This case involves a plaintiff private equity fund that owned zero coupon bonds convertible into the common stock issued by an entertainment company. The private equity fund converted its bonds and received fewer shares of common stock on conversion than it believed it was entitled to under the applicable conversion formula. An expert in trading on the Hong Kong Stock Exchange was sought to discuss the plaintiff’s ability to purchase the several million additional shares it believes it should have received in a fairly short time frame following the conversion given the level of liquidity of entertainment company’s common stock. The expert was also asked to determine what impact such an acquisition program would have had on the trading price of entertainment company’s shares. If it had been negotiated on either on the Stock Exchange or through privately negotiated transactions.
Question(s) For Expert Witness
1. Please briefly describe your familiarity with the Hong Kong Stock Exchange.
2. Given the level of liquidity of the defendant’s common stock, could you discuss the plaintiff’s ability to purchase additional additional shares in a fairly short time frame following the conversion?
3. What impact would such an acquisition program have on the trading price of the defendant company’s shares?
Expert Witness Response E-130286
I am familiar with the Hong Kong Stock exchange. In an academic paper, I have studied the liquidity and prices of stocks that can and cannot be short sold in Hong Kong. The ability to purchase 40 million shares and its impact depend on the liquidity of the stock at that time. Judging from the recent transaction volume, of the company in question, it looks like the acquisition program is difficult to execute in a short time frame without a big price impact. Of course, I will need to look at the liquidity and market conditions at the time of the incident before reaching a more concrete conclusion. I have published two prior papers related to convertible bonds: one in the Review of Financial Studies, and one in the Journal of Financial Economics. I have also written an unpublished paper using data on the efficacy of discretionary short sale rules in the Hong Kong Stock Exchange.
About the author
John Lomicky
John Lomicky is a J.D. candidate at FSU Law with a multidisciplinary background. He earned his Bachelor's degree in Neurobiology and Near Eastern Studies from Georgetown University and has graduate degrees in International Business and Eurasian Studies. John's professional experience includes working in private equity as an Associate at Kingfish Group and in legal business development and research roles at the Expert Institute. His expertise spans managing sales teams, company expansion, and providing consultative services to legal practices in various fields.
