Michael Melbinger, a Chicago-based partner at Winston & Strawn who specialises in executive compensation, said the case illustrates exactly why companies should limit share pledging.
Pledging shares is not unusual, especially in Asia, where high-growth companies are more common and tycoons often turn to lenders and other financial-services firms that offer cash in exchange for committed stock. Tesla's Elon Musk, SoftBank Group's Masa Son and Oracle's Larry Ellison have also relied on the practice to get loans, which are typically a fraction of the value of the pledge.
"Large-scale involuntary sell-offs could drive the stock to sink further and cause a higher crash risk," said Siqi Wei, a finance professor at California State University, Northridge.
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