4 ms·

Here’s how divident arb / cum-ex works. Say dividend is $10. You (or one of your accounts) buys the stock pre-dividend. You are then paid $10. However, the stoc

Here’s how divident arb / cum-ex works. Say dividend is $10. You (or one of your accounts) buys the stock pre-dividend. You are then paid $10. However, the stock ex-dividend immediately falls. The trick is, it does not fall by $10 - it falls by tax-adjusted, market-agreed-upon amount. Say, everyone pays 30% tax - then the stock falls by $7. After that, you sell the stock. Your pnl is simply this: you lost $7 on the stock but received $10 dividend. If you, like everyone else in that market, pay 30% tax on dividend - you are exactly breakeaven like everyone else. No arbitrage. Here for simplicity we assume you can’t tax-deduct loss on your stock position (that does not change anything). However: if you somehow do not have to pay tax on dividend, or pay it at a reduced rate, you feel happy. This could get tremendously complicated with cross-boarder transactions and international tax law. But nevertheless may be entirely legal, although understandably frowned upon. It could also be totally fraudulent depending on the setup. No idea what this guy was doing but the fact that he has not been criminally charged may be a hint that they actually cannot charge him with anything.

MrTonyD 8y ago
When I worked at a Fortune 50 I was in a group reassigning revenues to offshore entities. It was just a matter of assigning a team to an offshore manager (well, any one of the big 3 accounting firms then took our work and did whatever paperwork might have been required from there. All the major accounting firms were making millions from us so they were glad to help.) An executive explained to me that all the senior executives got a variety of classes of stock in offshore companies, which were essentially worthless on paper. Then offshore monies could be transferred to increase the value of any of the many classes of stock which were issued - allowing them to transfer any amount to any executive. And as long as the public stockholders were making profit, nobody complained, and money could be freely hidden and transferred offshore using a wide variety of techniques. At the time, this was considered standard practice by all the major accounting firms and all the C-suites at major software companies. We live in a society which is corrupt beyond the understanding of most people. I personally saw billions transferred offshore and hidden - think about that when Bill Gates says that he is giving it all away.
- dboreham 8y ago
  They can't run for public office though. Oh..wait..
- bjelkeman-again 8y ago
  Which company was it?
- MaysonL 8y ago
  Reminds me of a consulting company I did some work for a few decades ago. Reportedly, they had many engineers filling out two 40hr/wk timecards: one for defense contracts, the other for non-government corporate clients.
  - samfriedman 8y ago
    FYI for anyone else in the US who reads this and is/has been in a similar situation: the DOD hotline for reporting fraud & abuse of contracts is +1-800-424-9098. http://dodig.mil/hotline http://dodig.mil/hotline
caf 8y ago
From the article: Soon after, an order was placed by another of the 27 plans to buy the order for the shorted shares. That open buy order — essentially, a promise to purchase shares that the other plan still didn’t own — was proof enough for SKAT to approve a refund. Once the refund was issued, the buy order was canceled. So they weren't actually buying the shares at all, or receiving the dividend.

MrTonyD 8y ago

When I worked at a Fortune 50 I was in a group reassigning revenues to offshore entities. It was just a matter of assigning a team to an offshore manager (well, any one of the big 3 accounting firms then took our work and did whatever paperwork might have been required from there. All the major accounting firms were making millions from us so they were glad to help.) An executive explained to me that all the senior executives got a variety of classes of stock in offshore companies, which were essentially worthless on paper. Then offshore monies could be transferred to increase the value of any of the many classes of stock which were issued - allowing them to transfer any amount to any executive. And as long as the public stockholders were making profit, nobody complained, and money could be freely hidden and transferred offshore using a wide variety of techniques. At the time, this was considered standard practice by all the major accounting firms and all the C-suites at major software companies. We live in a society which is corrupt beyond the understanding of most people. I personally saw billions transferred offshore and hidden - think about that when Bill Gates says that he is giving it all away.

dboreham 8y ago
They can't run for public office though. Oh..wait..
bjelkeman-again 8y ago
Which company was it?
MaysonL 8y ago
Reminds me of a consulting company I did some work for a few decades ago. Reportedly, they had many engineers filling out two 40hr/wk timecards: one for defense contracts, the other for non-government corporate clients.
- samfriedman 8y ago
  FYI for anyone else in the US who reads this and is/has been in a similar situation: the DOD hotline for reporting fraud & abuse of contracts is +1-800-424-9098. http://dodig.mil/hotline http://dodig.mil/hotline

caf 8y ago

From the article: Soon after, an order was placed by another of the 27 plans to buy the order for the shorted shares. That open buy order — essentially, a promise to purchase shares that the other plan still didn’t own — was proof enough for SKAT to approve a refund. Once the refund was issued, the buy order was canceled. So they weren't actually buying the shares at all, or receiving the dividend.