One of the benefits of a stock acquisition is that it can help identify counterfeit shares in the market. Counterfeit shares are shares that are sold to investors but do not actually exist. This can happen when a short seller sells shares that they do not own, hoping to buy them back later at a lower price and pocket the difference. This practice, known as naked short selling, is illegal, The Basile Law Firm notes.
When a company acquires another, it needs to buy the shares from the shareholders of record. This means that shareholders of record would have to reveal their identity in order to get the stock for the merger. This process can help identify counterfeit shares because the company can verify that the shareholders of record actually exist and that their shares are valid.
Furthermore, the company can also verify that the number of shares being sold matches the number of shares outstanding. This can help identify situations where the number of shares being sold exceeds the number of shares outstanding, which could be an indication of naked short selling.
By identifying counterfeit shares, a stock acquisition can potentially combat naked short selling. When a company acquires another, it can require that all shareholders of record provide proof of ownership of their shares. This can help prevent short sellers from selling shares they do not own, since they would need to provide proof of ownership to participate in the acquisition.
In addition, the company can use the information gathered during the acquisition process to report any suspected cases of naked short selling to the relevant regulatory authorities. This can help deter naked short selling by increasing the risk of getting caught and facing penalties. Read more.
