2 Stock markets loopholes , 1 weird thing , and 1 bug

[marty]

You could also probably put in place something that says you cannot merge a company that has been ipo`d for say 2 years.

This is doable. Do you guys want this to be implemented in the next version?

I don't think this implementation will actually seal the exploit, only delay it. Since a player can still use the same amount of money to get a fat wallet sub, buying it cheap, and just let it sit there doing nothing for 2 years, and merger it back to get the cash. The issue isn't at the time of the merger when cash "moves back" to the parent, but "move cash downstream" in a chained nested sub, and able to avoid paying loans in the intermedium subs, by bankrupting them. We don't even actually need to merger this sub back to get the ill-gained cash.

Excellent point about only delaying the payoff.
If the subsidiary had been properly valued when it went to IPO, it wouldn't then be cheap to acquire.

[eleaza]

I don't think this implementation will actually seal the exploit, only delay it. Since a player can still use the same amount of money to get a fat wallet sub, buying it cheap, and just let it sit there doing nothing for 2 years, and merger it back to get the cash. The issue isn't at the time of the merger when cash "moves back" to the parent, but "move cash downstream" in a chained nested sub, and able to avoid paying loans in the intermedium subs, by bankrupting them. We don't even actually need to merger this sub back to get the ill-gained cash.

Excellent point about only delaying the payoff.
If the subsidiary had been properly valued when it went to IPO, it wouldn't then be cheap to acquire.

That's why I initially proposed using true value as well as possibly using the old mechanics of issuing share to parent company for "injecting" cash. This way it will both reflect true value through shareholder equity and a soft limit of how much cash can be "injected" (by upper limit of 1 billion existing shares). Hence the buyout of a wallet sub will reflect the true cash in it, and even if later on some other loopholes were discovered, the maximum amount can be generated out of thin air is also limited before next patch to fix it.

[David]

We will implement the following fix in the patch v4.2.11.

When your company executes a merger with your subsidiary that went public via IPO earlier, the next time another subsidiary of yours goes IPO, its valuation will be less because investors are aware of your manipulation in the stock market and are wary of subscribing to the new IPO and thus leading to a lower IPO price.

The larger number of times you manipulate the stock this way, the lower the next IPO price will be.

[eleaza]

We will implement the following fix in the patch v4.2.11.

When your company executes a merger with your subsidiary that went public via IPO earlier, the next time another subsidiary of yours goes IPO, its valuation will be less because investors are aware of your manipulation in the stock market and are wary of subscribing to the new IPO and thus leading to a lower IPO price.

The larger number of times you manipulate the stock this way, the lower the next IPO price will be.

I think this only partially solved the first loophole, depending on how much lower of the next IPO price.

But this change will have no effect (even positive effect) on the second loophole, since along the way, there's no need to go IPO in nested Subs, only the first sub and last wallet sub need to go IPO, hence as long as it's price isn't reflecting the real value, a even lower price for wallet sub going IPO would make buying the wallet sub even easier, make this loophole "cheaper" to implement.

[marty]

We will implement the following fix in the patch v4.2.11.

When your company executes a merger with your subsidiary that went public via IPO earlier, the next time another subsidiary of yours goes IPO, its valuation will be less because investors are aware of your manipulation in the stock market and are wary of subscribing to the new IPO and thus leading to a lower IPO price.

The larger number of times you manipulate the stock this way, the lower the next IPO price will be.

Am I right in assuming that AI-initiated companies which started as a private company but then went IPO and subsequently got merged with yours, are exempt from this rule?

[David]

Am I right in assuming that AI-initiated companies which started as a private company but then went IPO and subsequently got merged with yours, are exempt from this rule?

Right.

[Pietro]

1 weird thing is the nested subsidiaries' ownerships don't work as you would've expected.

All the rest of your post is a very good summary , but here I would say it's more objective than simply my expectation since you can have the same situation of ownership in two cases , but based on how you arrived there , the game will react differently giving you control or not of some subsidiaries

this occuring for at least 2 different situations :

- situation A = you got 80% of 80% of 80 % ect

A1 = you control all
A2 = your control stops after 2nd sub

- situation B = you got 45 % of 80 % of 80 % of 80 %

B1 = you control nothing
B2 = you control sub 3 4 5 ect

Both A1 and B1 seems logical to me , but you can make the game interpret situation A and B so it understand and behave as A2 and B2

which is problematic I guess but no exploit to demonstrate ^^

the most overpowered part seems to be the ability to inject a ridiculous amount of cash into a subsidiary that only has a small number of shares, leaving it easy for your main corp to take over and merge with.

merger is not even necessary as long as you control the cash without being responsible for the debt.

the fact that massive capital injection doesn't impact the stock price / market cap of GIFT is because GIFT is not yet on the stock market when this is done

BUT even if you , by mistake , put GIFT on stock market BEFORE the capital injection , it will still have this problem of being underpriced.

Fact that you can switch order of those 2 tiny steps makes me think that the " theoric" market capitalization of a subsidiary is calculated when it is created , and evolve with time based on assets of the company.

But is not impacted by capital injection.

Maybie capital injection should :


IF SUB is ON the market

1= increase the stock price : 1 million $ cash injected on a 1 million share company = 1$ increase in stock price ( to reflect that shareholders owns something "more" than before)

OR

2= gives you more share of that said company ( based on eleaza mention the " issue share to parent company " )

based on player choice on wether or not he wants to lower the % of other shareholders



In real life I would see it such as :

i'm a big company A1 that owns 5% of a a subisidiary S1 which parent is P1

P1 inject cash into S1


1 = i own the same 5 % but it's 5 % of something that worth more ( stock price increase )

they reward me for my investment i'm happy to owns something that worth more , this is good capitalism i guess ^^

OR

2 =i own less than 5 % of S1 because S1 has got bigger ( more share, logically owned by P1)

but market capitalization has increased so it still represent the same amount of money.



There is little to no incentive to use 1rst method for P1 unless they own 100% of the sub in case that would change nothing.

Most of the time you will want to create more share as P1 , unless you have a short term money shortage on S1 , in this case you might wanna give it a couple millions without triggering the share issuing since it has a limit .




AND

IF said company is not on stock market yet , THEN change the " theoric market capitalization" it has received when said company was founded as a subsidiary to reflect the cash it has on account.

Either by making it with 1= a higher price per share or 2= more share

so when you do the IPO it will not be a " cheap wallet " but a wallet that everyone knows how much there is inside.






But if we only stop here it will not reflect the fact that P1 is actually losing something, but not really.

Here I mean , P1 is losing " cash " , but increases his assets in stock of S1 by having them increase in share price or having them emitting shares to P1.

But it is important that P1 share price DECREASE so as :

P1 market capitalization should stay the same if they own 100% of S1
P1 market capitalization should reflect the loss of capital that happens in situation 1 where they reward me for my investment

I can only try to explain such as :

there is a 'decrease' ( d )

the total market cap of P1 (mcP1) is the sum of P1 fundamental + (% of ownership P1 has in S1) * ( mcS1)


d = [100 - (% of ownership P1 has in S1)] * ( mcS1)

this is how i'd use mathematic langage to explain that the decrease of P1 exist only if they don't own 100% of the company they inject capital into

which would be logical as if you give 100 million to a subsidiary you own at 100% it doesn't change anything , but if you only own 75 % of that sub and one of your partner 25% , then you should renegociate so you own 80% and him 20 % or something like that because you invested more than him at this day you inject you change the ratio;

Or if it's your good friend that you tricked into investing with you in something that doesn't appear profitable , but you want to keep him trusting you , you make the effort of sacrifiying a bit of your cash to poor into the common business , artificially making him owns more money , since the stock price increases , but at the cost of people that look at your business will see that generosity as you losing money.



The whole thing is to have a ' balance ' to the fact that if you reflect an increase at some point in the chain you have to reflect the decrease at another place otherwise it would generate artificial money ^^


This might be overly complicated though x) , tell me if something is not clear or if you see a problem in the logic in this that i could have missed .

Equally, if your creating subsidies, you generally arent going to ipo them and sell them quickly unless your trying to do this exploit. What may happen is you may make a mistake perhaps in terms of assets allocated to the subsidiuary and it ends up loosing money.

First part is very true but i'd rather see a mechanism such as " THE SEC HAS BEEN ALERTED , because of a suspicion of fraud , you are now under investigation of the SEC, during the 2 following years you will not be allowed to ........


so that nothing changes for those who were not willing to exploit since it was good already but those who wants to exploit , they will have to face the SEC as it seems to me that if the money comes from public share-holders then it's sort of their job to protect private investors by checking the system no ? not very familiar with how it is done everywhere in the world , not even where I live ^^

We will implement the following fix in the patch v4.2.11.

When your company executes a merger with your subsidiary that went public via IPO earlier, the next time another subsidiary of yours goes IPO, its valuation will be less because investors are aware of your manipulation in the stock market and are wary of subscribing to the new IPO and thus leading to a lower IPO price.

The larger number of times you manipulate the stock this way, the lower the next IPO price will be.

I think this only partially solved the first loophole, depending on how much lower of the next IPO price.

But this change will have no effect (even positive effect) on the second loophole, since along the way, there's no need to go IPO in nested Subs, only the first sub and last wallet sub need to go IPO, hence as long as it's price isn't reflecting the real value, a even lower price for wallet sub going IPO would make buying the wallet sub even easier, make this loophole "cheaper" to implement.

I think this is a good way to limit the amount of cash you can receive from public share-holders , but it might be to slow to be effective

since you would be able to borrow merger 2 or 3 time with company A , but when people will start being aware of your doing , you will stop using company A , but use its subsidiary to perform the trick , so that people awareness of S1 will be 0 , they will know you A1 is a fraud , but will gladly accept to get fooled a few times by S1 , and then once S1 is exposed and can't operate , you can use S2 to be the main corp that will issue some sub 2 or 3 time ect.


But what is funny is that it will also lower your borrowing capacity if i'm not wrong on how it calculated , which will therefore impact the 2nd part of the exploit, but again , will not be strong enough to be efficient.




I think, there is 2 sources of money , that needs both to be adressed , 1rst one is from public share-holders , ( with what is descrided before , and the action of the SEC ) and the lowering IPO price if you do it multiple time ect.

AND the fact that you can borrow infinite money from banks ( but you don't need to merge for that )

I think the way to regulate coorporation so they don't fool public share-holders is way much complicated.


As for the infinite borrowing money trick , it might be possible to prevent subsidiary to borrow money the 31 days after their creation , so that even if you create them the last day of january , you would need to wait april to borrow , since february you'll have nothing and 1rst of March it will still not be ok , 2 or 3 of March you'd be able to borrow , but you will need to wait for April to have this sum recalculate.


Problem is that it will annoy people that wouldn't have use the exploit

and it's just about delaying the thing.

Maybie Bank could , as the SEC , knows to whom they lend money , and would tell you something like " Your total borrowing from the corp you own and the corp you control is already at maximum" in case the borrowing limit of your main corp is reached , so that a main corporation would be the real person that is check for liability before the lend is accepted.


( by the way how do you make a quote that refers to the author ? )=> thanks i've edited for clarity sake ^^

[Pietro]

Here is a picture of a game that was made from the new v4.2.11 patch , to my few testings of it , the new mechanism to lower the IPO price when you create a sub , sell 5% and merge and repeat is not functionning

But here i did as if it was and only abused the 2nd part of the exploit using 2 ' roots ' , first one with a wallet of around 500 million , that i bought for 10 million or something as i could lower the price before merging with it ,
allowing me to borrow 500 more ^^ , to walk up at stock exchange door only to create another series of nested sub from the main corp, that ended up to 10 billion , and used the wallet technique to get the cash back on main corp.


Here are 3 saves with chronological indication.

On the last one i managed to illustrate the problem of the stock market where sometimes you control a subsidiary while not owning ANY stock of ANY company at all

you will be able to see yourself controlling SSA corp as the screenshot show , while SSA is held at 80 % by beta
and as you can see on the screenshot , VERSION is not owning any stock at all

so we can just unpause the game and see all those corp falling to bankrupcy very fast , to leave you as the only corp , rich with Billions , and a 500 million debt , easy to repay


good luck

[eleaza]

( by the way how do you make a quote that refers to the author ? )

Using this code

Code: Select all

[quote="Quote_ID"] 
.. 
[/quote]

[Pietro]

When you create a subsidiary with 20 million fund

its market cap will be 25 million if you go for a 20% dilution share

20% dilution correspond to a 25% more cash in the company

since

20/20 = 1
you own 20 million in a wallet that contain 20 million
you own 100% share

20/22= 0.9090909
you own 20 million in a wallet that contain 22 million
you own 90.90% share

20/25= 0.8
you own 20 million in a wallet that contain 25 million
you own 80 % share

It took me long time to figure this out

but then i can explain the math in the rest of the exploit.

We need to say now that all share will be bought later at the price of 9$

When you do the IPO it is the same as if you sell 20% of the market cap for 10$ , so you make 10% benefit ( sell 10 buy 9 ) out of the 20% of 125% of the capital invested

then , you will sell 5% of the stock , for 9$50 per share , so that mean you make 5% benefit ( sell 9$50 buy 9) on 5% of the market cap that is 125% of the capital invested

This leads to ones making [A] 10% of 20% of 125 % of 20million , for a minimum budget sub

plus 5% of 5% of 125% of 20 million

[A] = 2.5%
= 0.3125 %

so performing the whole trick , issue a subsidiary , sell 5 % of the stock , then merge , will gives a 2.8125 % cash increase.

this represent 562 500$ if you perform the trick once and with the 20 million minimum budget. ( you can test that 01/01/1990)

No matter if the market cap is lower and lower , you will still be able to make this trick to make money out of public share-holders , it will just be very slow if the market cap is not 125% of capital invested but only 10 % , you will make 5% of 5% of 10% + 10% of 20% of 10% of the cash invested.

It doesn't seems much but late game it means if you have 2 billion cash banked , you can make 56 250 000 $ performing the trick once, once a year , once a month or once a week ? ^^

Or say in other way , if you do 20 times the thing you will end up with 200% of what you had in the first place

is it better explained now ?