Okay normally I borrow stock from shareholder A to short it and sell it to shareholder B. By lending out their share, A gives up voting rights, and b can vote. 1 share, one vote.
Now say I'm a market maker, and someone buys a share of GME. I say okay, here's the share. As a market maker I can create that share out of thin air, and I'm supposed to match with a buyer within a few days (longer cause I'm a market maker). But now I don't. I get failure to deliver (FTD). But then I use options trickery to delay the FTD another few weeks. Repeat.
I'm (the market maker) short that share, but by creating the share, now there's an extra owner entitled to a vote.
Do that tens of millions of times and now there's more people with shares that want to vote than there are real shares.
I glossed over kinda quickly cause on phone, but I think that should be enough to understand, yeah?
With all due respect for my friend
@arebelspy:
I understand the idea and the suggested mechanics. I'm just not convinced that's how things actually work.
For one thing, I have to believe that there have been plenty of companies out there with measureable short interest when a shareholder vote occurred. I find it extraordinarily unlikely that there has never been a case where a bunch of shorts voted and all the longs voted and exceeded the number of issued shares. (Or any of the other problematic shareholder events happened - see item 3 below.)
Second, I'm not convinced that reddit is a good place to go for how things actually work, just in general. While some people there might have some understanding of how things work, I doubt most of them actually know how things really work.
Third, in addition to the shareholder voting issue, for any company issuing a dividend, or going bankrupt, or merging with another company, or splitting into two companies, or doing a stock split or reverse stock split -- most if not all of those things become very problematic for these "market maker naked short share creator" folks. And there may be others that I'm not thinking of. It's not just a matter of FTDs and rolling over options, it's all these other things.
Is there any non-reddit proof that when a market maker sells a naked short on a stock and "creates" a share, that the person buying that share actually has voting rights? If it were a real share, sure. But I think somewhere at the bottom of all of this the stock's transfer agent actually has their own records of who owns the actual real shares, and I'm sure they solicit and accept proxies only from those real owners. I know there's a process for shares owned by brokers on behalf of their clients to pass along these proxies, but I have to believe that in that process the broker knows who the real beneficial owners of the real shares are.
In other words, if GME's stock transfer agent's records show that Robinhood owns 1,000 shares of GME and a shareholder vote comes up, the transfer agent is only going to issue 1000 shares worth of proxies to Robinhood. If Robinhood passes out those proxies to the non-real shareholders, then problems will happen, but the transfer agent is going to be able to isolate it by broker.
And these proxies are all traceable. The transfer agent knows (I forget how; I think there are unique IDs assigned to each company/shareholder combination) which proxy belongs to which block of stock. I was an HP shareholder during the Compaq acquisition proxy war. Because I was also an employee, I had HP shares in about four different places, so I got four different proxies and voted four different proxies.
I'm also fairly certain that the transfer agent is continuously tabulating results. They're not going to wake up Wednesday morning and discover a problem. If there is a problem they'll be aware of it as soon as it happens and will probably work with the associated broker to straighten things out.
And of course, it's all computerized and barcoded and scantroned and backed up and probably audited to ISO 9001 or better standards, so even though there may be millions of shares, it's not like someone's going to make a math error.
So I'm going to take the other side of the GME shareholder meeting potential debacle and say it won't happen. Meaning:
whatever shareholder vote counts they announce will be less than the number of issued shares and there will not be panic or chaos due to synthetic shorts or whatever you want to call it.