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Chapter 564 How dare Wall Street?

"Tell me your thoughts in detail." Ernst wanted to hear if this strategy was feasible.

"Because there are few shares available for trading, this gives us a lot of room to maneuver," was Axel Berg's response.

According to Nasdaq's RLE 10B-18 rule, a listed company can only repurchase a maximum of 10% of its own outstanding shares without triggering a mandatory takeover offer.

"According to the U.S. Securities and Exchange Commission's Relatin 13 rule, any investor or institution that holds 5% or more of the shares of a Nasdaq-listed company must file a 13 report or 13 report within 10 business days of the event. This disclosure threshold provides an operational window for our strategic position building."

"In other words, we can build positions separately through compliant channels. Ernst Asset Management can acquire no more than 5% of the shares, while your family office can also hold 4.99% of the equity, which will compress the freely tradable shares on the market to the extreme."

"Wait a minute." Ernst suddenly raised his hand to interrupt, a hint of doubt appearing between his brows. "My family office and Ernst Asset Management are under actual control. Can these two entities independently absorb shares?"

The Securities and Exchange Commission has very strict standards for identifying parties acting in concert. If they are determined to be parties acting in concert, the shareholding ratios of the two entities will be calculated together. How could they possibly build positions and acquire 4.99% of the shares separately?

"Of course," said Perkin Houston, giving a clear answer. "From a legal perspective, family offices are private wealth management institutions and have the characteristics of charitable trusts. They do not fall under the scope of institutional investors or corporate entities as defined by the SEC. Therefore, in the absence of a clear control agreement, they do not need to be included in the scope of the merger calculation of parties acting in concert."

Seeing Ernst's eyes light up, Pervin Houston knew what he wanted to say: "The regulators can't leave such a big loophole, they can't let you set up several of these agencies to circumvent the rules."

"Securities precedents show that the act of circumventing shareholding disclosure obligations by establishing multiple similar entities will be considered a violation of the circumvention provisions of Relatin 13."

Ernst's expression dimmed slightly, then he gave a self-deprecating laugh. He realized he had been overthinking things; if it were truly possible to use this method to split into multiple entities and absorb unlimited shares, the battle for control on Wall Street would have long since descended into chaos.

Capital will go completely mad, and all American companies will be harvested by Wall Street again and again.

But it doesn't matter anymore. According to the current calculation method, the shares he directly holds, the 10% equity repurchase planned by YueDong Games, the 4.99% strategic position built by the family office and asset management company, plus the equity pool reserved by the company and the shares held by core employees.

Based on comprehensive calculations, the number of shares he can actually influence accounts for approximately 65% ​​of the total share capital.

"I think the Boston Group's stock should be backing you, right?" Pervin Houston reminded him.

Ernst's eyes lit up; he had almost forgotten about the Boston Consortium.

Despite the dilution from the initial 10% share transfer, including the establishment of the employee stock ownership plan and two subsequent share issuances after the IPO, their current shareholding should still be around 7%.

This 7% stake, while not enough to change the overall situation, is sufficient to provide decisive support at critical junctures.

"In addition, the institutional shareholders holding shares in YueDong Games are not a monolithic group, which creates room for us to garner more support," Axel Berger added.

"That's right." Ernst nodded; these shareholders were indeed not a monolithic group.

The main shareholder is another major shareholder of YueDong Games, a Silicon Valley investment fund.

"I remember during the first round of financing, Silicon Valley Capital led the investment, taking a 6.5% stake. Later, when I cashed out, it was done through an auction, and Silicon Valley Capital, together with Kwin Capital, acquired another 4% of the equity." Birvin Houston had a rough idea in mind: "After these shares are diluted, I still have at least 8%."

He glanced at the documents in his hand. "However, according to the information I found yesterday, their shares were released from lock-up a while ago, and they cashed out a lot of money. The disclosed data alone shows that it exceeded 2%, but nobody knows the exact amount."

According to Nasdaq's Relative ATS rules, shareholders must promptly disclose any changes in their shareholdings exceeding 1%.

Ernst knew that the Silicon Valley investment fund had disclosed its share reduction twice in succession.

The first reduction involved 1.5 million shares, and the second reduction involved 185 million shares, representing a cumulative reduction of 2.2% of YueDong Games' total share capital of 150 million shares.

At the time, Ryan Ruiz even called him specifically to express his concerns about the Silicon Valley investment funds' intensive selling in a short period of time, saying that the frequent selling by Silicon Valley investment funds could trigger market panic and thus affect the stability of stock prices.

"As for whether Silicon Valley Investment Fund has any off-exchange agreements with other securities firms or institutions, or whether it has used derivative instruments to hedge its equity."

"Whether it exists or not, and how large its scale is, nobody knows."

"However, even if such hidden transactions exist, their scale wouldn't be too large. Based on cross-validation of various data, Silicon Valley investment funds currently hold at least 5% of the equity." (The text then abruptly shifts to a seemingly unrelated statement about hidden transactions, followed by a mention of a cautious tone from a Houston journalist.)

Axel Berger turned his attention to Ernst, saying, "If we can buy the shares held by Silicon Valley investment funds, it will be a heavy blow to potential short-selling forces on Wall Street."

Ernst slowly shook his head, giving a negative answer: "Impossible, at least not now."

"Silicon Valley investment funds are reducing their stock holdings to cash out and recoup their losses, but the main reason is to use the money to invest in internet startups." At this point, a meaningful smile appeared on his lips. "But as any smart person knows, the current internet industry ecosystem has fallen into a bubble cycle of musical chairs, and very few project valuations in the market are not detached from fundamentals."

"It all depends on where it ends up and who it ends up with. Everyone is gambling, betting that they won't be the last one to receive it."

"As a mature company that has achieved profitability and stable cash flow, YueDong Games can be regarded as the ballast stone of Silicon Valley investment funds and their last safety net."

"With the consensus that the internet bubble will eventually burst, 99% of the startups that received investment will face elimination. However, companies like YueDong Games, which have been proven by the market and have sustainable profitability, are the real hard currency and the first assets to recover their value after the bubble bursts."

"This is their last trump card; they're not going to sell it."

Everyone thought about it and agreed. The laws of the capital market have never changed. No matter how dazzling the bubble is, it will eventually burst. Only stable profitability is the core support for a company's value.

For Silicon Valley investment funds, no matter how badly they lose money in the internet sector, as long as they still hold shares in YueDong Games and the company doesn't collapse, they have the capital to make a comeback.

"But it doesn't matter, we already have enough chips." Parker Houston picked up his calculator again to work out the strategy. "Even if we can't acquire the equity of the Silicon Valley investment fund, as long as we can keep this 5% stake and prevent it from falling into the hands of short-selling institutions, we can achieve the same strategic effect."

He pressed the last key on the calculator: "You have 40% of the shares, Silicon Valley investment funds have 5%, the Boston consortium has 7%, and the employee stock ownership plan is 5%, so that adds up to 57% of the shares."

"In other words, no more than 43% of all stocks on the market can be manipulated by Wall Street and can be shorted."

"According to our calculations, we and Jiaban can raise 10%, and Yuedong Games can repurchase 10%."

"In other words, once the number of short sellers on Wall Street exceeds 23%, and our accumulation of shares meets the requirements, the entire outstanding shares will be completely locked up by us, and Wall Street will have no way to close out their positions." What Bai Wen Houston said was theoretical; in practice, the number of stocks that can be shorted is even smaller.

Because there will always be individual investors who won't sell, and some institutions will also hold some stocks in their hands.

Axel Berger was somewhat bewildered when he calculated it; was this really Wall Street?

Shorting YueDong Games seems like such a foolish idea.

"How dare they?"

Ernst sneered, "They think I can't be Ryan, but they shouldn't forget that Wall Street today is not the Wall Street of yesteryear."