Grade the following statement, made in 2000 by the Honorable Louis Stanton, the judge hearing the Bernie Madoff civil case:
Second, a stock split divides only the outstanding shares of a corporation. "Delaware law, which is controlling under the terms of the Agreement, defines `outstanding' stock as that which can be voted and therefore is `construed to mean stock in the hands of shareholders, not stock in the treasury.'"(Satterfield v. Monsanto, 88 F.Supp.2d 288, March 27, 2000).
Is His Honor correct?
If not, why not?
Extra Credit: In light of this, is Judge Stanton competent to handle the complex Madoff civil case now before him?
Earlier: Ponz. Boy Settles
Posted by guest , Feb 09, 2009 2:49PM
Not a CPA but his honor is wrong. Stock split effects all stock! Oustanding or Treasury!
I vote to have him sentence Made-off to 20 years of hard labor or 20 years of bridge lessons with the broken upper classes of Palm Beach!!
Posted by guest , Feb 09, 2009 2:52PM
please be to explain.
Posted by guest , Feb 09, 2009 2:53PM
I'm divided on how I should answer this. Judges don't make rulings, their clerks do.
SPODE
Posted by guest , Feb 09, 2009 2:57PM
This Q is answered on Yahoo! Answers. Next.
Posted by guest , Feb 09, 2009 2:58PM
Yes and yes.
Posted by guest , Feb 09, 2009 2:59PM
Hi, I am a hedge fund manager. What is a "split"?
Posted by guest , Feb 09, 2009 3:00PM
too MBA, didn't read.
Posted by guest , Feb 09, 2009 3:01PM
"a stock split divides"
Posted by guest , Feb 09, 2009 3:01PM
@6 I work for the SEC. What is a "Hedge fund"?
Posted by Ben_H , Feb 09, 2009 3:02PM
He's wrong, but the defendant wins on the cut-off date argument anyway.
Posted by Killjoy , Feb 09, 2009 3:04PM
splits aren't usually applied to treasury stock because its not considered outstanding but an exception is made when either the company is maintaining a ratio of treasury shares to shares outstanding in order to meet stock option or other contractual commitments or state law requires that treasury stock be protected from dilution.
Posted by guest , Feb 09, 2009 3:05PM
1. If the stock in the treasury is retired, the judge is correct.
2. Your second question has a false assumption (unusual for EP). There is nothing complicated about the MadeOff fraud. The judge could not bungle this one.
Posted by guest , Feb 09, 2009 3:11PM
Can the judge bring in Markopolos as an advisor?
Posted by guest , Feb 09, 2009 3:12PM
As far as tsy stock is concerned, splitting it or not does not lead to any change in value of the outstanding stock.
Either way, it is a moot point.
Posted by Gordon Gekko , Feb 09, 2009 3:14PM
@EP
Do you have a JD/MBA? You seem to know your Blue Book rules reasonably well
Posted by guest , Feb 09, 2009 3:16PM
Too Bob Boblaw, didn't Law Blog
Posted by guest , Feb 09, 2009 3:17PM
*Bob Loblaw
Posted by guest , Feb 09, 2009 3:22PM
Comment removed by moderator.
Posted by guest , Feb 09, 2009 3:26PM
In a common stock split, the outstanding number of shares both authorized and issued are increased and the market value of each share is reduced proportionately.
Assume a company authorizes and issues 1000 Class A shares at $10/share, repurchases 500 shares as treasury stock at $10/share then declares a reverse 2-1 stock split.
The 500 shares in the open market now total 250. The total shares authorized and issued would total 500 after the reverse split. If the 500 treasury shares were not adjusted and subsequently either resold or issued pursuant to the exercise of options granted to senior executives, 750 shares would exist in the marketplace.
Unless the shares are retired, treasury stock has to be adjusted to account for stock splits to ensure the stock split did not alter the proportional ownership of shareholders.
Posted by guest , Feb 09, 2009 3:30PM
zzzzzzzzzzzzzzzzz
Posted by Equity Private , Feb 09, 2009 3:30PM
"Posted by Gordon Gekko, Feb 09, 2009 3:14PM
@EP
Do you have a JD/MBA? You seem to know your Blue Book rules reasonably well"
I've reached the point with respect to academic resume disclosures where I think I'd be narrowing myself down too much to answer many more of these sorts of questions. Thanks, however. Either way, suffice it to say its been a while since I have looked a the Blue Book.
Posted by guest , Feb 09, 2009 3:32PM
@6, I am the CEO of a major investment bank, what is a "hedge"?
Posted by guest , Feb 09, 2009 3:34PM
You also have to adjust options for stock splits (pursuant to the by-Laws of the OCC).
If all equity and equity derivative interests are not equitably adjusted to account for stock splits, proportional interest in the equity of the firm would be altered.
If you don't adjust all equity and equity derivative interests, directors of a company could buy an option, convert (or, in this case scrip) interest amounting to 5.01% of the outstanding shares, declare a reverse 10 for 1 split and convert their interests to a 50.1% interest in the company.
Posted by guest , Feb 09, 2009 3:34PM
Here's a little hint I learned long ago:
Issued minus Treasury = Outstanding
Most of the confusion around share counts comes from people not being able to differentiate between Issued and Outstanding.
Posted by guest , Feb 09, 2009 3:46PM
easier to parse A-Rod's "I did take a banned substance" statement.
Posted by guest , Feb 09, 2009 3:50PM
too dictum, didn't hold
Posted by guest , Feb 09, 2009 3:55PM
In a stock split, the Board of Directors changes the par value of the stock that has been both authorized and issued. If treasury stock is not adjusted to account for stock splits, it would exist as a class of stock with a par value separate and distinct.
If the Board simply declared a stock split, the effect of that stock split cannot serve to create a class of stock that had not been expressly authorized by the Board.
If the Board authorizes 1000 shares of $10 par stock and then declares the $10 par value shares to be reduced to twice as many $5 par value shares, no $10 par value shares will continue exist. If the company repurchases $10 par value stock and holds it as treasury stock, it must be adjusted and will exist pari passu with all other shares of the same class as they existed prior to the declared stock split.
Posted by Anal_yst , Feb 09, 2009 4:00PM
@18
STFU
You suck, and Daily Bail sucks, neither of which would be so terrible if you (and/or your minions) didn't serial-spam your aforementioned garbage on EVERY.SINGLE.POST.EVERY.SINGLE.DAY, and worse masked with bit.ly, tinyurl, etc.
Nothing wrong with a little self-promotion, but what you do is just no buens mang, chill.
Posted by guest , Feb 09, 2009 4:01PM
The ruling is correct. When a stock split occurs, the proportion of each shareholder's ownership must remain the same. In the case linked in the original post, if the plaintiff had received company shares on his scrip due to the merger, then the proportions would be screwed up, since scrip owners are not considered shareholders for the purpose of dividends and voting.
Posted by guest , Feb 09, 2009 4:04PM
Your honor is an Idiot.
Posted by guest , Feb 09, 2009 4:27PM
29-
But scrip is simply an equity derivative as are options. Options owners are not considered shareholders for the purpose of dividends and voting either.
If I have a $100 put that allows me put 100 shares to the seller at $100 and a 5 for 1 split occurs, my options are adjusted so as not to create an economic event due to the split which is simply an accounting event.
By-Laws Options Clearing Corp
Adjustments for Stock Option Contracts
SECTION 11A.
(a) Whenever there is a dividend, stock dividend, stock distribution, stock split, reverse stock split, rights offering, distribution, reorganization, recapitalization, reclassification or similar event in respect of any underlying security, or a merger, consolidation, dissolution or liquidation of the issuer of any underlying security, the number of option contracts, the unit of trading, the exercise price, and the underlying security, or any of them, with respect to all outstanding option contracts open for trading in that underlying security may be adjusted in accordance with this Section 11A.
Amended July 8, 1982; December 23, 2005
http://www.optionsclearing.com/publications/rules_bylaws_pdf/occ_bylaws.pdf
Posted by guest , Feb 09, 2009 4:58PM
I'm a litigator and everyone who practices before the SDNY knows that Stanton is a moron. You try to avoid citing to his cases even when they're in your favor b/c nobody takes him seriously.
Posted by guest , Feb 09, 2009 4:59PM
I'm a litigator and everyone who practices before the SDNY knows that Stanton is a moron. You try to avoid citing to his cases even when they're in your favor b/c nobody takes him seriously.
Posted by guest , Feb 09, 2009 4:59PM
I'm a litigator and everyone who practices before the SDNY knows that Stanton is a moron. You try to avoid citing to his cases even when they're in your favor b/c nobody takes him seriously.
Posted by guest , Feb 09, 2009 5:32PM
@9 I am Bernie Madoff. What is the SEC?
Posted by guest , Feb 09, 2009 6:05PM
@35 I am a US Senator, I believe the SEC has something to do with football.
Posted by guest , Feb 09, 2009 7:27PM
Treasury stock doesn't really exist--it is only that used to exist until it was repurchased. So it doesn't share dividends nor get credit for EPS. So other things like stock splits etc have no effect.
The only reason it still exits is the company may want to reissue it in the future and doesn't want to go through the hassle of getting more shares authorized.
So the judge is correct: nothing of nothing is nothing.
Posted by guest , Feb 09, 2009 7:42PM
I am an investor. What's a "fund"?
Posted by guest , Feb 09, 2009 9:13PM
37-
Treasury stock is not entitled to voting rights or dividends but it must be adjusted to account for stock splits.
think of the case where 1000 shares of stock were outstanding and 100 were repurchased and held as treasury stock.900 shares remained in the hands of shareholders, 100 were held as treasury stock for issuance to satisfy options grants to senior executives.
If company were to do a reverse 10 for 1 split, the Board would have adjusted the number of authorized shares to 100 at 10x par value. The 900 shares would be adjusted to 90 shares outstanding. If the treasury stock were not issued, the company could then issue the 100 shares of treasury stock, placing into circulation 190 shares when only 100 were authorized.
Not adjusting all equity interests and equity derivative interests would cause the stock split to become an economic event instead of a mere accounting event.
The judge was wrong in declaring that equity derivatives and treasury stock were not to be equitably adjusted for stock splits.
Posted by guest , Feb 09, 2009 10:05PM
If the company bought $10 par value stock and held it as treasury stock during which time the stock was split 2 for 1 and the par value reduced to $5, the company could not resell the $10 par value shares shown on their books. They would sell $5 par value shares because the treasury stock would be adjusted from $10 par to $5 par as would all other shares.
Judge Stanton was wrong in his ruling
Posted by guest , Feb 09, 2009 10:28PM
@30...u win!
Posted by guest , Feb 10, 2009 5:47AM
@37 - Of course these shares do exist, but as you rightly say, they are deprived of dividends and voting rights.
You do however need to put them in the denominator for a fully diluted EPS calculation.
If shareholders have so decided they can be used as currency for acquisitions or be sold to beneficiaries of stock options at excercise.
They may also be cancelled, in which case they do really cease to exist.
#27 got the description of a stock split right.
Treasury stock is useful because it's one of the things you can play with so you can make your EPS numbers.