MonEmailbag: Who Has Voting Rights on Shares That Have Been Shorted?

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First up today is

Richard Ranney

, who writes: "I have tried and tried to get an answer to this question from many sources, all to no avail. It involves what exactly happens when a stock is shorted -- does it increase the number of shares held long -- and if so, who gets to vote the extra shares?"

No, there is no increase in shares outstanding. The person with voting rights is the person in possession of the shares at the time of the shareholders' vote -- in this case, the person who bought the shares from the short-seller.

Here's how it works: A short-seller borrows shares from a brokerage firm's stock-loan department. The brokerage gets those shares from the pool of shares used as collateral in margin accounts and/or from investors who have agreed to let their shares be loaned. The short-seller then sells those borrowed shares in the open market, and the money from the sale of those shares goes into the short-seller's account.

No extra shares have been created because the original owner no longer holds them. (They're out on loan, remember?) And the original owner gives up voting rights when the shares have been put up as collateral or willingly loaned out. That's why

CalPERS

, the $155 billion pension fund in California, recalls its shares from a loan when there is a pending vote on a corporate issue.

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Herb Greenberg writes daily for TheStreet.com. Mark Martinez assisted with the writing and reporting of this column. In keeping with TSC's editorial policy, neither owns or shorts individual stocks, though both own stock in TheStreet.com. They also don't invest in hedge funds or other private investment partnerships. They welcome your feedback at

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