Q is for bankrupt
My friend Tom (Hi, Tom!) mentioned this stock to me when he and his wife were visiting a week or so ago. And, yes, an added Q at the end of a ticker symbol does mean the company in question is in bankruptcy.
What is Motors Liquidation? As part of its Chapter 11 bankruptcy proceedings, General Motors separated its assets into two piles: those that it thought were economically viable, and the real junk. It transferred the good pile into a new corporate entity that is not (yet) publicly traded, in return for a 10% interest in the new company and warrants to buy 15% more. It left the junk, plus a lot of liabilities, inside the “old” GM, which was delisted from the New York Stock Exchange and re-tickered as GMGMQ. The bankruptcy court’s instructions to the GMGMQ managers were to sell what they could, pay the proceeds to GM creditors and then turn out the lights for good.
What’s inside MTLQQ?
Besides the “new” GM stock, there are a bunch of obsolete plants being taken out of service, a lot of debt, plus legal, environmental, and union claims. MTLQQ has repeatedly said that creditors are highly unlikely to be paid in full and that, therefore, there will almost certainly be nothing left for MTLQQ shareholders.
SEC filings for MTLQQ aren’t chock full of information, but I tend to believe the MTLQQ management. It would be hard to believe that in such a high profile and carefully scrutinized bankruptcy–one in which unions and boldholders are going to lose billions of dollars–there would be any value left for common equity holders. Remember, too, that common shareholders are routinely wiped out in any Chapter 11 filing.
In other words, a lottery ticket has better prospects than MTLQQ. Lotteries are set up to pay out only a fraction of what the state takes in, but that does mean something to some ticket holders. MTLQQ is set up to pay zero.
MTLQQ generates lots of trading volume…
Yet, the stock has had average daily trading volume of over 25 million shares through July and August. This big volume has gone through even after the regulators stopped trading for three days, changed the ticker from the initial designation of GMGMQ, doubled the Qs and issued a public warning that MTLQQ was worthless. Here’s a link to the SEC statement.
Where is the investor interest coming from? The SEC cites “confusing, potentially misleading information” disseminated by “rumors in fax or email newsletters, Internet message rooms or on web sites offering online stock tips.” The Washington Post also cites interest from MIchigan residents who want to support the auto industry and who are unaware of the facts, despite having the GM restructuring going on in their own backyard.
…and trades on the pink sheets
as a “Pink Sheets Limited” stock.
True, the stock is labelled as providing “limited” information to potential investors and the pinksheets website makes it clear the company is in bankruptcy. And, of course, Enron was an NYSE stock, so a listing pedigree isn’t a foolproof guarantee against fraud. MTLQQ volume was, I think, produced by a combination of laziness and ignorance as well as deception.
Nevertheless, information is the lifeblood of investing. Information is particularly important in the case of small- or medium-sized stocks. Domestic pink sheet stocks, almost by definition, lack this commodity. So the mere fact of pink sheet trading should mean that you must be especially vigilant and do your own research before buying.
November 15, 2009