proposal that may help nudge MOASS along, why am I writing about this? Well, my sincere belief is still that the interests of both GameStop's management and GameStop's retail shareholders are nonetheless aligned: to enable true price discovery, by having naked short sellers close their positions. Even if the enterprise is unable to instigate such a move easily through their own volition, or direct retail towards helping to achieve that goal, I do think that is what ultimately both parties want. And also potentially require each other's help, in order to turn into reality.
This is where I believe some reading between the Ines is necessary, for what GameStop's official stance is and what help they want from their shareholders may be quite different. There are two reasons that make me think this, the first being the regular releases in the Quarterly Updates of the number of shares DRSed. Such direct registration is in effect a share recall – something GameStop's management has not set as a strategic goal for the enterprise. So if they have not called for a share recall, and if they have not directly asked anyone to DRS, then why are they the only enterprise that regularly publishes DRS figures?
The second reason I believe there is more to GameStop's messaging than what may first meet the eye – and the inspiration for this entire DD and post – is this tweet by Ryan Cohen earlier this month:
Some of you may feel I have misunderstood this tweet, and read far more from it than Papa intended. I respect that opinion but disagree with it and, in any case, feel all potential interpretations should be explored. Ever since he tweeted that message, in my mind it is a signaling that along with the share recall already taking place through DRS, there is more that retail shareholders of the enterprise can do. The most fundamental thing holding GameStop back from where it should be, is the extreme drag caused by the illegal naked shorting and daily criminal manipulation of its stock. If an individual shareholder can take a proactive step to stop the price suppression, personally I know I would love to help Ryan as much as possible!
7. Could Shareholder Proposals be a form of coordinated collusion?
Before proceeding further, I want to site the thought that some of you may have about the above question. Let's go back again to the SEC's eligibility criteria for making a Shareholder Proposal:
https://www.sec.gov/divisions/corpfin/rule-14a-8.pdf
You may not aggregate your holdings with those of another shareholder or group of shareholders to meet the requisite amount of securities necessary to be eligible to submit a proposal.
It is only possible for a Shareholder Proposal to make it to a vote by the general shareholder body if this is put forward by a solitary individual investor. For a enterprise to include a Shareholder Proposal by a group of people would mean the enterprise itself is in breach of regulations, as also detailed in Rule 14a-8. When the Shareholder Proposal is put to the vote, there is nothing forcing individual investors to act in unison, as there is nothing binding retail to act as one body. Hence it is simply out of the question for a Shareholder Proposal to be construed as compelling others to collude with the proposer, as it is simply advocating a vote and not manipulating the stock itself.
Furthermore, Gary Gensler has himself already ruled out the possibility of simply sharing ideas in internet forums, such as the platform you are reading this DD on, as being a form of collusion:
https://www.ai-cio.com/news/gensler-stands-up-for-the-robinhood-gang/
Appearing on Jim Cramer’s CNBC show, Gensler said he found no problem with this coordinated investing by the tyro investors. Cramer disagreed, saying all collusion is bad. “If 5 million people decide to smash a hedge fund that’s short, is that OK?” Cramer asked, referring to meme crowd, vis-à-vis GameStop. “What’s within the bounds of what you can do to smash a short seller?”
GameStop is at the heart of the anti-establishment war of the meme investors. They believe the shorts are unfairly attacking the video game seller by undermining its stock price, in a bid to drive the already-troubled store chain out of company.
Although Gensler wouldn’t talk about GameStop specifically, he said there was nothing wrong with individuals reaching out to one another to discuss potential investments and enlist others to adopt their trading ideas. Namely, to bid up heavily shorted equities and thus hurt hedge funds in a short squeeze.
“People come on your show and they advocate either to buy or sell a security,” Gensler told Cramer. “Before we had television, people did it on the radio. Now we have various social media platforms.”
Such freedom of communication among disparate retail investors is no sin, Gensler indicated. “That’s not only free speech, but it’s part of what makes our capital markets robust, that people can disagree and disagree using the media of the day.”
8. When Rule 14a-8 could become a powerful tool and ignite the end game
I have conjectured in the previous sections that, at least publicly, GameStop would recommend voting against any Shareholder Proposals put forward by individual investors. One question I had in mind when conducting the research was whether a enterprise's management team are themselves bound to voting in the manner they recommend in a proxy statement. The question thus becomes whether shareholders votes are fully anonymous, to the extent of concealing all votes including those of Insiders.
There was surprisingly little information I could find confirming one way or the other. Certainly what I can say is that the results of corporate elections are invariably vote totals only, for and against proposals discussed in shareholders meetings. As such I believe this extends to the voting decisions of Insiders as well, and could no precedents of Insiders' (or anyone's for that matter) voting decisions being made public by the tabulators of votes, transfer agents such as ComputerShare.
On the actual question of whether Insiders always vote in line with management proposals, again very little information I could find that answers this decisively. However there was a research paper I found – "Strategic voting and insider ownership" by Blair B.Marquardt, Brett W.Myers & Xu Niu published in the Journal of Corporate financial, Volume 51, August 2018 – which indicates that this is up in the air. They have stated the following passage, which implies that individual Insiders can vote in agreement of or against their own voting recommendations:
https://doi.org/10.1016/j.jcorpfin.2018.05.002
Alternatively, consider the case where management owned 10.0% of voting shares. Management presumably votes in favor of their own proposal…
This being the case, there could be a scenario where a enterprise's Board of Directors recommends publicly to vote against a certain Shareholder Proposal, but then proceeds to not follow their own advice and they themselves vote in its favour! With the anonymity which we have established is standard practice for such elections, this becomes a distinct possibility. Hence I believe it is feasible that GameStop's Insiders vote in favour of a Shareholder Proposal that is aligning with their own interests, such as one that could ultimately lead to true price discovery of the enterprise's share price.
If my hypothesis is correct, then there could be a scenario where both retail investors of GameStop as well as its management team, have it in both parties best interests to vote in unison for a Shareholder Proposal. However, there is a question mark over the legitimacy of broker-dealer proxy voting, and whether shareholders' rights would be exercised as per their will. It is my conjecture that the more likely the Wall Street cabal is to be disrupted or even destroyed by the outcome of a shareholder vote, the more likely proxy voting will be criminally manipulated to act against retail.
When, then, could Rule 14a-8 lead to a decisive shareholder vote that tips the balance against short sellers? I believe when it becomes extremely difficult for non-direct registrants to represent the majority of votes cast in a shareholder vote. Directly registered shareholders are Insiders and retail investors whose shares have been DRSed and held by ComputerShare. Therefore it is my belief that when these two groups have stock ownership which represents the majority of shares outstanding, voting against certain types of Shareholder Proposals put forward by individual shareholders may become very difficult for other shareholder groups to effect.
Using the data available at computershared.net, can see that in order to form a majority of votable shares, must be greater than half of shares outstanding at 152 million shares. With 77 million DRSed and 38.5 million held by Insiders for a combined 115.5 million, current progress is therefore slightly under 38% of the way there. Hence even if Insiders do not increase their share count at all, another 37.7 million shares would need to be DRSed to reach more than half of shares outstanding.
Note that in the last month, the DRS total grew by 9.8 million shares. If this rate of direct registration continues, the Insiders+DRSed figure would become greater than 50% of shares outstanding on exactly Christmas Day! The annual shareholders meeting would at that point be a little over six months away. Hence with that same rate of DRSing, could represent even over 203 million shares – 67% of shares outstanding – by that next scheduled meeting. In fact, that would mean that DRSed shares alone would be the majority of shares outstanding, at 54% of the total at current expansion rates…
However the Chairman, top executive or Board could call a special meeting at any time before that as well, as I detailed in section 1. So the closer the Insiders+DRSed figure gets to 50% of shares outstanding, potentially the more likely that such a seminal turn of events may take place. Should a valid Shareholder Proposal have been submitted before that point, and assuming an exclusion request to the SEC has been turned down, GameStop would have no choice but to include said proposal with whatever other company or votes the enterprise wants direction from at the special meeting.
Note also that under the terms agreed in mid-2020, RC Ventures can increase ownership from 11.9% to 19.9% of shares outstanding also, which represents another 24.2 million Insider shares. With the current rate of DRSing, it may be possible to get to Insiders+DRSed representing 42% of shares outstanding by about six weeks from now, in mid-October. As unlikely as it may currently seem, Ryan Cohen thus only needs to activate his 8% of shares outstanding buying power at that time, to get to the magic 50% mark.
My point is, a Shareholder Proposal has a chance of being put to a general shareholder vote sooner than it may initially seem. How quickly that could happen is dependent on the rate of DRSing, the potential for Insider ownership to also increase, and the success of a skillfully presented Shareholder Proposal passing through GameStop's and potentially the SEC's screening process. Despite the lack of precedent of GameStop's individual investors having Shareholder Proposals voted on, there is always the first time for everything, in these extraordinary moments the enterprise has bee through over the last couple of years.
Lastly, let me note that votes undertaken based on Shareholder Proposals are typically non-binding, meaning companies are not forced to action these. However if the result of the vote is decisively in the favour of such a proposal, the Board would have strong grounds to effect the will of the majority of shareholders with less pushback. I believe any actions the enterprise takes which hurts short sellers is likely to face some litigation, similar to what the towel enterprise is undergoing right now. However the greater the majority of shareholders backing a certain Shareholder Proposal, the more the Board will be compelled to act with fiduciary duty on their behalf, and thus less likely to face accusations of attempting to proactively trigger MOASS themselves.
9. What triggers – potentially topics for Shareholder Proposals – could help instigate MOASS?
In this final section I consider possible actions that GameStop could take, but their management are potentially unable to carry out without majority shareholder backing, that could trigger MOASS. As I have stated in the title of this section, should such a trigger be the topic of a Shareholder Proposal and favourably voted on in a shareholders meeting, GameStop would have cause to inact it. I will then explore a couple possible trigger mechanisms that GameStop's Board may be compelled to action, by having an individual investor's Shareholder Proposal positively backed by the majority of shareholders.
To help me do this, I will turn to some previous work from earlier this year that I shared on the sub. In the spring I published a series of posts entitled "The Walls are closing in on Wall Street", which explored various mechanisms that, in my personal opinion, could lead to MOASS. Not all of these are relevant to the topic of Shareholder Proposals, but below are links to those posts in case you are interested to do further reading:
Walls 1 to 9:https://www.reddit.com/r/Superstonk/comments/smjczz/the_walls_are_closing_in_a_comprehensive_look_at/
Update on above:https://www.reddit.com/r/Superstonk/comments/swbyfq/the_walls_are_still_closing_in_an_update_on_9/
Walls 10 to 12:https://www.reddit.com/r/Superstonk/comments/sykuo4/those_walls_just_keep_closing_in_yet_more_ways/
Walls 13 to 15:https://www.reddit.com/r/Superstonk/comments/szil48/more_walls_closing_in_on_the_hedgeturds/
Walls 16 to 18:https://www.reddit.com/r/Superstonk/comments/t3t7as/walls_closing_in_on_hedgies_part_5_another_three/
Some of these "Walls" are industry mechanics that GameStop has no control over. Others are connected to stricter regulatory enforcement that could lead to SHFs being forced to close their naked short positions, again not something GameStop has direct control of. So far none of these has turned from theory into reality, of course. That potentially indicates that SHFs are still in a position to manipulate either the industry or enforcement agencies, so as not to be susceptible to these possible kinds of triggers of MOASS.
However a few of these "Walls" are company actions that GameStop can themselves undertake which can hurt SHFs, and there are of course likely others I have not identified. It is my belief that a couple of these, in particular, could lead eventually to a high volume of short positions being closed, including through forced closing i.e. SHFs failing margin calls. These two are:
As I said, there could be other potential trigger events, but it is my firm belief that NFTs have the power to destroy the SHFs, in ways like no others. However due to this very fact, it can be very difficult for GameStop themselves to carry out company actions specifically aimed at addressing the naked shorting of its stock. As we saw with the Overstock case, their issuance of a digitalised dividend resulted in multiple lawsuits, that took great time and effort to finally be resolved. Those legal battles did set an important precedent for future similar actions by corporations, however, which I flagged to the sub last year:
https://www.reddit.com/r/Superstonk/comments/ptvq89/the_overstock_court_ruling_in_utah_yesterday/
Although GameStop may thus have important cover due to this ruling, in the event of utilising NFTs to shed the shorts, no doubt lawsuits will still likely be filed by accusatory bad actors from Wall Street and beyond. However this is where I believe the power of a Shareholder Proposal, raised by a single individual investor but that has the backing of the majority of shareholders, would add undeniable legitimacy to carrying out such actions. If a Shareholder Proposal calling for an NFT dividend or an NFT-backed spin-off receives overwhelming support, GameStop's management would have a fiduciary duty to action this, in my opinion.
This is why I believe a solitary retail investor could, by using the rights afforded to them by Rule 14a-8, be the catalyst for MOASS. By submitting a Shareholder Proposal that passes with majority support, GameStop would be compelled to action what could be a trigger for SHFs closing their short positions. Therefore I really feel that a combination of using Wall Street's own rules against them, and the steady "takeover" of shares outstanding through DRS, can set up the perfect endgame. And as I outlined in Section 8, the timeline for effecting this could be a mere weeks or months away.
Of course MOASS could happen through a myriad of other "Walls", including before 50% of shares outstanding are directly registered. But this is the only approach within the power of any single one of you to enact. Not financial advice, but YOU could therefore truly be the catalyst for MOASS…
10. Summary
- Section 14(a), Rule 8 of the Securities Exchange Act of 1934 empowers eligible individual investors to submit Shareholder Proposals to the Board of Directors of a enterprise
- The rule gives several reasons for a enterprise to request such a proposal to be excluded, however the default is to include these and thus most pass through the screening process
- In that case, companies are obliged to put the Shareholder Proposal to a vote by the entire shareholder body, either at its annual meeting or in GameStop's case by calling for a special meeting
- Companies almost invariably recommend for such Shareholder Proposals to be voted against, even very meritorious ones, as that has become the standard company approach for dealing with them
- GameStop is likely to follow a similar approach and advocate voting against any Shareholder Proposals, especially if it is one that could potentially be seen as opposing SHFs
- However privately they may well be in strong favour of such proposals, and only going with the grain so as to prevent lawsuits, as has occurred in similar past situations with other tickers
- Indeed, some of the twitter messages by Ryan Cohen himself could, in my opinion, be taken as a call for individual shareholders to carry out actions that are beneficial for the enterprise
- Shareholder Proposals could become extremely powerful when more than half of shares outstanding have been directly registered, either by Insiders or by retail DRSing
- At that point, any shareholder vote is tipped in favour of these two types of investors, as they would form the majority of those eligible to cast votes
- In GameStop's case, current rates of DRSing could mean more than 50% of shares outstanding are owned by Insiders and Retail in the next few weeks and months
- There are several actions that GameStop could carry out to instigate MOASS, however their management may be reluctant to do so for fear of litigation by SHFs
- On the other hand, a Shareholder Proposal could be put to a vote by the shareholder body, and if receiving majority support compel GameStop to action without litigious accusations being possible
- If such a proposal is advocating steps such as issuing an NFT dividend or NFT-based spin off, it is my opinion that inacting these provide the greatest probability of triggering MOASS
- Therefore an individual investor may, by putting forward an appropriate Shareholder Proposal in the near future, set off a chain reaction that eventually leads to SHFs' positions being force closed
- Hence using the power of Rule 14a-8 and DRS, a solitary individual investor – one single Ape – could perhaps fulfil Ryan Cohen's rallying call to "ask what you can do for your enterprise", and themselves become the catalyst for MOASS…