If you are looking for an actionable idea you can quit right away, because the BIND Therapeutics stock has been cancelled months ago so there is nothing that can be bought or sold anymore. But if you like reading something about a bizarre situation you are at the right address here.
For those who don’t know anything about the story, a little bit of background information. BIND Therapeutics filed for chapter 11 bankruptcy protection in early 2016. It managed to sell its assets to Pfizer for enough money to pay back all creditors with some money left over for equity holders. So far all pretty straightforward, but the liquidation plan came with an interesting twist. The company picked a sort of random date (August 30, 2016) as the record date of which shareholders would be eligible to receive all future liquidation distributions. As a result the stock became basically worthless after that date, but since the stock continued to be traded for some time it offered shareholders a nice way to profit twice. I sold my position for something like $0.30/share which was a substantial windfall since I estimated liquidation distributions to be roughly $1.20/share while I bought the stock around $1.00/share.
Part of the reason that the stock continued trading at an elevated level was probably the involvement of a fund that apparently bought approximately one million shares after the record date. They have been, and still are involved in litigation, against the trustee (and FINRA as well I believe) trying to change the liquidation plan/the record date for future liquidation payments. So far they have been unsuccessful, but they haven’t given up yet. Their latest move is an attempt to convert the liquidation from chapter 11 to chapter 7, presumably to make it possible to work around the the record date confirmed in the chapter 11 plan.
Equity distribution form
While this is already weird, it got even weirder this year. After paying an initial liquidation distribution last year the trustee sent a letter to shareholders that they would be required to fill out an equity distribution form and a form W8/W9 in 180 days in order to be eligible for future distributions. This piece of paperwork proved a bit tricky to complete. You needed to provide the signed tax form to your broker, and your broker needed to sign-off on the number of shares you owned on the record date. A process like this has a lot of points where things can go wrong. Your broker might not notify you of the requirement to do the paperwork, is unable or unwilling to do the paperwork, or things simply get lost in the mail.
As a result shareholders owning 75.05% of the company provided tax forms and equity certification forms. This means that a relative large part of the shareholder base isn’t getting any money from future distributions, either because of their own inattention or the inability of their broker to process the form. Based on some unhappy shareholder letters in the docket not all brokers were willing to do this. Luckily for me Interactive Brokers proved to be quite capable in handeling this weird situation. As a result the second liquidation payment contains a nice windfall profit for those who did manage to do all the paperwork. The first liquidation payment of approximately $8.0 million resulted in a distribution of~$0.38/share while the second liquidation payment of $8.0 million resulted in a distribution of ~$0.51/share.
As an added twist, because the payment wasn’t made to all shareholders it couldn’t be processed by the Depository Trust Company (DTC) and instead shareholders got a paper check. In the Netherlands checks haven’t been used in decades, and this was the first time ever in my life to receive one, but luckily my bank is able to handle them for a nice fee… It also creates a nice tax headache for those owning the stock in for example an IRA account since you are effectively doing a withdrawal from your account.
What about short sellers
Directly distribution money to shareholders while bypassing the depository raises an interesting question: how the hell do you handle this if people have lend out shares and other people have sold stock short. I think it’s mostly a theoretical question. As far as I know I didn’t lend out any shares on the record date, and I got the full payment per share. There are no issues for me. But imagine how messy it would be there would be a lot of people short. A potential scenario:
- I own 100 shares.
- I lend them out to a short seller
- He sells them to person X.
So how to deal with this situation? If I would claim ownership of 100 shares, and person X would claim ownership of 100 shares the liquidation trust is going to pay money to the same shares twice. If I couldn’t claim ownership of the shares, but only person X (I think this is the most correct implementation) I wouldn’t be able to fill out the equity distribution form. Maybe person X doesn’t fill out the equity distribution form. So there is no payment to X, and the short seller could claim that there should also be no payment to me. But lets say that I owned another 100 shares that I did successfully fill out the paperwork on. Now it’s clear that I got a certain payment per share. The short seller is supposed to pay me whatever I would have gotten on the shares if I would not have lend them out. So he would be on the hook for the $0.51/share payment. But how would that money get to my account? I know I got the payment, but it’s a paper check. My broker doesn’t know how much if any money I got and the same goes for the depository. And even if they would know, can they fix it on an account by account basis?
If this is not yet messy enough, if I would have owned all the shares and done the paperwork the distribution/share would have been a little bit lower for everybody (still assuming X didn’t do the paperwork). So maybe the short seller shouldn’t pay the full $0.51/share? Or what about the case when the short seller closed his brokerage account in the time between the cancellation of the stock and this liquidation payment. Is his broker then on the hook for it?
If anyone has anything intelligent about this to say I’m interested. Did you lend out any shares? Did you get paid on these shares? Someone who has been short this stock on the record date? Lending out shares to short sellers is supposed to be sort of risk-less. But I’m pretty sure the process breaks down in this obscure case. My guess is that either some people lend out a few shares, and simply didn’t get paid on those, or the trustee paid twice (or more) for some shares “screwing” everybody else by a tiny amount.
No position in BINDQ, yet still have the right to remain all future liquidation payments