Shares of AMC Entertainment (NYSE:AMC) are in focus after California House Representative Michael Garcia disclosed selling between $1,001 and $15,000 worth of the movie theater chain. AMC stock has declined in recent days due to the special dividend issuance of AMC Entertainment Preferred Equity Units (NYSE:APE).

Each APE unit carries the same voting rights as a share of AMC. In addition, both AMC and APE have 516.82 million shares outstanding. AMC noted the issuance of the APE dividend would “be similar to a 2/1 stock split.” On top of that, acclaimed investor Jim Chanos disclosed that he was short AMC and long APE in an arbitrage trade earlier this week. Chanos’ reason for shorting AMC may be the same reason Garcia is selling his shares.

Let’s get into the details.

Rep. Michael Garcia Sells Shares of AMC Stock

Since APE and AMC have the same voting rights and the same number of shares outstanding, Chanos reasons the two classes of equity should trade at roughly the same price. One difference between the two equities is that APE units carry preferred status. This means in the event of an AMC bankruptcy, APE shareholders will be entitled to receive payouts before AMC shareholders. Furthermore, APE units have the possibility to be converted into AMC shares. In order for this to happen, AMC’s board must propose a convertibility feature and receive shareholder approval. Chanos added:

“Functionally, the two securities are the same. And I’d guess the apes will be putting pressure on Mr. Aron, if the discount continues, to make it freely convertible sooner rather than later.”

Yesterday, AMC closed at $9.58 while APE closed at $7.13, representing a 34% difference to the upside. Today, APE is down more than 5%, while AMC is down about 1%.

Meanwhile, Quiver Quant’s Congress Long-Short Strategy is up 46% in the past year, compared with a 13% decline in the S&P 500. The strategy tracks trades of members of Congress and their family and takes a long position in stocks that have been bought and a short position in stocks that have been sold. The strategy carries a beta of 0.93 and a Sharpe ratio of 1.91.

On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.