Is this article about people not understanding lockouts and conversions between classes of shares?
"As it turned out, for many former employees, it was all too good to be true. This past Monday, as BuzzFeed went public, many of them learned something alarming: they weren’t able to trade the stock that they had waited years to exercise. They watched in dismay as the share price dropped eleven per cent on the first day of trading; as of Friday’s close, most were still unable to trade, and BuzzFeed stock was valued at $6.07, having dropped nearly forty per cent in the first week of trading. Hopes of windfalls, large and small, were dashed. Some former employees are now asking whether they were cut out of trading owing to incompetence, or deliberately misled."
The only problem here is people that accepted equity compensation and without understanding how it works. This article describes how it's worked for decades.
No. The company they used to transfer shares from class b to class a severely screwed up, didn’t get people correct paperwork and then didn’t complete the conversions in time to sell for the normal employees. Executives, of course, got their stock immediately.
FTA:
> On the night of December 7th, after two days of trading, BuzzFeed sent an e-mail to former employees reiterating the need to print and sign the e-mail in order to make the stock conversion. “For context, only yesterday did we learn that holders of Class B shares would have to take additional steps to convert their shares to Class A,” it read. “We wish this information had been provided in Continental’s initial Letters of Transmittal.” (Continental did not respond to a request for comment.)
You could argue that employees should have perhaps taken more of an effort to get stuff together, but even then, if the company claims it didn’t know that information and if the transfer agent didn’t include the information (and by all accounts, hasn’t been reachable by phone or email all week) — not to mention the fact that they gave shareholder the incomplete information on a Friday night, meaning you couldn’t reach a person to get the conversion started before the public offering went live anyway), I’m not going to blame employees here, because even the most diligent shareholder would be screwed.
Again, executives/investors had their shares automatically converted (and I bet that former execs who had a significant amount of shares also got converted in advance, tho I have no proof of that). Some of them have lockup periods, and I understand that legally, you can’t just convert someone's shares automatically. But that doesn’t change the fact that even in the best case scenario, rank and file employees who put in a lot of blood equity into a company got severely screwed because the people hired to do the conversion didn’t do it well enough and their company/former company, didn’t care enough to ensure it was done the right way.
I think this case might be slightly different than the standard lockup issues. For example this quote:
> BuzzFeed sent an e-mail to former employees reiterating the need to print and sign the e-mail in order to make the stock conversion. “For context, only yesterday did we learn that holders of Class B shares would have to take additional steps to convert their shares to Class A,” it read.
I’ve never heard a company say they were ignorant of how their share lockup would work.
Anyway, this should be a lesson to everyone: don’t expect your company to tell you how to cash out after an IPO. You need to get your own advisers to analyze the legal and tax situation.
I agree with your last point. The problem here is the transfer agent didn’t get anyone who wasn’t automatically converted enough notice to even do a transfer before the stock went public. They also didn’t include the paperwork needed to transfer stuff. So even if you did everything right, you would still be screwed because the email that some employees got with incomplete information, didn’t arrive until Friday night, ahead of a Monday morning IPO.
We need a way to flag HN comments as having written by people who (sorry to pick on you, you're certainly not the only person who's done this) have not read the post. Having half the discussion page being taken up by someone who is responding to the headline is sort of not great, I would submit, because it draws attention away from better comment threads. Some comments we can, in good faith, assume the reader misunderstood; but this article clearly wasn't about lockup, as the fourth paragraph begins to explain:
> Former BuzzFeed employees have described a rushed process, one that potentially allowed more room for human error than a traditional I.P.O. They were first contacted about the steps needed to convert their BuzzFeed equity into tradable stock the week of Thanksgiving, two weeks before the company went public...
Back in the Slashdot days, these comments would be moderated as Irrelevant.
I was a /.er and a metamod, I think you are giving their moderation too much credit.
I agree with you about the article and my comment, to an extent. I was confused reading the New Yorker article and by the headline. I noted this in a different comment, but I'd assumed "missed their payday" had to mean there was no possibility of a payday. It actually took me a few times reading the article to figure out "missed their payday" meant "missed the opening day pop". Also, to be fair to myself, even though I didn't just talk about lockups, but "lockouts and conversions between classes of shares".
I went through a similar experience with another company, but not a SPAC liquidity event. In my case it was worse because I was subject to a lockup. In that respect, I think that the former BuzzFeed employees here actually were treated pretty well. I couldn't sell for months. I am sorry they are unhappy with the process and the transfer agent, Continental. It sounds like it really was more rushed and had more room for error than a traditional IPO, being a SPAC transaction. A lot of times companies will reach the public markets via SPACs because they just aren't that attractive of investments or have other problems that making traditional IPOs not viable. It is just not that sympathetic of a situation to me, and the complaint seems cynical. The former employees had already exercised their shares. Assuming no restrictive bylaws they could have sold on a pre-IPO site like Sharespost or Equityzen. But they either were stuck with unsellable shares or were waiting out a better deal. They are getting their shares - they just missed selling at the top, thus far.
The article could be accurately titled "Former BuzzFeed employees have delays with transfer agent, cannot sell in first trading day". Ideally that shouldn't happen but it's less dramatic.
There doesn't seem to be a lockup period, and the conversion seems incompetently delayed. There's no reason given why it should not have been possible for them to dump shares if they wanted.
When I read "Missed their big payday" I assume they've been screwed out of their shares via convertible shares or liquidation preferences.
They didn't get to sell the top on the post-SPAC debut. Their Bs are being converted to As, but it's not as fast as they want. They are missing their maximal payday (assuming BZFD shares don't recover) but there is nothing here about them not getting their shares and being about to sell.
If you have options with a strike of $8 and a market price of $6, you could exercise your option at $8, sell at $6, and bank a capital loss to use against gains elsewhere.
Or, wildly better, you could hold the options unexercised, and use that $2 per share for whatever you want, including paying capital gains taxes on other gains.
Burning up options on 100 shares to generate $200 in losses (and actually losing $200 of cash in the process!) to offset gains that will result in $30-60 worth of tax liability makes no sense.
Now, a hypothesis, what if it was delayed on purpose to enable class A holders to offload their shares fir more gain? What if they feighned incompetence?
It would not be the furst time employees loose to corporate shenanigans
It honestly comes off as short sighted from the equity holder perspective. FB also dropped on it's first trading day but look at it now. Most of these people would be better off hodling for a few years.
I haven’t done the research, but Facebook is generally exceptional. I would expect that on average shareholders of companies that drop on IPO would be better off selling at the open and diversifying than holding for any period of time. I’m even more confident this is true of SPACs.
These employee shareholders are all whales for this given stock so if they all sell at once not one of them would get the same price. They'd all tank it for each other. They are far better off waiting for a random Tuesday 2 years from now so that the market can absorb it.
As far as buzzfeed not being Facebook so what? Stocks these days are more marketing than anything else.
Everyone knew that these people were eager to sell their shares, and they were asking questions in the weeks leading up to the IPO and assured they would get clear instructions before the IPO. But then when they actually tried to sell their shares they were informed that they had the wrong class of shares. Doesn't it seem reasonable to inform them of this at least a couple of days before the IPO? It would have been even better to give them step-by-step instructions on how to convert their shares before the IPO.
Sounds like BuzzFeed was (at least) negligent in giving employees a path to convert their stock. And in fact I would argue that giving some folks "automatic" conversion, and then making "manual" conversion impossible smacks of something worse. Namely, fraud. Of course, it's always hard to press a fraud case since, by definition, you probably don't have money to pay a lawyer's retainer!
> Is this article about people not understanding lockouts and conversions between classes of shares?
Taking this question at face value -- if that is the case, it's at least a teaching moment for folks who are in the industry but aren't as financially literate as you seem to expect them to be.
> "Some former employees are now asking whether they were cut out of trading owing to incompetence, or deliberately misled."
The saying goes - never attribute to malice what can be explained by mere incompetence - but let me try.
Having fewer people selling their stock on opening days puts less pressure on the stock price and would make price drop smaller. Clear incentive to screw up former employees who are "spent fuel".
"As it turned out, for many former employees, it was all too good to be true. This past Monday, as BuzzFeed went public, many of them learned something alarming: they weren’t able to trade the stock that they had waited years to exercise. They watched in dismay as the share price dropped eleven per cent on the first day of trading; as of Friday’s close, most were still unable to trade, and BuzzFeed stock was valued at $6.07, having dropped nearly forty per cent in the first week of trading. Hopes of windfalls, large and small, were dashed. Some former employees are now asking whether they were cut out of trading owing to incompetence, or deliberately misled."
The only problem here is people that accepted equity compensation and without understanding how it works. This article describes how it's worked for decades.