It happens.  And then lawsuits are filed if the party being diluted put real money into the deal:
  <a href="http://paidcontent.org/article/419-ebay-finally-loses-cool-sues-craigslist-over-stake-dilution/" rel="nofollow">http://paidcontent.org/article/419-ebay-finally-loses-cool-s...</a><p>In the case of common shareholders, the opportunities for redress are substantially less.