The following email was written by a shareholder who lost all his investment in Arrium Ltd after Arrium was driven into voluntary administration from a predatory short selling attack. it was directed to the ASX's David Park this morning. Such questions are vital after the German authorities recently began there investigations into Macquarie Bank for their short selling activities. Source : ABC, Jan 24 2020
Sixty current and former Macquarie employees, including its chief executive Shemara Wikramanayake, have been named as suspects in a German investigation into short-selling activities.
60 former and current Macquarie employees are among 400 suspects in a German tax scam probe
The schemes being investigated are known as "cum-ex trades", where two parties simultaneously claim ownership of the same shares and therefore claim tax rebates they are not entitled to
The practice was banned in Germany in 2012, but could have cost German coffers billions
German prosecutors and tax authorities are seeking to recover billions of euros from traders and banks that allegedly profited from schemes known as "cum-ex trades".
It is being alleged that financial institutions exploited a legal loophole which, at the time, allowed two parties to simultaneously claim ownership of the same shares, and therefore claim tax rebates which they were not entitled to.
And now for the email: Please contact Peterlang76@bigpond.com for correspondence with the author.
Dear ASX's Davis Park
Can you please explain the systems in place to ensure that shares that are loaned and then sold short do not facilitate two share owners claiming franking credits for the same share; if not dividends as well.
Super fund A lends to Funds Manager B.
Funds manager B buys Arrium shares with those funds.
Fund B lends those shares to hedge fund C.
Hedge fund C sells those shares short.
Retail investor D buys the shares sold short by Hedge Fund C.
Retail investor D registers ownership of the shares.
At this point the shares are owned by Hedge fund B who may have declared Super Fund A as the beneficial owner, and Retail investor D.
Both could reasonably expect to receive dividends and franking credits. To claim a franking credit is an independent act to receiving the dividend. A franking credit could be used to offset tax due in a BAS payment. Both B are D are registered owners.??
Hedge Fund A has only lent the shares, not sold them. Retail investor D had no way of knowing he has bought shorted shares.
I was told by Steve Ash, who was the investor relations manager are Arrium, that Arrium had no understanding of who held share that were shorted.
In the case of Arrium the short selling also created a capital loss of maybe $3Billion that Funds A, B, and C could use to offset future capital gains.
Can you please explain? I have taken the liberty of copying my local member as well as one of his colleagues.
In addition, I will be emailing the answers to these questions to MP's around Australia.