Zhao Chen stood up and walked to the window.
The night view of Manhattan spread out outside the glass window, and the spire of Empire State Building was lit with white lights.
He turned around and looked at the three people in the room--
Zhang Qingxue, sitting on the sofa, the notebook is filled with dense words;
Su Wantang, leaning against the window, the tea in his hand has gone cold;
Lin Shicheng, sitting opposite him, holding the pile of documents in his hands.
"Lawyer Lin," Zhao Chen's voice was very calm, "I want to confirm again about Options."
Lin Shicheng put down the document and looked at him seriously.
Zhao Chen said, "Aunt Zhang, if I buy Common Stock directly from Secondary Market and increase my holdings to 9.9%, how many shares do I need to buy?"
Zhang Qingxue answered immediately:
"Currently holding 9 million shares, the total share capital of Tesla is 168 million shares, 9.9% corresponds to approximately 16.63 million shares. It is necessary to buy another 7.63 million shares."
Zhao Chen nodded. "7.63 million shares. With the current market conditions and the market being so pessimistic, there should be a lot of selling orders."
There is no need to go through investment banks like Goldman Sachs to help, just Secondary Market to slowly accumulate funds, and it can be completed in about half a month."
Zhang Qingxue wrote down "7.63 million shares, Secondary Market, half a month" in his notebook.
Zhao Chen looked at Lin Shicheng:
"What about Options? If I buy a part of Options in addition to Common Stock.
Common Stock plus Options add up to Risk Exposure, which exceeds 10%. However, in terms of shareholding ratio, Options is not counted as Common Stock, and does not trigger shareholding disclosure.
Is this understanding correct?"
Lin Shicheng nodded. "Yes. Options is Derivatives, not Common Stock."
In the SEC's disclosure rules, only Common Stock actually held is included in the shareholding ratio. Options does not account for the quota.
In theory, you could hold 9.9% of the underlying stock, plus millions of options, for a total exposure of over 10%, but the disclosure only shows 9.9%."
Zhao Chen's fingers tapped lightly on the armrest of the sofa twice.
"Then if Common Stock plus Options exceeds 10%, what is the difference in disclosure?"
Lin Shicheng opened the documents on the table and found the relevant terms.
"If you only hold Common Stock, more than 10% needs to be converted from 13G to 13D, and the investment purpose, source of funds, and whether there is any intention to control the company must be disclosed.
But if Options is just Derivatives and the shareholding ratio of Common Stock does not change, you do not need to transfer to 13D.
9.9% Common Stock, plus Options, still go according to 13G."
Zhao Chen was silent for a while.
He was thinking about a question - if the total Risk Exposure of Common Stock plus Options exceeds 10%, but Common Stock itself is less than 10%, is there any loophole in supervision?
Lin Shicheng seemed to understand his thoughts and added:
"Mr. Zhao, there is a detail that needs attention here. Although Options is not included in the shareholding ratio, if Options enters a real value state, especially Deep In the Money, there may be different regulatory views.
There is a rule in the SEC - if a person holds a large amount of economic ownership through Derivatives, even if the legal shareholding ratio is not high, it may be regarded as a 'beneficial owner'."
Zhao Chen frowned. "What do you mean?"
Lin Shicheng said, "For example. You hold 9.9% of Common Stock and bought 5 million shares of Deep In the Money Call Options.
These 5 million shares of Options and Strike Price are very low, almost equivalent to already holding these shares.
Then the SEC may believe that the shares you actually control exceed 10% and need to be disclosed according to 13D."
Zhao Chen leaned on the sofa and thought for a while.
"What if Options is out-of-value? For example, Strike Price 300, the current stock price is 270."
Lin Shicheng said, "The regulatory risk of Out-of-the-Money Options is much smaller.
Out-of-the-box value means that you have not actually received the economic benefit of these shares, and the SEC generally does not include Out-of-the-Money Options in the calculation of 'beneficial owner'.
But there is one thing - if the stock price rises and Options enters the real value state, the situation will change."
Zhao Chen asked, "After entering the real value, does it need to be announced again?"
Lin Shicheng shakes his head:
"No need to re-announce. But if the stock price continues to rise, Options Deep In the Money, and your Common Stock is close to 10%, the SEC may notice this situation.
Disclosure is not required, but the risk of regulatory attention will increase."
Zhao Chen thought for a while and asked a more in-depth question:
"Then if I design a strategy - before Options enters the real value, reduce part of Common Stock and reduce the proportion of Common Stock.
In this way, even if Options becomes real value, although the total Risk Exposure of Common Stock plus Options is large, the proportion of Common Stock is lower, so is the regulatory risk smaller?"
Lin Shicheng was stunned for a moment, then smiled.
Zhao Chen This idea is more flexible than many Hedge Fund managers he has seen.
"Mr. Zhao, this strategy is theoretically feasible. Before Options enters real value, reduce the holding of Common Stock and reduce the proportion of Common Stock to 8% or even lower.
In this way, even if Options becomes Deep In the Money, your Common Stock ratio will not be high, and the regulatory sensitivity will be much lower.
But there is an operational difficulty here - you need to accurately determine when Options will enter the real value state.
If you sell too early, you will make less money. If you sell too late, the regulatory risk will increase."
Zhao Chen nodded.
He knows this difficulty. He is not 100% sure when the stock price will rise above 300.
But he is 80% sure - in the second half of the year, when the production capacity problem of Model 3 begins to be solved, the stock price of Tesla will definitely exceed 300 US Dollar.
Lin Shicheng's expression became more serious.
"Mr. Zhao, let me be honest. As long as you don't play too big with Options, supervision usually won't keep an eye on it.
The SEC's resources are limited, and their main focus is insider trading and market manipulation.
Your behavior of simply being optimistic about the company and buying Options and Common Stock is not their focus.
But there is one thing - if someone reports it, the situation will be different."
Zhao Chen looked at him.
Lin Shicheng said, "Wall Street has many people staring at Tesla. Short Sellers, Hedge Fund, Market Maker, and anyone may report it.
If your position is too big and someone notices it, an anonymous letter is sent to the SEC and they have to investigate.
At that time, no matter whether your operation is compliant or not, you will have to spend a lot of time and energy to deal with it."
Zhao Chen was silent for a long time.
The risk Lin Shicheng mentioned is more troublesome than the regulatory rules themselves.
Rules are dead, people are alive.
If someone reports it, the SEC must respond. Even if there is no problem in the final investigation, the process will be torturous enough.
And, once an investigation is launched, the media follows up.
By then, the news that "Era Vanguard is suspected of illegally operating Tesla" has spread all over the world, and all his plans will be disrupted.
He remembered the accusations made by ChainAnalysis in January and how Short Sellers were behind it.
Those people will not miss any opportunity to attack "Era Vanguard".
If they knew he bought a large amount of Options, they would definitely report it.