A problem with the share ownership system in the US has started to decline, but it has not been a largely talked about topic, because most people are unaware that it is happening. The problem is becoming more apparent after the result of the Delaware case over the $1.2 billion buy of Dole Food in 2013. Dole’s controlling shareholder and chief executive, David H. Murdock, and his lieutenants of conflicts of interest in taking the company private, settled $115.7. Due to this, Dole shareholders will gain an additional $2.74 a share in addition to the $13.50 a share.
The conflict with this case is that some shareholders will not receive the additional funds, due to the shareholder ownership system. People believe that they own the shares they buy, but they essentially do not.
The Depository Trust Company started controlling all share ownerships in the United States after the back-office scandal of the 1970s. The amount of trading on Wall Street was too much for the brokerage firms to handle, so the Depository Trust Company came up with the idea to freeze ownership of company shares in one place. The brokers would transfer shares among accounts at the trust company and they would hold the shares on behalf of customers who were the ultimate beneficial owners. Due to this change, it was easier for the firms on Wall Street to track the shares, because they only had to deal with themselves and the Depository Trust Company.
The issue that was brought up with the Dole case was that sometimes the Depository Trust Company can’t keep track of shares, which means that the company stops tracking the shares because it is too hard to relocate them in the last three trading days. When this happens, the Depository Trust Company throws something together and the money in the merger is paid to the brokers whose job it is to filter it down to the investors. The bigger issue is that brokers are shorting the shares. What normally happens is that when the short position is closed, the investor buys back the shares and restores them to their lender, but in a merge, the shorting party pays the merger consideration.
Shorting issues occur all the time, but it was only brought to attention because of the massive amount of claims that were made in the Dole case. This case outlines that as our capital markets become more complex, share trading and ownership are getting harder to track, and the people that are most affected are shareholders that invest money into a company.