Motors Liquidation (MTLQQ.PK): a pink sheet stock

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

See my update dated today.

2 responses

  1. I have been following this for awhile and you have it stated pretty well. How about saying something about SEC putting a limit on the number of shares that can be traded by an individual. This came out after the shares where put in the losing half of the old company.

    • Thanks for your comment. You bring up an interesting point.
      The SEC considers itself to have the limited mandate of making sure that investors have access to the information they need to make an investment decision. In contrast, its peers in many other markets, from the UK to Taiwan, take a much more active stance in trying to protect investors from possible poor decisions. I don’t think the SEC is going to do any more than it has.
      For what it’s worth, by its own lights, the SEC doubtless believes it has done a lot simply because a statement like the one it made about MTLQQ is so rare. In my 30 years of involvement in the US market, I can’t recall having seen another.

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