I just submitted this complaint at http://www.sec.gov/complaint/info_tipscomplaint.shtml.
If you are a KCG shareholder, maybe you should, too.
This weekend's 4:1 stock dilution by the Knight Capital Group board by giving away convertible shares at a price of $1.50 to its clients and competitors at the expense of its shareholders, without shareholder approval was a complete failure of their fiduciary duty. Knight Capital had until the end of trading Monday to produce the $440 million, but gave us shareholders no chance all Monday to partake of the sweetheart deal they gave their institutional friends.
The SEC ought to make KCG convertible shareholders who got the weekend deal provide as many shares at $1.50 to the existing Friday closing stockholders as those stockholders would care to purchase. Otherwise, we are being cheated out of millions of dollars by these greedy institutions, which are set to at least double their investment in 10 days. This is insider trading at its worst!
From the OP and Investopedia:
"Convertibles appeal to investors who want to participate in the stock market without feeling as though they are taking wild risks. The securities trade like stocks when the price of common shares moves above the conversion price. If the stock price slips below the conversion price, the convertible trades just like a bond, effectively putting a price floor under the investment."
Read more: http://www.investopedia.com/articles/stocks/05/052705.asp#ixzz22s9N9lew
Suppose Knight offered the same deal to all shareholders.
Let's use 1,000 shares as an example. To buy into the deal, a payment of $1,500 needs to be paid to Knight. This is similar to the $400 mln/267 mln shares step. And then to convert, another $1,500 is paid to Knight. In total, $3,000.00 is paid to Knight to get another 1,000 shares of stock.
How is this price any different than the current market price?
If I understand correctly, the difference is that the $1.50 "buy-in" as you call it is actually a loan, since it is a convertible bond. As long as the company has assets, the bond holder may be repaid in cash, even if the company goes BK. There is not "another" required $1.50 to convert it to stock.
What Happens After I Send Information to the SEC?
Staff in the Division of Enforcement evaluate information and tips concerning violations of the federal securities laws. ... The information you provide may be used in the routine operations of the SEC, which include law enforcement, review of legislative and regulatory proposals, regulation of the securities markets, and review of reports and documents filed with the SEC. Specifically, the SEC may use the information obtained from this form in any administrative or civil proceeding in which it is a party, or in which any member of the SEC or its staff participates as a party. It may also provide the information to other state and federal agencies, and foreign authorities.