Money Stuff: Opendoor Did Some Warrants

Normal shareholders of normal companies want the stock to go up. Shareholders of meme stock companies want that, but they also want something else. The additional thing that they want can perhaps be labeled “fun,” and it comes in various forms. AMC Entertainment Holdings Inc. was a big and self-conscious meme stock, and it amused its shareholders by giving them popcorn and buying a gold mine and having its chief executive officer do a YouTube interview with no pants on. Those techniques are not in the corporate finance textbooks, but they made sense in AMC’s situation. If AMC’s “Apes” (as its retail shareholders called themselves) were engaged and entertained, they would buy the stock, and the stock would go up, and AMC would be able to clear out its debts and stabilize its financial position. So, no pants.

Is there some more general approach? Popcorn will not make sense for every company, and not every CEO is naturally entertaining on social media. But that’s okay. Most of what makes a meme stock fun is:

1. A social media community, not run by the company, that enjoys talking about the stock, and
2. [Moon emoji]: What is specifically fun in a meme stock is its volatility, the possibility of going to the moon, the dream that if you buy the stock at $5 it might go to $500 tomorrow.

So options trading goes great with meme stocks: Buying call options amplifies your gains if the stock goes up; you can invest a little bit in call options now and get back a lot if the stock goes up as you hope (and lose your investment if it doesn’t). You can transform a somewhat lottery-ticket-like investment in a meme stock into a much more lottery-ticket-like investment in meme-stock options. That is an obvious and quite general form of fun.

Opendoor knows:

[Thursday], Opendoor Technologies Inc. (Nasdaq: OPEN) (“Opendoor” or the “Company”) announced a special dividend distribution of warrants to holders of the Company’s common stock as of 5:00 p.m. New York City time on November 18, 2025 (the “Record Date”). The goal is simple: if management gets performance-based upside, shareholders should too - these warrants help achieve that.
 
“To everyone who chose to be on this journey with us - thank you. You have been critical to this rebirth, and you should share in the upside just as we in management do,” said Opendoor CEO Kaz Nejatian. “Public markets have a long history of taking shareholders for granted - this program is built to reverse that.”
 
This program is intentionally structured as a new playbook for public-company alignment. Each registered shareholder as of the Record Date will receive three series of warrants - Series K, Series A, and Series Z - one (1) warrant of each series for every thirty (30) shares of the Company’s common stock held, rounded down to the nearest whole number. The details of these warrants are provided below and we plan for them to be listed and fully tradable. You can sell them on day one, or hold them and ride with us as we rebuild the company. Your choice. Your journey. ...

For every thirty (30) shares owned on the Record Date, holders receive one warrant of each series (rounded down) - Series K, A, and Z. … Exercise prices are set at $9 (Series K), $13 (Series A), and $17 (Series Z), which we believe aligns value creation with performance, in lock- step with management.

The stock closed at $6.56 on Thursday, before this was announced; it was unchanged on Friday but is up this morning. If the stock gets above $9, you can exercise your Series K warrant and buy a share for $9, and again with the other series at $13 and $17. Opendoor has given its shareholders some stock options. Let me go through some of the things that are going on here.

First, Opendoor explains that this is analogous to executive stock options: “If management gets performance-based upside, shareholders should too.” The normal theory of executive stock options is that shareholders are diversified but managers are not: The typical shareholder of a typical public company wants the company to take positive-expected-value risks (because she benefits from the upside and has diversified away much of the risk), but the typical manager of that company has most of her net worth and career tied up in that company and might not want to take much risk. Stock options give the manager the proper incentives: If she takes risks and succeeds, her options pay out; if she takes no risks, she gets no rewards. That is, giving managers options aligns them with shareholders who hold stock.

But giving the shareholders options makes them even more risk-loving. These warrants will be more valuable (1) if the stock goes up, sure (but the stock will also be more valuable if the stock goes up — if the stock gets to $17, the shareholders will be thrilled with or without warrants) but also (2) if the stock’s volatility is high. The point of giving managers options is to align them with shareholders; the point of giving shareholders options is to … align them with managers? Make them like volatility a bit more? Make them meme-ier?

Second, one advantage of these warrants is that they automatically bring in money if the stock price goes up: If the stock trades above the warrant strike prices for a while, holders will exercise the warrants and pay Opendoor cash for more shares. [1] When meme stocks started to be a thing, there was some concern that meme-stock issuers wouldn’t be prepared to strike while the iron is hot: When your stock goes to the moon, you want to be selling stock. That concern has abated — companies understand the playbook now — but, still, it’s good to automate it a bit.

Back in 2021, I wrote that companies should have automatic issuance plans in place in case they became meme stocks, and Aaron Brown pointed out that “what the companies should really do is sell warrants.” His theory was that they could take in cash upfront for the warrants, as well as more cash if they were exercised, while here Opendoor is giving them away for free, but still the idea is similar. If Opendoor’s stock goes way up in the next year, it will automatically sell some stock.

Third, it wouldn’t be a meme stock if there was not some effort to mess with short sellers. There is a bit of a tradition of meme-stock companies issuing weird dividends to mess with shorts: Short sellers borrow stock to sell it short, and they have to deliver any dividends to their share lenders, so if a company pays a weird hard-to-trade blockchain or crypto dividend, the short sellers will at least be inconvenienced and might be forced to buy back the stock to cover their shorts. These warrants are normal tradable exchange-listed securities, though, so short sellers should be able to buy them to deliver to lenders in the regular way without too much inconvenience.

Still Opendoor is hamming it up: On last week’s earnings call, Nejatian said about the warrants “yes, I’ll admit it, it gives me just a bit of joy that this will totally ruin the night of a few short sellers.” And Opendoor’s FAQs for shareholders suggest that, just to be safe, shareholders should recall any stock loans, which could squeeze the shorts a bit [2] :

My shares are in a margin account (and/or my shares were on loan) as of the Record Date. How are my warrants handled?

If your shares of common stock are being pledged as collateral or loaned out as of the Record Date, you may not be the shareholder of record and may not receive the warrant dividend directly. Brokers may post “in‑lieu of” warrant credits in some cases. We believe that in some cases you may need to transfer your shares from a margin account to a non-margin account (sometimes referred to as a cash account or fully paid-for account) before the Record Date to receive the warrant dividend. Contact your broker to confirm your entitlement and the form of credit, as practices vary across firms.

There is a lot of short interest in Opendoor — Bloomberg shows me that about 161 million shares were shorted as of mid-October, about a quarter of the float — but that is probably not all from bearish bets. Opendoor has two convertible bonds outstanding, and one of them — a $325 million 7% bond issued in an exchange offer May — is extremely in-the-money, with a conversion price of just $1.57 per share. There are about 207 million shares underlying that bond, and if you are a convertible arbitrageur, you would short pretty much all of the underlying shares to hedge the bond. [3]  I don’t know how many of those bonds are held by arbitrageurs, but there’s a decent chance that at least the majority of the people who are short Opendoor stock are actually its bondholders, who just agreed to a convertible exchange a few months ago and who are actually pretty helpful financing sources. Surely Nejatian didn’t want to ruin their nights?

No, he didn’t. Along with the warrants, Opendoor also announced another exchange offer in which a majority of the convertible investors are exchanging their converts for stock at a premium. [4]  If they are short, Opendoor will give them the stock to close out their shorts.

Okay so why is this illegal:

[On Sunday] an indictment was unsealed charging two defendants, Emmanuel Clase de la Cruz and Luis Leandro Ortiz Ribera, with wire fraud conspiracy, honest services wire fraud conspiracy, conspiracy to influence sporting contests by bribery, and money laundering conspiracy, for their alleged roles in a scheme to rig bets on pitches thrown during Major League Baseball (MLB) games. Ortiz was arrested earlier [Sunday] in Boston, Massachusetts, and will make an initial appearance in federal court in Boston, Massachusetts on November 10, 2025. Ortiz will be arraigned in the Eastern District of New York at a later date.  Clase is currently not in U.S. custody.

Joseph Nocella, Jr., United States Attorney for the Eastern District of New York; and Christopher G. Raia, Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office (FBI) announced the indictment and arrest. 

“Professional athletes, like Luis Leandro Ortiz and Emmanuel Clase de la Cruz hold a position of trust—not only with their teammates and their professional leagues, but with fans who believe in fair play,” stated United States Attorney Nocella.  “As alleged, the defendants sold that trust to gamblers by fixing pitches.  In doing so, the defendants deprived the Cleveland Guardians and Major League Baseball of their honest services.  They defrauded the online betting platforms where the bets were placed.  And they betrayed America’s pastime.  Integrity, honesty and fair play are part of the DNA of professional sports. When corruption infiltrates the sport, it brings disgrace not only to the participants but damages the public trust in an institution that is vital and dear to all of us.  Today’s charges make clear that our Office will continue to vigorously prosecute those who corrupt sports through illegal means.”

Here is the indictment, which alleges that Ortiz and Clase would agree with gamblers to throw certain certain pitches outside the strike zone so that the gamblers could profit on prop bets. There are pictures of them throwing those particular pitches in the dirt; they’re pretty egregious. And the gamblers allegedly gave Ortiz and Clase a cut of their winnings. (These cuts were generally on the order of a few thousand dollars per pitch. Clase, meanwhile, was making millions of dollars a year from his baseball salary.) “Through this scheme, the defendants defrauded betting platforms, deprived Major League Baseball and the Cleveland Guardians of their honest services, illegally enriched themselves and their co-conspirators, misled the public, and betrayed America's pastime.”

I think there are two main theories of what makes this illegal. The first theory is that they “defrauded betting platforms.” Online sportsbooks offer prop bets on things like whether “a specific pitch would be either a ball or a batter hit by pitch, as opposed to a strike” or “the speed of a given pitch, such as whether the pitch would be above 94.95 miles per hour.” [5] When the sportsbooks offer these bets, they expect that the bettors do not have inside information, and the sportsbooks’ terms of service specifically prohibited users from betting if they “had access to any pre-release, confidential information or other information that was not available to all other wagerers, including any information provided by a professional athlete.” The people who allegedly bet on Ortiz’s and Clase’s pitches thus violated the sportsbooks’ terms of service.

This, in the Justice Department’s theory, is fraud. We talked about this theory a couple of weeks ago, when some bettors were charged with betting using inside information about basketball players. It is, I wrote, a somewhat weird theory, essentially giving the sportsbooks’ terms of service — which nobody reads! — the force of criminal law. Still there is something intuitively correct about it; it does feel like insider betting is a scam on the person you’re betting against. 

The theory is slightly weirder here, though, as Ortiz and Clase are not charged with betting. They had no reason to read the sportsbooks’ terms of service, since they were not customers of the sportsbooks. So they are not actually charged with fraud on the sportsbooks; they are charged with conspiracy. Their gambler buddies allegedly defrauded the sportsbooks by violating their terms of service; Ortiz and Clase are charged with conspiring to violate the terms of service. Kind of a strange crime.

The other theory is that they “deprived Major League Baseball and the Cleveland Guardians of their honest services.” “Honest services wire fraud” is the somewhat odd legal term of art for “taking bribes”: The theory is that if you take a bribe to do something against the interests of your employer, you are committing fraud on the employer by depriving them of your “honest services.” The classic US Supreme Court case involved Jeff Skilling, and held that honest services fraud involves “fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who had not been deceived.”

Fine, fair enough: Here, Ortiz and Clase are charged with not doing their best for the Guardians and the game of baseball (by throwing some balls in the dirt), because they got paid by their gambler friends. Sounds like honest services fraud. But the recent history of honest services fraud is quite odd. In 2023, the Supreme Court overturned what seems to me to have been a pretty straightforward bribery conviction by saying, no, you have to do a particular sort of bribery. The wire fraud statute criminalizes “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises,” and the Supreme Court held that “the federal fraud statutes criminalize only schemes to deprive people of traditional property interests.” In other words, taking a bribe is only fraud if you deprive your employer of “traditional property interests,” not if you take something vaguer like (in that case) “intangible interests such as the right to control
the use of one’s assets.”

I don’t know what that means, and it is my strong suspicion that nobody knows what it means. [6] We talked once about a Texas federal judge who declared that stock pump-and-dump frauds were not illegal, because if you think about it hard enough, a pump-and-dump doesn’t deprive its victims of “traditional property interests,” but “only of accurate information necessary to make discretionary economic decisions.” Again I have no idea what that means, and that ruling was later overturned, but the theory is still live.

And this summer, a federal appeals court overturned a conviction for insider trading nonfungible tokens: A guy worked for OpenSea, the big NFT trading platform, and got advance notice of which NFTs would be listed on its homepage. He bought those NFTs, which went up when they were on the homepage, and made a profit. The appeals court said that that’s not wire fraud because listing on the homepage is not a “traditional property interest.” Again this struck me as crazy — obviously OpenSea’s confidential information had economic value — but that’s the law, man. 

So here, I guess the question is: Did the Cleveland Guardians or Major League Baseball have a “traditional property interest” in Ortiz and Clase throwing strikes? I think when you put it like that, the answer is either “no” or “what on earth are you talking about,” even though in some intuitive sense it is obviously bad and criminal and economically destructive for pitchers to take bribes to throw balls. My point here is not really to defend them. It’s to point out that (1) legally, they have a decent defense and (2) that’s really weird.

Though I do want to make one other point, which is that, sure, it’s bad to undermine the integrity of baseball by taking money from gamblers. But! You know! Major League Baseball certainly takes buckets of money from sportsbooks to promote gambling. Does that undermine the integrity of baseball? Well. I suspect Clase and Ortiz would not be intentionally throwing pitches in the dirt if baseball wasn’t working with sportsbooks to promote gambling.

The Metsera bidding war is over:

Pfizer Inc. agreed to buy Metsera Inc. for up to $10 billion, prevailing over Novo Nordisk A/S in a tumultuous bidding war after US regulatory opposition thwarted the Danish drugmaker’s rival bid for the obesity drug startup.

Pfizer raised its offer to as much as $86.25 a share, matching a revised bid from Novo on Nov. 6. The US company agreed to pay $65.60 a share in cash and up to $20.65 a share contingent on certain milestones, Metsera said in a statement on Friday.

Metsera cited a call from the US Federal Trade Commission regarding potential risks from proceeding with the proposed Novo deal structure. For its part, Pfizer had already secured FTC clearance for its bid.

We talked about the Novo proposal a couple of times. Basically, Novo would pay Metsera most of the money upfront, in exchange for nonvoting preferred stock, and Metsera would dividend that money to its shareholders. If the FTC approved the deal, it would close and Novo would get the company; if it didn’t, though, Metsera’s shareholders would keep the cash. I thought this was a clever solution to the problem of allocating antitrust risk, but, uh, the FTC did not. Bloomberg News reports:

The US Federal Trade Commission called Metsera on Friday to warn the obesity startup that the agency would look unfavorably upon a Novo deal, according to people familiar with the matter, following a letter the FTC sent to Metsera and Novo earlier in the week. Pfizer put in its winning bid moments later, the people said.

Metsera’s board convened and discussed the FTC opposition, with some board members expressing concerns with proceeding with any Novo offer given the regulator’s warning, the people said. Given those worries, they said Metsera’s board resolved to negotiate a final deal with Pfizer. ...

The FTC’s move to signal its concern about Novo’s proposed transaction structure during the bidding war was unusual, the people said. It was also the latest example of members of the Trump administration taking a more active role in corporate dealmaking.

I want to defend the FTC a little here. It’s possible that this intervention was a bit Trumpy, but I think there is a decent argument that the Novo structure was designed to get around the normal US antitrust pre-approval rules, and in a way that might be bad for competition. That is, ordinarily, two companies sign a merger and then take it to the FTC for approval before the deal closes. If the FTC says no, the deal doesn’t close, and there’s no big competitive harm. Here, though, Novo would pay Metsera before getting FTC approval, and would then spend up to two years trying to get that approval. Meanwhile Metsera’s drugs would be off the market, whereas if Pfizer bought Metsera it would presumably try to commercialize those drugs as quickly as possible. Pfizer’s theory was that Novo’s structure was intended, not to buy Metsera, but just to block Pfizer from buying it.

I don’t know if that was right, but if it was right, the damage would be done long before Novo and Metsera submitted anything to the FTC. The only way for the FTC to address potential antitrust risks in that proposal really was to call up the board informally and say “knock it off.” So that’s what the FTC did.

Do people actually play Liar’s Poker much? I am pretty sure I have never played classic Liar’s Poker (like, with the serial numbers of $1 bills), and I really only know of it from Michael Lewis’s book of the same name. But that book is of course the classic of Wall Street culture, and so probably everyone who works in finance has at least thought about playing Liar’s Poker. And if I told you “so-and-so is an elite Liar’s Poker player,” you’d be like “ooh that’s cool,” even though that is not strictly speaking a thing. Nobody has won the World Series of Liar’s Poker or anything like that. [7]

And if I told you “so-and-so is an elite Liar’s Poker player because he was at Salomon Brothers in the 1980s” you’d be like “yes, of course, the Liar’s Poker Dream Team.” I really have no reason to think that 1980s-era Salomon Brothers bond traders were especially good Liar’s Poker players, but they are by many orders of magnitude the most famous Liar’s Poker players. If you know one thing about Liar’s Poker it is “one hand, one million dollars, no tears.”

Anyway some artificial intelligence researchers led by Richard Dewey taught an AI to play Liar’s Poker which, fine, not super practical but sounds fun. They named their bot Solly, and “Solly played at an elite human level as measured by win rate (won over 50% of hands) and equity (money won) in heads-up and multi-player Liar’s Poker.” Specifically it beat “elite” opponents who “played Liar’s Poker on Wall Street during the 1980s and 1990s, had extensive experience playing for high stakes, and have thought deeply about the game and its bidding dynamics.” They are listed in Appendix A. There are various candidates for the title “Wall Street’s most exclusive club” — the Goldman Sachs partnership, having an ISDA for your personal account, etc. — but I submit to you that there is no more elite Wall Street club than Appendix A of “Outbidding and Outbluffing Elite Humans: Mastering Liar’s Poker via Self-Play and Reinforcement Learning.” The list has six people, four of whom worked at Salomon in the 1980s:

Jeffrey Rosenbluth ... is a private investor and former Managing Director and Head of Fixed Income Arbitrage at Salomon Brothers, Inc. ...

Victor Haghani started his career in 1984 at Salomon Brothers in bond research. …

Pete Muller is an American investor, singer-songwriter, and philanthropist. …

Eric Rosenfeld is a retired hedge fund manager. …

Aaron Brown is a long-time poker player, financial trader, risk manager, and author. … 

Larry Bernstein is currently the managing member of Amber Mountain. 

All of them are also famous for other things (including, in Brown’s case, being a Bloomberg Opinion columnist), but being publicly recognized as an elite Liar’s Poker player is pretty high up there on the list of possible life accomplishments.

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