Has The DTC Failed To Deliver GameStop’s Dividends?
Over the weekend hundreds of GameStop shareholders have reported on social media that brokers have failed to properly issue stock dividends to their trading accounts. Affected shareholders have all reported a similar story of speaking to customer service representatives and being told that the corporate action by GameStop was not a “stock split distributed as a dividend” and instead a normal forward stock split. This has lead shareholders to believe the Depository Trust Company (DTC) has failed to properly execute GameStop’s corporate filing which intended for a stock split to be distributed as a dividend.
A Stock Split Distributed As A Dividend
According to GameStop’s IRS Form 8937 which was filed on July 23rd, 2022, the board of directors approved a 4:1 stock split to be distributed as a stock dividend. The distribution of shares took place on July 21st and were to be allocated to shareholders of record as of July 18th. This means holders who owned the stock by July 18th, were entitled to receive three additional shares of GME Class A stock at the share price of $0 (this is done to avoid changing the aggregate tax basis for shareholders). For example, if the share price was $140 before the “splividend” (split distributed via dividend), the new price per share would be $35 and the total number of outstanding shares would be four times larger. The process could be described as the same size pie being sliced into smaller pieces.
What Did Brokers Do Instead?
Based on conversations between shareholders and customer service representatives from several brokerages including Fidelity, TD Ameritrade, Robinhood, and other overseas brokers such as Degiro, brokers never received these additional splividend shares and instead were directed by the DTC to make edits to their accounting ledgers to reflect a 4x quantity in all of their shareholder accounts.
What is the difference between a broker being given three additional shares by the DTC as a dividend payment versus the DTC telling a broker to make an edit to their accounting ledgers? For GameStop shareholders, it can mean a lot. Over the last year there has been speculation whether domestic and international payment-for-order-flow brokers actually own the GME shares which their users have purchased in their trading accounts. With a splividend, the DTC would be responsible for allocating the proper number of newly minted dividend shares to each broker. In this scenario, any shortage of dividend shares owed to brokers would raise serious concerns on the possibility of synthetic shares in circulation. However because the DTC has instructed brokerages to proceed with a normal stock split by making edits to their ledgers, any evidence of synthetic shares will require more information to be gathered.
What Comes Next
Due to a number of complaints currently being filed with FINRA and the Investor Relations Department of GameStop over the last couple days, many are expecting GameStop to make a press release on the matter. The company was clear on their intended actions in the IRS Form 8937 so shareholders are having a difficult time understanding why a different action was taken by the DTC. While stock splits distributed via dividend are not common, the DTC successfully completed similar corporate actions for Tesla stock in 2020, Nvidia in 2021, and Google in 2022 with no issues.
Update As of August 9th, 6:00 P.M. E.S.T:
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