worthless bond

If it's not worthless, is it still trading? If it is, just offer to sell it. If it's not trading, your latest details should be enough to deem it worthless. I'm surprised Fidelity won't take it out of your account, I thought most brokers would. Joe

In article , snipped-for-privacy@nospam.com (joetaxpayer) writes: | | | Dan Lanciani wrote: | | > I own some Holmes Harbor munis (Google if you want to see the horrible | > details) which have been the subject of years of class-action litigation. | > This year a final appeal to the state supreme court was denied and the | > lawyers determined that the case is dead. I would like to recognize my | > loss. | | If it's not worthless, is it still trading? If it is, just offer to sell | it.

I tried to place a market sell order but Fidelity cancelled it almost immediately saying that there was no market for the bond. It's annoying that they know _that_ but at the same time say they can't say it's worthless....

| If it's not trading, your latest details should be enough to deem it | worthless. I'm surprised Fidelity won't take it out of your account, I | thought most brokers would.

I've been finding Fidelity less and less helpful over the past few years. They tell me how great it is for me to be a "Private Access" customer, but I don't have access to much of anything. Any non-trivial question seems to yield an answer of "that's what the back office told us and we can't tell you anything else." I'm seriously thinking about looking for a replacement. Suggestions? Some things that would be nice:

-I'd like the ability to block unauthorized third-party ACH debits.

-I'd like to be able to sell or transfer portions of a bond position. (Fidelity merges identical bonds when you buy or transfer in but won't let you separate them again.)

-If the broker is going to track basis I'd like them to show their work. (Fidelity appears to make only downward adjustments but they won't disclose any details of how they arrive at their numbers so it's hard to discuss.)

Dan Lanciani ddl@danlan.*com

Can you find a friend who will buy it from you for $1?

Seems like it's time to find a new broker.

Stu

[...] | > I tried to place a market sell order but Fidelity cancelled it | > almost immediately saying that there was no market for the bond. | > It's annoying that they know _that_ but at the same time say they | > can't say it's worthless.... | | Can you find a friend who will buy it from you for $1?

I'm going to ask Fidelity if they will let me do that. Like most munis there days it is in book entry form only so I can't just get a certificate.

After doing a little more research on worthless security rules I'm not sure if a nominal sale is really a good idea, though. Comments I've read seem to suggest that it is more subject to attack than simply taking a firm stand and declaring the security worthless in a year when you can point to a specific event that made the security worthless where it was not previously. The loss on a nominal sale is apparently disallowed if it can be shown that the security was worthless in a prior year (just as a worthless claim would be). On the other hand, even if the security had become worthless in the year of the nominal sale, the sale may not have been legitimate (why would someone buy a worthless security?) whereas the worthless claim would have been.

One detail of the timing I would really like to clarify. Commentators state that you cannot make a worthless security claim as long as there is litigation pending that might lead to recovery. Does this mean that the security is not worthless until the litigation is finished (in which case you make the claim in the year the litigation dies)? Or does it mean that you have to wait for the litigation to die before making the claim, but the claim may still be for some past year when the security actually became worthless? In the latter case it seems that if the litigation goes on for more than seven years (which might be the case here) you are out of luck.

Dan Lanciani ddl@danlan.*com

My guess is that it's not considered worthless until after the litigation is completed. And once that happens, the determination is not retroactive. I have not researched this specific issue, however.

Stu

There used to be somebody here who offered to buy any such securities for $1. If he doesn't speak up, I'll make that offer. The sale to an unrelated party lets you close out the transaction for a capital loss, whether or not the securities are worthless (however anybody defines that).

Seth

I've been making that offer for quite a few years now, and continue to make it. But only if you are absoluely convinced they are worthless.

How does one go about selling a bond (or any other security for that matter) that is held (book entry) by a broker to an specific individual? There is no physical bond, just as there are no stock certificates for most companies anymore.

I imagine you would "simply" instruct your broker to transfer the bond to account of the purchaser. Of course, that'll probably take paperwork and signature guarantees :)

I don't think that's true quite yet.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

There are electronic stock certificates. Even the money in your bank is probably mostly in electronic form, though I don't know for sure.

| There used to be somebody here who offered to buy any such securities | for $1. If he doesn't speak up, I'll make that offer. The sale to an | unrelated party lets you close out the transaction for a capital loss, | whether or not the securities are worthless (however anybody defines | that).

The reading I've done suggests that the loss on such a sale is not allowed if the security is already worthless. I'm not clear on whether that means worthless at the time of the sale (in which case it is even more restrictive than simply entering "worthless") or worthless in a previous year (same timing as entering "worthless"). Am I missing something?

Dan Lanciani ddl@danlan.*com

| How does one go about selling a bond (or any other security for that | matter) that is held (book entry) by a broker to an specific individual?

I asked about transferring it to another account but they were (as usual) a bit vague. I think the only way to find out is to try. N.B. They obviously know that this bond has serious (perhaps unprecedented for a muni) problems. People went to federal prison. I get victim notifications about locations and parole hearings and such. Some company sends me letters about how they can help me (for a nominal fee, I'm sure) claim an investment fraud loss to accellerate deduction. (I don't particularly want to.) Overall a fascinating experience that I could have lived without. :)

Dan Lanciani ddl@danlan.*com

Many (perhaps most) muni bonds are insured. I owned a bond many years ago (not a muni) where the company went belly-up due to fraud and people went to jail. Litigation took years, but almost 8 years later I received a 4 digit settlement check -- the bond was still a large loss, but far from worthless even though it had been deemed worthless and couldn't be traded.

I seem to recall reading something at the time that the bond couldn't be sold because it was an interest bearing investment and because the issuing company was in default (and bankrupt) and the company could never pay the interest, and because there was interest due, the bond could not be traded because it actually had a negative value - anyone buying it would have to pay the accrued interest but would not be able to ever recover that interest.

That's wrong. When a company files bankruptcy, its bonds trade without accrued interest, but they still trade.

Some broker might not have been able to handle it, so they said it couldn't trade.

Seth

It would be "worthless in a prior year". If you have a security that became worthless in 2004, and you forgot to take the capital loss then, you can't take it now by selling. If it wasn't clear at the end of last year that it was worthless, you can take the deduction by selling it now.

Seth

You have seven years to amend for discovering a worthless security.