From Arrington's reporting, it looks like minority shareholders were squeezed out (not bought out) and cap table was heavily modified. It doesn't matter how careful you are and how right you think you are, when you make a decision to wipe out holdings, a lawsuit or a threat of lawsuit will eventually come and minority will have a strong case against the board. No wonder none of the board members talked to Mike and no one gave statements for the record... they know they'd be exposing themselves to liability.
Man I hope we get to hear the whole story on this one when the smoke clears. This is so damn unusual, a company voluntarily giving up money and valuation for no reason, that there almost has to be more to it.
The only thing I can think of that would explain this is that the company was caught having lied about something significant during the due diligence process, and this was an effort to stave off an investor lawsuit. It's either that or someone got ripped off, or I'm missing something.
While writing the software, "I lived on savings for a while and then I lived off credit cards, you know, using those zero percent introductory rates to use one credit card to pay off the previous card," Mr. Cohen said...
"This past September [of 2003] I had, like, no money," he recalled. "I was just scraping along and doing the credit card thing again."...
All along, Mr. Cohen had accepted donations from BitTorrent users at his Web site, bitconjurer.org, but the sum had been minimal. In October [of 2003], however, Mr. Cohen's father prevailed on him to ask a bit more directly. Now [2004], Mr. Cohen said, he is receiving a few hundred dollars a day.
"It's been a pretty dramatic turnaround in lifestyle in just a few months, with the job [at Valve] and the donations coming in," Mr. Cohen said. "It's nice."
If you where harmed you can still sue. IMO someone will and anyone on the board who voted for this should probably be sent to jail. However, most of the time these things are kept quiet.
Just to lob a grenade into this discussion, you often can't really sue; lawsuits take years to resolve and cost tens or hundreds of thousands of dollars to pursue. You have to be out very real money, and have a strong chance of being able to recover it in 3 years (when the company is likely to be dead), for it to even be rational to take something to court.
One place where you absolutely can muck things up as a jilted common stock holder is during M&A activity; I've seen a couple deals screwed over legal issues that looked minor to me at the time.
Can someone explain what they did? If I read this correctly they took away all the shares from everyone and gave them to other people? Is that right? Because it doesn't make sense, so I must have misunderstood it.
How can you just wipe out the value from existing shareholders? Don't they own the company? How can you just take that away?
They issue new shares. Let's say each shareholder has 100 shares, they might issue 10,000 new shares to sell which means your shareholding gets massively diluted unless you buy a large portion of the new shares.
The company issues shares, but it is a separate entity from its stockholders. The money acquired by selling the shares goes to the company, not the existing stockholders. It results in the company being more valuable, and the existing stockholders (or the board of directors on their behalf) can think this is a worthwhile thing to do if they think the money will be invested well by the company.
This article is the most interesting I have seen on techcrunch in a while. It really is an extraordinary event, and Arrington has actually done a great job reporting on it.
"... This article is the most interesting I have seen on techcrunch in a while. It really is an extraordinary event, and Arrington has actually done a great job reporting on it. ..."
I think you nailed it there. Having some legal training has paid off with a nice summary of the situation?
"... So why did Cohen agree to vote for the transaction? Speculation abounds, but one aspect of the transaction is suspicious ... That mostly means Cohen, who is reportedly getting the lion’s share of the 30% of the company put aside for current employees. Cohen, who has recently had highly publicized financial troubles, may have simply been bought off ..."
But ... here we have an allegation that might have a simpler explanation. I found this article in 'Business Week' article, "BitTorrent's Bram Cohen Isn't Limited by Asperger's" ~ http://news.ycombinator.com/item?id=399039 reading through his blog.
Don't let the lack of facts or another possible explanation get in the way of a good story.
I think he implied that Cohen's Asperger Syndrome allowed him to be manipulated into this position instead of simply being bought off. I think that if Cohen is high functioning enough to write a successful p2p standard and start his own company, he can understand what is going on in the board room. Either way something fishy is going on.
That doesn't seem plausible; people with Asperger's are harder to manipulate, not easier, especially when they're smarter than you are. Although Asperger's creates its share of frustrations, being unduly influenced by one's emotions and easily influenced by other people's opinions are not among them.
That said, it might be what the person who posted the BusinessWeek article was thinking about, if he's a fucking idiot with a neurotypical-centric attitude problem.
I don't know why you were downmodded--your first paragraph is spot-on. Your second paragraph/final sentence is a reasonable, if ill-phrased, speculation.
