On this page folks should comment and write about illiquid securities–preferreds and baby bonds. By Illiquid I am talking about those issues that seldom trade–or only trade in very small volumes.
We have a lot of discussion on the site about these types of securities–normally $50 and $100/shares issues and the commenting gets scattered about–by using this page we can keep this topic more centralized.
A caution to all investors, but in particular those will little experience in illiquid securities. Tight limits must be used on all of these securities–if you don’t use limits you will butchered. Also while some of these issues have been outstanding for more than 50 years they can still be called–it happens and if you overpay (pay more than liquidation price) you may be setting yourself up for a loss. Always do your own due diligence–always double check the facts–everyone makes errors (certainly I do) and you need to know the facts.
Investors should know that illiquid securities will drop like a rock if there is a large move higher in interest rates. One of my current and long time holdings has been a $50/share issue from CEF Tricontinental (TY-P or TY-) with a 5% coupon–very high quality. This issue is now trading around $56, but in its life (issued in 1963) it has traded as low at $18/share–so there should be no doubt they can move sharply.
Bought two lots (one odd, one 100 shares) of GMLPF at $10.45…..put in limit orders of $10.60. Just an FYI, and it goes ex sometime around Aug 7th (cross posted in Reader’s Alerts).
GMLPF is a $25 par preferred with last OTC trade at 9.60 on a big volume today? What is it? Looks scary.
GOLAR was a LNG shipper before combining with NFE (New Fortress Energy).
Since the transaction NFE has sold off or placed the boats within downstream assets. Essentially GOLAR is a shell with $0 revenue.
NFE has promised to continue paying the dividend. So far so good. While projects complete and expensive construction loans are getting refinanced with secured long term debt. Non-core asset sales continue to deleverage the balance sheet.
“Hope” is that GMLPF gets called as part of the refinancing activities that are ongoing. (High risk yield bucket).
Hey micahc, where did you see that NFE promised to pay the dividend?
NFE website
Investor relations under GMLPF
Look at April 29, 2024 financial statement. Read a section under going concerns on page F-9.
Regarding MSEXP, Broadridge says :
……..At this point Broadridge cannot debit DTC’s balance and credit the shares into an account on our records. DTC is actively working to reconcile their position and cancel their certificated position so the shares can be delivered electronically ……
So we wait.
Thanks again for posting these updates LT.
This is one of the weirdest stock situations I’ve been involved in.
Terra Capital has two senior notes maturing in 2026. TPTA yields around 26%, while TFSA only yields around 11%. Does anyone know why the yield differential is so large?
GS:
TPTA, a 6% note at today’s close of 17.81 pays 8.42% interest not 26%.
I was quoting yield to maturity, not current yield. These are notes maturing in 2026.
Obviously investors concerned they might not be able to redeem it. Trading around 12 recently.
Regardless, i would be skittish on both. They had a big default on an office loan in Georgia. They have another loan that is not up to snuff with interest payments as well. This is a small company, so that loss is huuge and impacted them for a good sized net loss for the year.
I would rather put the money on a black jack table. Or maybe on that wheel that goes round and round and dump it all on red.
Assuming both notes are equal in a default, you can go long TPTA and sell short TFSA and pick up the yield differential if there are no defaults. If there is a default, you are roughly break even. But I’m not sure if they are equal in a default situation.
Their fees are very large in the terra income fund 6 in proportion to the income. It also had a net income loss this year. The interest income dropped by a fair amount, and you have 1/2 of the income going to management fees. This is why it is lucrative to be an external manager. Yikes.
I see a 32% borrow rate at IB. Perhaps Fidelity is less.
When I made my living trading arbitrage , this is the type of thing that would interest me. The secret sauce is finding the lowest borrowing source. If the security has euro-style options you could borrow through the options market with a box trade. This doesn’t.
I recall we gave up trying to arbitage preferred stocks a year or so after the financial crisis due to gaming of the borrow system. It’s very simple to make a stock look easy to borrow, with a low rate, by transferring your paid up securities from a cash acct to a margin account.
We found that we’d establish a position in an easy to borrow preferred and a few days later it would become hard to borrow with a high rate because the lender would move the securities to a cash account forcing a buy-in
GS, I wouldn’t consider TPTA and TFSA illiquid preferred. Your post should have been in the REIT section. And no, I am not the Nanny police but I have been noticing a lot of posts lately that seem to be outside the forums Tim set up. It makes it hard to follow posts on illiquids and REITS when the posts start to get jumbled up.
I have asked this question too in the past. The baby bonds have the same risk profile. TPTA merged with TFSA back in 2022 and there should not be such a huge spread. I swapped my TFSA into TPTA to take advantage of the better YTM. Either TPTA will increase in price or TFSA should go down as maturity approaches.
I have reviewed the financials and watched the recent presentation on their website. I am comfortable with how the company is doing and expect these to be redeemed at par in 2026. They will likely issue new senior notes to cover the redemption.
Somebody dumped some HAWEL (1,200+ shares traded). Ask is 15.50 or 6.45% yield
7/24/24 MSEXP update:
I spoke with Bill Otteson at Broadridge. He’s the person referenced in my previous comments as talking to DTC about making the security DRS eligible.
Per Mr Otteson, the security cannot be delivered to Broadridge because Broadridge sees it as requiring physical certificates.
I’m not at all sure when the preferred originated, but my understanding is Broadridge had not handled a transfer in 15 years they have been the transfer agent.
Please understand I was headed out the door and then got in an Uber while chatting with him but my understanding is DTC has to decide to to convert the physical cert requirement to book-entry.
he told me he’d call me when this is resolved.
I’m not at all worried this won’t eventually get solved , but I pointed out nobody actually has good delivery since the certificates were not delivered.
In the meantime the trader I know has been accumulating the position through his firm’s account in, I presume what may be an effort to scoop most of the remaining 9000 outstanding shares .
I’m no expert on back office operations but I was registered as a firm trader or partner in a firm for 12 years abd my experience is a very close relationship develops between traders and people in the back office. We knew them personally. That is not going to happen with any retail brokerage, so any info I now receive through another person comes from someone in his back office who is highly experienced.
Despite this I have a very small position and may decide I’m tired of dealing with this at any point.
PRE-J was much less hassle.
I will update when i hear something
From an annual report. Prob 2015s from MSEX. So about 10 years ago someone did a conversion. With physical certs? Probably considering how much was converted. I think the preferred was issued in 1992 if I recall correctly.
“In 2014, 4,293 shares (approximately $0.5 million) of the Company’s no par $7.00 Series Cumulative and Convertible Preferred Stock were converted into 51,516 shares of common stock. ”
As for me.. I have nothing but time. I will see this through.
Thanks for the update LT.
The preferred originated back in 1992 as part of MSEX’s acquisition of a company known as Tidewater.
It”s a late notice, but I’m struggling with this one.
Can anyone explain to me why I should take this offer? I still own some 30 of these preferreds. I don’t see why this offer would be profitable to me.
I think I’d rather sell them than convert them.
I understand they are merging and when I don’t take the offer the preferreds remain outstanding. Question is then, where? And can you ever get rid of them in future or will they keep paying dividends?
Via Renewables, Inc. Announces Optional Conversion Rights for Series A Preferred Stock for $8.07 Per Share in Cash
HOUSTON, June 27, 2024 – Via Renewables, Inc. (“Via Renewables” or the “Company”) (NASDAQ: VIASP), an independent retail energy services company, announced today that it has provided notice (the “Notice”) to holders of its 8.75% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) of an optional limited change of control conversion right (the “Conversion Right”), available at the option of the holder, for $8.07 per share in cash.
As a result of the closing of the previously announced merger contemplated by that certain Agreement and Plan of Merger (the “Merger Agreement”), dated as of December 29, 2023, by and among the Company, Retailco, LLC, a Texas limited liability company (“Parent”), and NuRetailco LLC, a Delaware limited liability company and wholly-owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub was merged with and into the Company (the “Merger”), holders of the Company’s Series A Preferred Stock are provided an optional Conversion Right.
As described in the Notice, the Conversion Right provides holders with an option to convert their shares of Series A Preferred Stock into $8.07 per share in cash. The Conversion Right is optional at the holder’s election. A holder may choose to exercise its Conversion Right in whole or in part, or may elect not to exercise its Conversion Right at all, in which case the holder’s shares of Series A Preferred Stock will remain outstanding. The closing price of the Series A Preferred Stock on June 26, 2024 was $24.04 per share.
Holders will have until July 26, 2024 to exercise their Conversion Right, and the Company expects to settle any exercises on the third business day thereafter, or July 31, 2024.
A copy of the Notice is available as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on the date hereof.
I think the answer is something like, “no, you shouldn’t take it, but they are contractually obligated to offer it to you.”
If you have +/-30 shares, I would imagine your total investment is +/-$750. For $750, I would just hold on and see what happens. Something I should have done with SJIJ.
But that’s just my way of thinking about it.
Question: Can anyone advise what HMLPF traded at when it was listed?
I can;t seem to find it.
losingtrader–it was a $25 issue. Here is a chart going back–you can scroll it to what ever you wish.
https://innovativeincomeinvestor.com/security/hoegh-lng-partners-8-75-series-a-cumulative-redeemable-preferred-units/
Thanks, Tim.
Also – the “Historical Data” page in YahooFinance.
I set the beginning date to 1/1/2022 (the default beginning date is only about 1 year, when HMLPF was already expert market).
https://finance.yahoo.com/quote/HMLPF/history/?period1=1640995200&period2=1721829200
On 1/3/2022, it closed at 21.25.
On 12/6/2022, it fell more than $5 (from 20.95 to 15.56), on huge volume.
Tim,
Thanks so much.
Is anyone still trading HMLPF on any of their brokerages?
MSEXP conversion news: I’m reliably told the shares are not presently deliverable to Broadridge using any available brokerage transfer method. The shares are apparently not deliverable usinf DRS or DWAC-1 and are not eligible for DRS according to a message I received from a trader I know.
I’ve been advised someone is working to make the shares DRS eligible.
These are messages from other firm back offices. Get your own facts.
MSEX told me they are checking into this.
I will say the company is legally obligated to convert these by an available method.
regarding MSEXP:
I can’t seem to do a copy paste but the message I was copied on was from Broadridge Corporate Actions Event Management that they are working to have it made eligible
I would be very interested in seeing that message if you could get it to copy and paste somehow, losingtrader.
It matches what Fidelity has told me. They said there is a hang-up between Broadridge and Middlesex and that Broadridge is on notice they need to provide conversion instructions to put in Fidelity’s system when that is ironed out. Until then there is no movement.
It sounds like Middlesex provides a manual, Rube-Goldberg conversion process and some of the brokers (and maybe Broadridge) are not going along with it. Someone needs to clarify exactly what Middlesex is trying to do to clear this all up.
The delay has made it to where people can still get in and make a decent amount post conversion, or as the preferred price rises to meet the conversion amount.
ScottR,
Sorry, I’ve gotta take the car to be fixed and the dog for cancer surgery and don’t have time to figure it out. Take me at my word , Broadridge is working on it
Oh, I don’t doubt you, and I am sorry to hear about your dog. That is a terrible thing and I hope things go well for you at the vet.
I was just trying to compare wording of what we are all being told and maybe have something I could share with my own broker if need be.
Thank you for sharing what you could.
I’ll update when I hear something. I suspect IR person at MSEX is involved
scott r,
I can’t copy/paste to this website AFAIK.
Text is from Bill Ottesen at Broadridge saying he’s in communication with dtcc to have the cusip made “DRS/FAST eligible’ and will update when he hears back from their underwriting team
Concerning MSEXP conversion.
I think it was July 10th or so I called Ally to convert my shares. About 5 business days passed and I got an email explaining I had to print out a form (letter) and physically sign it. It was a notice of conversion. Like a conversion demand letter basically saying: I hold this many shares of FOO and I want to exchange it for 12 BAR. It listed CUSIP numbers and other exact terms.
So my preferred will be canceled upon conversion, common stock issued will be held by the transfer agent, and considered restricted. Middlesex will work directly with Broadridge to authorize the conversion and lift the restriction.
The conversion date shall not be earlier than 45 days or later than 90 days from the date of this demand letter I dated 7/15/24.
Well I scanned the doc and sent it back to Ally. A couple of business days later I got an email saying they have my form and forwarded it to the right party to process it. I am not sure if that means internally or sent off to Broadridge. I imagine they need some time to send it off so 1-3 days is probably internal processing.
There is really nothing much I can do at this stage but wait and watch MSEX go up and down in price.
Thanks much FC!
That fills in a lot of the gaps in explaining why there’s such a spread between [MSEXP] and [MSEX * 12]. The conversion timeline is long. From the day you buy MSEXP here’s what you’re looking at in order to convert into MSEX that you can actually sell:
2 days for the trade to settle, plus
~3 days to transfer the MSEXP to Broadridge, plus
45 days notice for Broadridge to convert to MSEX, plus
180 days (minimum) for the Rule 144 restrictions to drop off
So all-in that’s at least 230 days before you’d be able to actually sell.
It’s still a lucrative trade, even at these levels (MSEX is easy to borrow if you want to hedge), but a bit annoying to have to handle all this stuff.
Has anyone obtained advice they consider reliable to indicate whether the conversion (if in MSEXP is held in a taxable account) is or is not a taxable event? I believe it’s not, but I’m no expert.
If you mean did I pay someone for advice or sought someone in a position who is qualified to answer it without me paying them? No.
What I read online was the time of purchase of the preferred is the start date for when considering long term cap gains. Not the conversion date. Also a conversion is not a taxable event.
where did you get 180 days for the rule 144 restriction?
I have heard the company delivers the shares and thy cannot be sold for 45 days.
Comes from a reliable back office
I’ve also heard –I believe that firm processed some but good luck getting anyone at a retail brokerage to have any clue what to do. I’ve got a few calls in to see whats going on
losing, this should help you from our friends at the SEC https://www.sec.gov/about/reports-publications/investorpubsrule144
“Often, the more money you make the more money you spend; that’s why more money doesn’t make you rich – assets make you rich.” – Robert Kiyosaki
Hmmm.THANKS. But. Here’s the way it would look at a professional trading firm:
They short MSEX, buy the convert, receive restricted shares, then the short and long shares should offset except for a small rate differential the clearing firm applies. The short earns interest to finance holding the long so there’s no or little effective cost to hold 180 days.
If you think otherwise,please let me know.
I dont think it would work that way. You can’t use restricted stock to settle a short, because that would mean giving the shares to the stock lender and you can’t transfer restricted stock. Plus you would have 100% margin on the long restricted side (since it can’t be sold, it’s non-marginable), and if the stock went way up, you could get a margin call on your short position and not be able to cover it with the restricted long. Sure you’d break even eventually, but you might not make it to “eventually” if you get margin called first.
You would also have to pay the full borrowing cost the whole time on the short side, not that it’s at all expensive currently, since you can’t lend the restricted long as an offset.
Xerty, the restricted doesn’t settle the short. It’s merely a placeholder to prevent a loss in the arb. Once it’s unrestricted it can settle.
Other comments:
1)” if the stock went way up, you could get a margin call”
The firm I know about has hundreds of millions in capital. It’s a broker-dealer. This isn’t an issue
2)”You would also have to pay the full borrowing cost the whole time on the short side”
I’m not sure what you intended to say. I EARN interest on short sales. There’s a negative borrowing cost.
Comment?
1. good for them, but it’s a risk factor to consider. I doubt such a firm would be interested in an OTC situation that trades less than a round lot most days.
2. I guess you’re not shorting as bad companies as me. Short borrowing costs and the broker’s spread reduce your interest earned on short proceeds below risk free generally, and often becomes a negative interest rate (ie net cost to borrow) after that. DJT for example costs 10-15% to borrow now, but cost >100% annually a few months ago.
Borrowing rates are also floating and not locked in, so they can rise during the duration of a longer trade, and that (together with the convexity of a possible rising stock price of your short during a squeeze or the like) are other risks to consider.
All true except on #1 The firm has traders whose Y is a largely percentage of their earnings. The firm doesn’t care how small the trade is.
OK. I waited to see if this conversation played out and I understood what was being said about shorting. Well I did not understand.
You do not earn interest shorting someone else’s shares. You either can do it for nearly nothing (but not zero) to quite high interest rates. I have never heard of borrowing someone else’s shares, selling them, and getting that ability while earning money. On top of that whoever sells (shorts) a dividend paying stock is also on the hook for the dividend as well.
If you borrow someone your shares for “them” to short you get paid. So if losingtrader already owns MSEX.. sure.. he will get paid.
I doubt any firm, as a service, will do that for free unless you are already paying some ridiculous amount to have the privilege to do business with them.
I welcome input if I am incorrect.
> You do not earn interest shorting someone else’s shares. You either can do it for nearly nothing (but not zero) to quite high interest rates. I have never heard of borrowing someone else’s shares, selling them, and getting that ability while earning money.
You absolutely can. I’ve done it. For most retail brokers it doesn’t work this way, but here’s an example you can do at IBKR:
1. Short 100 shares TSLA (borrow rate 0.3%)
2. Take the $22,000 proceeds and put it in SGOV or a MMF or even just leave it in the IBKR account which earns ~4% interest.
You are of course at risk of fluctuations in TSLA (or whatever stock you use here) but if TSLA stays flat you’re earning an interest spread between SGOV and that cheap 0.30% borrow.
Fc, Ochongusu is correct. One side note – Shorting in schwab is a pain because you need to take extra steps to ensure the cash isn’t re-invested in their low yielding sweep/credit account.
If you want more information, just google “securities lending.” It is a similar concept and a massive industry. Happens more often than you think, including with vanguard.
https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/client-centric-approach-securities-lending.html
And there is my misunderstanding. During the discussion a step 2 was assumed but never really spoken out loud.
“Hmmm.THANKS. But. Here’s the way it would look at a professional trading firm:
They short MSEX,”
This is what confused me. The “they” and other aspects not mentioning who pays the dividend. Sorry. I should have thought this through better and thank you for the schooling.
Sorry it took so long for me to see this conversation was continuing.
fc said :”You do not earn interest shorting someone else’s shares. You either can do it for nearly nothing (but not zero) to quite high interest rates. I have never heard of borrowing someone else’s shares, selling them, and getting that ability while earning money”
O Chongusu said : You absolutely can. I’ve done it
Here we have the difference between a professional or pro-style trading account and a retail broker. When you short, money comes into your account. Most brokers don’t give you interest on that. IB told me you don’t earn interest on the first 100k of short proceeds; I’m not sure what other retail brokers do,
In a pro or pro-style account you set up with a clearing firm or proprietary trading firm, where you pay for software, “professional” fees for quotes, etc, the rate earned on short sale proceeds is part of a total negotiation since the clearing firm does receive full interest. It’s just cash to them like any other cash.
If a trader who is a “firm trader” registered in the industry shorts a stock, the differential between his earning rate on cash (including short sale proceeds) and the borrowing cost for long positions, could be anywhere from 0 to 1.5 pct. More than that is a ripoff. A firm trader isn’t subject to Reg T, so he operates with whatever buying power the clearing firm wants to let him have. When I cleared trades as a firm trader, I often had leverage of 100-1 …and I’ve had more than 1000-1 trading a merger deal where I “load up” against a published imbalance on the final trade of the day the target trades (on the day a deal is completed shares typically trade through the end of the day). This is about as riskless a trade as exists , as all one has to do is wait for the shares to settle and the long offsets the short.
As an aside ,I’ve questioned Fidelity on this because I’ve reinvested proceeds from the sale of a Euro-settled S&P index box trade (this is a market based borrowing transaction using index options as opposed to actually paying outrageous margin rates) and it seemed like there was no restriction on using the proceeds or reinvesting them.
The .3 rate on MSEX at IB merely reduces earnings on the cash proceeds. IB likes to make money…. Just like Schwab’s gaming of the interest on it’s cash account.
I encourage O Chongusu to question IB about the first $100k in short proceeds. I have my position there, and will move it elsewhere shortly as soon as I verify Fidelity isn’t restricting interest on short proceeds
This is how I’m structuring this trade over at IBKR. (Size is fudged a bit for privacy but it doesn’t change much.)
1. I bought 100 shares MSEXP.
2. I shorted 1200 shares MSEX. The borrow rate is roughly 0.30% per annum.
3. Between the 45-day conversion notice and the 180-day Rule 144 restriction, the long MSEX will have to sit in the Broadridge account for at least 225 days.
4. After that’s done and the shares are no longer restricted, DRS the shares from Broadridge to IBKR to close the short.
There’s a negative carry (as in, the trade bleeds some money out) in two places:
1. The yield on the preferred is lower than the yield on the common, so I end up paying the difference for one quarter.
2. The borrow on the MSEX is 0.30%, which is not a huge number but it’s still there.
Otherwise the trade is indifferent to what happens with the underlying price of MSEX (the big exception being if it skyrockets, which would increase the borrow cost and may have margin implications, but generally speaking a water company won’t double overnight).
The other annoying risk is that the company drags its feet in removing the Rule 144 restriction after 180 days. It’s not an automatic thing and given how bumbling they’ve been so far, it’s worth worrying about.
Bottom line, it’s a pain in the neck, but that’s why there’s a >10% price spread between the preferred and its equivalent number of common.
I tried reading the rules for 144 restriction and I see where he got the time line but I won’t pretend I even understood it after a single read through. I have no idea if those rules apply to our situation.
PRE prfd J has traded 1.2 million of the 8 mill float on the final day of listing.
All blocks on upticks
Just picked up 250 of CKNQP (Cobank) at $99.00. If called on 1/1/2025 it will return $4.10. If not called, then it will float at approx. 9%. Seems like a good safe deal!. Good luck
Who’s you broker? Schwab made me call to talk to a broker, and after waiting on hold for 10 mins, they said it’s a 144 offering, and only for those w/ $100M+ institutions.
Fidelity. They allow trading on many of these companies.
Schwab has it setup wrong on their security master.
https://www.otcmarkets.com/stock/CKNQP/overview
I just entered a trade just to see if it would take at E-trade.
AILLO offered @ $69, or 6.15%.
NSARP bid $73.50, 5.78%
Yikes, wish i had some to give!
MSSEL was offered yesterday at 56, but of course I can’t access (yet).
What do you mean by you can’t access it yet? Schwab looked into it and said that the company is restricting trading to only allow closing transactions. I asked how they can do this and they said the company has the power to do it and they’ve see it before (like with meme stocks). Anyone able to buy MSSEL?
This may seem like a stupid question but what is it with churches and the bond market? Not that I am interested in buying a certain bond, but I wonder if any company has done a study on the default rate on church bonds? There seems to be an over abundance of debt related to churches.
fysa, PNMXO was up 6.6% today on 300+ to 80, still yielding slightly more than 6%.
I have a different calculation. Pays $4.58 a year dividend. $4.58/$80 = 5.725%
Steve, you are correct, my bad, think I was looking at YoC. thanks
One last comment on MSEXP and Las Chicas.
It appears due to the June 24 SCOTUS ruling (Jarkesy), SEC cannot impose fines for fraud without a trial
Can someone please explain to me what the “expert market” is ? I’ve been a trader for decades and never heard the term until I came here.
Is it just OTCBB?
@losingtrader – Hi, sure, I’ll take a stab at this. It originated in the September 30, 2021 changes to SEC Rule 15c2-11, which was supposedly enacted to protect retail investors from penny stock pump-and-dump schemes where up-to-date financial statements were not filed.
The unexpected consequence of the rule is that certain preferred stocks and baby bonds issued by companies who decide to stop filing financials with the SEC have now “gone dark” and trade on the expert market. This is true even though many of these companies continue to provide audited financials on their own web sites.
Here’s an example – have a look at HMLPF. The company was taken private in 2022 and the common shares were delisted. In December 2022, the company decided to delist the preferred shares, then known as HMLP-A. Upon the delisting, the shares moved to the OTC market and the symbol changed to HMLPF. They traded as “pink, current” for a month or so, then were moved to the so-called expert market in February, 2023. Here’s the current description for the situation:
https://www.otcmarkets.com/stock/HMLPF/overview
Note this text in particular:
_____
Warning! This security is traded on the Expert Market
The Expert Market® serves broker-dealer pricing and investor best execution needs. Quotations in Expert Market securities are restricted from public viewing. OTC Markets Group may designate securities for quoting on the Expert Market when it is not able to confirm that the company is making current information publicly available under SEC Rule 15c2-11, or when the security is otherwise restricted from public quoting. See additional information about the Expert Market here.
_____
One unexpected result of this situation is that most US retail brokerages decided to “protect” their retail investors by making the policy decision to no longer allow purchases of these securities, only sales. Quotes are no longer provided, either. The result is as you might expect – reduced liquidity and opaque pricing.
There have been some exceptions that have arisen in recent months and years. First, Fidelity (and I believe this is unique in the US retail brokerages) does allow purchases in these securities. And Interactive Brokers shows quotations for these so-called expert market securities, as well. So someone who is determined to exploit the resulting high yields of these securities can do so at Fidelity, guided by IBKR quotes.
Sorry to go on so long, but that’s my understanding of the situation. Jason Zweig at the WSJ wrote an article about this shortly after 15c2-11 was enacted:
https://www.wsj.com/articles/an-sec-rule-was-meant-to-protect-individual-investors-chaos-ensued-11633705328?st=57djqunpmjxiynp&reflink=desktopwebshare_permalink
(Note the reference to the Innovative Income Investor web site in the article!)
Thanks so much.
Well, I do see quotes on HMLPF on IB, but only allows closing trades. That seems the opposite of what OTC markets says.
BTW what is the par on that? It seems like a great buy if it’s $25 as they make money every quarter
Great post @ESW3. My amateur dive into the regulation leads me to believe that quotes are more regulated than actual trading. Have you heard of any other brokers besides Fidelity that will trade EM securities?
Well thank you, YH! I read somewhere that full service brokerages may allow trades in EM securities. I have not personally checked any of these, but OTC Markets publishes a broker-dealer directory that could serve as a starting point:
https://www.otcmarkets.com/otc-link/broker-dealer-directory
Shortly after 15c2-11 became effective, I asked the same question to an acquaintance who runs a private capital management firm. He wrote back and said: “Wedbush is one to try. Odeon for more institutional-type capital. Robotti as well.” Another friend of mine has a US brokerage account with Royal Bank of Canada. He inquired about this, and RBC confirmed that they would allow EM trades, but they would have to be done manually by the brokerage (no online capability, so you can’t DIY).
My own EM trade confirmations at Fidelity used to show that the orders were routed through GTS Securities, though for some reason that routing message no longer displays. GTS is on the OTC Markets list – https://gtsx.com/.
I will be very curious to hear what others here have to say on the topic.
RBC is how I got my Ocean Spray shares. Going through one of their brokers is a very steep fee though. As in that case it can still be worth it if you can get something well under what the market rate would be for it and you intend to hold it. And it being called was just icing on the cake for me since I got it around $14 or so IIRC.
Scott – I may open an account. Happy to pay heavy fees if it leads to cheap purchases. Do you blindly call them up to see what is available? Or look at fidelity (or another broker) to get a sense of what’s on offer.
Also, does anyone have a handy recollection of the names that went to the expert market? I know I could find it via search, but this search is tedious. Thanks..
Maine – before 15c2-11 went into effect, the various brokerages published restricted lists, itemizing the names they expected to “go dark” on the September 30, 2021 effective date of the rule. I can’t seem to find these lists online any longer, but I did save a copy. Trouble is, it’s outdated now, and these published restricted lists were also incomplete – they missed numerous names that went to the EM. (You may recall that quite a few shareholders were blindsided by open limit orders that “hit” when the rule took effect and the stock prices plummeted.)
However, if you go to this URL, you can produce your own customized list of expert market shares:
https://www.otcmarkets.com/research/stock-screener
Under Markets, select “Expert Market”
Under Security Types, select “Preferred Stock”
I see a total of 53 in the list.
This filtering process will get most of the widely-discussed preferred stocks, but it misses baby bonds (for example, the Amtrust bonds – AFFS and AFFT, and the Ladenburg / Osaic BBs).
Follow the same process and filter for “Other Security Type” and you’ll get the Amtrust baby bonds; filter for “Structured Product” and you’ll get the Bellsouth name KTBA and the Ladenburg / Osaic BBs LTSF, LTSH, etc.
I hope this helps.
Expert market preferreds/babys/term preferreds as of 7/12.
Format is ticker, type (pref/baby), payment status, last official trade date
Payment status might not be up to date, so double check all of this before making any investment decisions.
AATRL, Baby, Paying, 7/12/24
AFFS, Baby, Paying, 7/2/24
AFFT, Baby, Paying, 7/11/24
AFSIA, Pref, Paying, 6/24/24
AFSIB, Pref, Paying, 7/9/24
AFSIC, Pref, Paying, 6/17/24
AFSIM, Pref, Paying, 7/9/24
AFSIN, Pref, Paying, 7/8/24
AFSIP, Pref, Paying, 7/9/24
CHRB, Baby, Paying, 7/8/24
CTGSP, Pref, Paying, 5/31/24
FRCCL, Pref, Suspend, 7/12/24
FRCHL, Pref, Suspend, 7/9/24
FRCIL, Pref, Suspend, 7/8/24
FRCJL, Pref, Suspend, 7/12/24
FRCKL, Pref, Suspend, 6/24/24
FRCLL, Pref, Suspend, 7/12/24
FRCML, Pref, Suspend, 7/12/24
GMLPF, Pref, Paying, 7/12/24
HMLPF, Pref, Paying, 7/12/24
KTBA, Baby, Paying, 6/21/24
LEHKQ, Baby, Suspend, 5/15/24
LEHNQ, Baby, Suspend, 5/15/24
LTSA, Pref, Paying, 7/11/24
LTSF, Baby, Paying, 7/8/24
LTSH, Baby, Paying, 7/12/24
LTSK, Baby, Paying, 7/2/24
LTSL, Baby, Paying, 7/11/24
PSBXP, Pref, Paying, 7/11/24
PSBYP, Pref, Paying, 7/12/24
PSBZP, Pref, Paying, 6/10/24
SICPL, Pref, Suspend, 7/10/24
SIVPQ, Pref, Suspend, 7/2/24
SLMNP, Pref, Paying, 6/17/24
What’s nice about SLMNP as an expert market preferred is, what with its existing put, you don’t have to worry about having to sell it in the expert market, only buying it… you always know the worst case sale price
I only traded that one issue with them. I have an account there for other reasons and I knew when the Ocean Spray preferred went dark I would be able to get a good price so I asked my broker if he could get it and he could. I was pretty tickled with myself for finding the workaround. I knew what price to expect before I had him check but I can’t remember where I got it from. It was just after going dark so I had the previous trade prices to go by too.
I don’t think they have a retail account where you can get this done, but I negotiated what is essentially a no fee account for what I do there with a broker. You will need to call and see what you can set up. My guy was really flexible.
Thank you ESW, Tex, and Scott! I’ll keep you posted if I have any luck.
Hello Scott,
Have you had your RBC account for a long period of time? There are many restrictions on US citizens/residents opening account. Could you provide any insight on how that process was (were you a Canadian resident)?
You want RBC Wealth Management. It is a US company.
Lay of the land:
1) We will stipulate in our hypothetical case, there was zero illegal market manipulation, pumping/dumping, using insider knowledge, etc.
2) Anybody can file a whistleblower complaint with the SEC for FREE. The risk reward for the filer is high, with the possibility of receiving a payout with ZERO out of pocket expenses. This is as opposed to many other types of litigation for example personal injury or patents. If you want to sue someone over those, somebody will be out legal expenses at a minimum.
3) It is unknowable which cases the SEC decides to investigate and/or prosecute.
4) If the SEC files a complaint against you and/or your firm, you will need professional legal counsel. You do NOT want to just tell the SEC “there is no merit to this case.” “Better call Saul” is the plan.
5) When you retain a securities lawyer, it is unknowable what the initial retainer fee will be. It ain’t zero. Pure guess is the first check you write will be in the $25k to $100k range.
6) Given the option of paying a retainer fee, some people/firms decide to settle the case and pay a “nuisance fee” reasoning it is a less costly alternative.
7) If you say “I did nothing wrong/illegal” and will fight this until I am cleared, you might pay substantial legal fees.
8) Yes, those are tire tracks you see across my back.
Tex,
Why are you posting this? Based on the past.. I would not even think the person I read who posts as Tex would even consider posting this nonsense here in the ill area of the forum.
Actually, my securities lawyer is named Saul. Really. He charges $1200 per hour . I have not called him in a long time but it cost me $63,000 to respond to a random SEC inquiry during the financial crisis where SEC demanded, from all firms, every email in which the registered member mentioned any of 8 different large banks. It was a fishing expedition to try to prove bank failures were a result of spreading false information.
Funny story…Saul said he had been charging $900 per hour but big securities firms were wondering what’s wrong with a guy who could only get $900.
Tex, Thank you for sharing the truth. There is nothing fair or just when it comes to the USGOV/Agencies vs. common citizen. I share your philosophy. IF I am ever accused of anything, I will show humility and engage an attorney. From Martha Steward to thousands that thought they could ignore/dismiss a federal employee, lesson painfully learned.
I think this post was in no way inferring any illegal actions. It was simply stating a sad fact. If one is approached by the SEC, show humility and engage with a securities lawyer.
PS I never look at the illiquid section but these numerous posts grabbed my attention. I will be interested in the tax treatment for those that convert.
Does anyone know why brokers can’t calculate Yield correctly on illiquid preferred’s? TDA and now Schwab seem to be unable to understand how to calculate that simple function and display it properly.
I find this site to be very informational, but sometimes it appears that nefarious/market manipulation may be occurring from time to time as it pertains to these thinly traded illiquid securities.
A recent example is VNORP. Someone posted on 7/3/24 that they had purchased a position of 200 shares of this very thinly traded convertible preferred security at a price of $45.50 and that it was undervalued based on its 1.9531 conversion ratio with the common VNO. Those 200 shares were the only volume in VNORP on that trading day. The last time VNORP had traded was on 6/27/24 with a volume of 76 shares at a price of $45.21.
After this information was disseminated to the readership on this website for two full days, the bid price on VNORP opened at $49.75 on Friday, July 5th, a full 9% above the last traded price. Since this security only has 13,000 shares outstanding, I assume this very large jump in the bid price had something to do with the 7/3/24 post to the readers on this website (which likely has thousands of users?)
On July 5th, VNORP had no trading volume. On Monday, July 8th, VNORP traded 100 shares at a price of $51, and on Tuesday, July 9th, 200 shares of VNORP traded at a price of $50.75. These 300 shares were the only volume in VNORP from 7/5/24 – 7/9/24. VNORP so far has not traded on 7/10/24.
Of course I have no knowledge of whether or not it was the original poster that sold their 200 shares for an 11.5% return and a very quick $1,000+ gain, but it does look very suspicious – since this security has almost no daily trading volume.
Was this a quick pump and dump? Anyone that was interested in buying this security at a price near $45 now has to pay 11% higher, and the original poster may have already sold their shares (the dump) after making readers aware of it via this website (the pump). The value of VNORP versus the common VNO has now almost completely evaporated.
I’m not sure if this situation qualifies for market manipulation of an illiquid convertible preferred security, but I guess we’ll have to wait and see if the SEC decides to investigate it further, as a whistleblower complaint will likely be filed.
> I’m not sure if this situation qualifies for market manipulation of an illiquid convertible preferred security, but I guess we’ll have to wait and see if the SEC decides to investigate it further, as a whistleblower complaint will likely be filed.
It doesn’t, and you are wasting your time.
Please describe how stating the basic math underlying the preferred to common conversion constitutes the fraud.
An III’er does his own research and uncovers from sources available to anyone info available to anyone. Others, aka, Mr, Market, haven’t. The III’er shares his find in III and gives his rationale as to why it’s worth more than he paid…. Others then do their own DD and decide he’s right… Not only are they thankful for III as a venue and the III’er as the contributor, for having presented public info available to anyone, they DYOD and decide to buy…. Blow that whistle.
Hi Las Chicas,
I never hurts to wonder about investment ideas from this forum so I will take your post in good faith.
I come to this site to learn ideas and post some, hopefully better for many along the way. It all comes w the same caveat of DYODD. Nobody should read any site and simply buy, especially at market orders.
With all that said, I can’t think of a better poster than Gridbird. I have no personal relationship with Grid. I have just followed him for years, first on SA and now here. I especially find his notes on these illiquid preferreds as very valuable. With that said I always do my own due diligence, and I always know ALL THE POSTS HERE ARE PRICE SENSITIIVE, after all this is a bond/pref forum where price has a very large impact on the yield.
So when Grid writes a post or other posters on the Illiquid forum, it is almost always about the specific price. I am not sure how you interpreted his post to buy it at any price.
I do stuff like this all the time:
I score an illiquid at an attractive price. I post it on this site to share, both knowing that others may find it attractive at that price and knowing anyone would do their own due diligence before purchasing. if that same stock shoots up in price later, I will not hesitate to sell. This is not a “pump and dump.”
This is not my most well written post.. so please excuse its length. I am on the phone w Schwab trying to do the MSEXP conversion. The Rep is now claiming that I can’t convert in July, so I am fighting them on it.
Where is the pump? Buying something undervalued and having it go back to its value? AMC & GME common stock with roaring kitty. The SEC took no action. Do you think they will spend their time on this?
I have no reason to suspect anything shady. People share their honest analysis and experience on things rarely discussed elsewhere. I welcome it.
Las Chicas – you find that buying low and selling high is illegal – market manipulation? I find your post less than credible as you have no clue on the traffic to this site and that someone saying they bought ‘low’ ($45) and that someone reading this site would then pay $50 for those shares–doesn’t make sense to me. This happens all the time–that is why we call them illiquids–if someone wanted to pay $50 that is fine. As far as a ‘whistleblower’ complaint to the SEC–that is fine I am certain that they have better things to do than worry about.
Tim,
This is the same person who has been making these claims for years now.. off and on. They just try to stifle conversation. I am quite sure if you analyzed the IP address of who is creating these posts you would discover it is all from the same person. They just create a new name, slap in a different email, and troll the forum.
What is funny is that the person thinks we are too dumb to realize someone can buy something, talk about it, and possibly sell it for a bit more. I think that pretty much describes the history of wall street.
Thanks fc–yes I can look at the ip’s and see what I see.
If you are discussing a 10% move on a thinly traded illiquid security as being potentially criminal, you are wasting everyone’s time. Anything thinly traded on expert market or OTC has a lot of volatility, period.
It’s not fraud. It’s called “narrowing of an arbitrage opportunity.”
This does not in any way violate rule 10-b5.
Fraud requires, as a starting point, misrepresentation or omission of a material fact….an intent to deceive….injury or loss….a nexus connecting the omission or misrepresentation and the loss….etc.
Las Chicas why do you feel the need to post here about your whistle blowing. If you really thought there was fraud being committed what good does it do to tell everybody on III about it. You must get yourself excited to be the Big Whistle Blower. Must have a lot of time on your hands or just sour grapes. Full disclosure didn’t buy or sell any MSEXP or VNORP.
Its hard to see how anyone could be persuaded to make such a purchase simply based on someone here ‘talking their book’. That said, one of the reasons I avoid all illiquid issues is their volatility and how a relatively small number of trades can effect the share price…caveat emptor!
Citadel–always ‘caveat emptor’.
email just came in about MSEXP conversion.
“Thanks for your inquiry. Apologies for the delayed response but we wanted to verify process as it has been quite some time since any of this class stock has been converted.
MSEXP – No par $7.00 Series Cumulative and Convertible Preferred Stock Conversion (CUSIP 596680207) Feature: The conversion feature of this issue allows the security holder to exchange one convertible preferred share for twelve shares of the Company’s common stock. This information, including number of shares authorized and outstanding can be found on page 63 of our latest Annual Report/10K under the heading “Preferred Stock” found here https://investors.middlesexwater.com/static-files/afe54033-29ca-4554-8ff7-80593f8252a0
The Conversion Process
Individuals should work directly with their Brokers through Depository Trust & Clearing Corporation (DTCC) to deliver the shares to Broadridge. Brokers have access to the DTCC system and different firms vary in how they deliver shares to Broadridge.
The letter of instruction/consent or conversion request from the shareholder should include # of MSEXP shares the shareholder desires to convert and name of person in which common stock should be issued, conversion date (not earlier than 45 days or later than 90 days of the receipt of the notice) and agreement to be responsible for reasonable fees incurred by Broadridge in the issuance of common shares upon conversion.
The broker and Broadridge would work together to register the shares in the holder’s name in Broadridge records and initiate the conversion to common stock request. Broadridge will then contact Middlesex Water to review the request and authorize the conversion into common shares.
Bernadette M. Sohler, Vice President of Corporate Affairs MIDDLESEX WATER COMPANY “A Provider of Water, Wastewater and Related Products and Services”
Phone: 732-638-7549
bsohler@middlesexwater.com
“
Preferred record dates for div.
Jul 15
Oct 15
Common record dates for div.
Aug 15
Nov 15
Above is according to the 2023 annual report which lists the dates for 2024.
It appears it will not be possible to convert in time to capture the common share’s ex-date of Aug 14th. So it would make sense to target a conversion date of Nov 1st time frame. So that means worrying about it right around Sept 1st.
This way you capture 2 preferred dividends in a span of 4 months and quickly grab the common’s dividend 30 days later. So 3 dividends within 5 month span.
Is there a flaw in this line of thinking?
The only flaw is that the movement of the stock price could easily eclipse the dividends so you have to be comfortable with the direction the common is heading.
Do you think the e-mail you received about the process is as easy as it is going to get, or is this just the process now before they streamline it? That might make a difference to me as to when to convert.
If this is it then I will start the conversion tomorrow since it likely will not complete until I get the preferred dividend anyway.
I think the process they mentioned is pretty standard. I think that is as simple as it gets. The broker has to do most of the work really. With that said I am guessing. I have only researched the topic and never converted anything myself. The way I read it is that they stream lined it a bit. I read nothing about any restrictions in that email reply when you get the common shares.
Scott, what broker are you using if I may ask for the conversion process? Please report how it goes and any information you can share. I have to work via Ally.
As for the common stock price fluctuating that goes hand in hand with I wanting to minimize taxes by holding a year plus a day. There is no way around that and once you decide to do that you might as well capture more dividends.
Lets just use a tax rate of 30% for short and 15% for long term. Lets say you own 100 shares of MSEXP@115.
100 x 12 x 53 (common) = 63,600.
63,600 – 11500 (cost basis) = 52,100 profit.
52,100 x .3 = 15,630 short tax.
52,100 x .15 = 7,815 long tax.
52,100 – 15,630 short = 36,470 net @53 common
52,100 – 7,815 long = 44,285 net @53 common
100 x 12 x 45 (common) = 54,000 – 11,500 (cost basis) = 42,500 x .85 (what u keep from long term tax rate) = 36,125
So basically you have quite a bit of cushion for the common share to fall in price to make the same amount as someone who sells instantly at 53. It could fall to 45 per common share but as long as u pay LTC tax rate we both get the same result.
I am ok with that situation. Plus you will get 2 preferred divs and 3 commons worth 175+175+390+390+390=1520.
Soo.. my conclusion so far is that I pretty much just realized I do not understand water company valuations from the past to today. I can barely find any interesting discussion on them and why so expensive in the past. I guess I will keep on with my plan to hold. I hope this post made a tiny bit of sense.
It absolutely makes sense. Our situations are just a bit different, which I won’t go into.
The problem you may want to keep in mind is that if things go south for the company you have a huge lag if you are sitting in unconverted shares of the preferred before you can convert them and get rid of them. There is still a pretty large premium to be made from the conversion with the preferred trading at >$100/share less than the conversion price. That is going to be on the order of 20% or thereabouts depending on the day, entry price etc…
I don’t know the answer here, but you might want to give some thought about which type of share you would rather be sitting in should things go bad, and whether there is premium there you will no longer be able to capture since the preferred will be sitting at some percentage of the conversion price, not the full price. To me you have more cushion in the common should the company start to have trouble because of that conversion premium being realized. Make sense? You need to balance that against a dividend maximizing strategy.
I haven’t done any conversions either, but the time frames here seem excessive for what I imagine they normally are. I will let you know how it goes at Fidelity.
I agree with your sentiment from a risk perspective. Being in the common seems much wiser. I will have to dwell on this more. Trying to collect that extra preferred div might not be worth the risk.
OK, so I contacted Fidelity today and they are looking into it. I gave them Bernadette’s contact information so we will see if they can sort out the conversion process.
If I don’t hear back today I will send them a copy of the e-mail you posted with the correct process outlined. They make that difficult though because the person you are talking to is not the person looking into it so it is hard to have just one conversation where all relevant information is exchanged directly.
Agreed. If you plan to long term hold, you should have a view, fundamental and technical, of how you think the common stock will trade since the factor holding the preferred price up now is its convertible value.
There are also concentration and liquidity risks to consider when deciding which type of share you want to sit in. I imagine getting 5-6 times return would put people over their normal position size ;o) And there isn’t a huge market for the preferred shares so that market could easily lock up should things go south. Worst case is likely a 7% earner while you wait for the common to recover though so…
Fidelity just contacted me again and said they are contacting the agent. I also gave them the conversion instructions FC posted so we will see what they have to say.
I just opened my case with Ally. I am also in the process to convert. I just got off the phone. I chuckled when they said the turn around time would be several biz days and I had to look at the cal to make sure they would not screw up the preferred div ex date coming up. I had to guide them to the annual report to verify the conversion rate. They did not want my email information but were smart enough to know how to contact someone from the company if needed. Frankly I was speaking with someone who was just opening a case and not the actual person doing the work to convert. So far a 50 dollar fee for corp actions.
Lets see how it goes. I will keep everyone informed. They said I would get an email but so far nothing in my actual email inbox or the website’s “email system”. I have a case/ticket number though.
why don;t you just short the stock to lock in your hedge?
I guess the race is on between the brokers to see who can give the best service of an oddball request. So far we have Ally and Fidelity in the starting blocks. Anyone else?
I contacted Schwab Corporate Actions team concerning conversion. COMMON STOCK RECEIVED FROM THE CONVERSION WILL BE ISSUED AS PHYSICAL RESTRICTED SHARES REGISTARED IN THE BENEFICIAL HOLDERS NAME. THEREFORE IF AND WHEN A CLIENT DECIDES TO SELL THE COMMON STOCK THE CLIENT WILL NEED A LETTER OF OPINION FROM THE COMPANY’S GENERAL COUNSEL. My understanding is Schwab will handle the conversion and will be able to hold the restricted shares after conversion and a document will need to be submitted prior to selling the shares. Hopefully this is good news for holding in an IRA. I’m going to wait until August to start the conversion process.
One step ahead of you. From middlesex just a moment ago.
“Your broker should contact Broadridge, our transfer agent with instructions and your authorization for the conversion. Once Broadridge receives the transfer request, they will contact us to review. We need to approve all conversion requests to ensure compliance with Rule 144 promulgated under the Securities Act of 1933, as amended. Once we provide to Broadridge authorization, the restriction is lifted – that process is essentially part of the conversion steps and occurs between Broadridge and Middlesex.”
I cashed out of MSEXP. Good luck to all remaining holders.
Now I have to wait and see if kaptain lou’s SEC police come looking for me I guess.
NewToThis – Yes, a full complaint was filed with the SEC last week.
It was done professionally and I’m a former CPA and CFO. Considering it was a week of vacation for many of their staff and employees, it may take them some time to “claw” back any of the transactions. I have no idea if they want to do any type of disgorgements of funds from the sale of MSEXP.
The U.S. Securities and Exchange Commission’s Whistleblower Program continued to grow and strengthen in Fiscal Year (FY) 2023, establishing new records for the Program. In FY 2023, the Commission awarded nearly $600 million—the highest annual total by dollar value in the Program’s history—to 68 individual whistleblowers.
The Commission received more than 18,000 whistleblower tips in FY 2023, almost 50% more than the previous record set in FY 2022. The Commission also received a record number of applications for awards in FY 2023.
The Whistleblower Rule Amendments that became effective in December 2020 created a presumption of a maximum 30% award in certain circumstances where the Commission does not reasonably anticipate a maximum award would exceed $5 million.
https://www.sec.gov/files/fy23-annual-report.pdf
Big incentive for the ambulance chasers Tex. Better call Saul.
I would like to have seen action taken on Rida and gang. That was what I thought was a true pump and dump setup.
Tex- how is this a whistleblower situation?
I’ve really had to use my imagination with this situation… but this smells nothing like a pump and dump scheme. What am I missing?
It definitely has some murky details to it.
Between the fact that no proof has been volunteered and that the initiator of the complaint talked about trading or potentially trading this security the week that the alleged ‘pump and dump’ happened , itself in this forum ; It casts some serious doubts to the validity of this matter.
Saying that you are a CFO and CPA to try and prove your point is valid with alleged experience or title promotion is pointless. I have been a CFO before and half the people on this board I suspect have had some kind of executive position in the past.
No facts, title promotion, and already insinuating what will happen. Everyone is free to follow the law and do what is right, but alleging what will happen or trying to scare people points to behaviors that are not selfless in this matter.
Where is this boogeyman, ‘James”? Is he Professor James Moriarty, the infamous crime lord?
Saying that you are a CFO and CPA to try and prove your point is valid is pointless. I have been a CFO before and half the people on this board I suspect have had some kind of executive position in the past.
No facts, title promotion, and already insinuating what will happen. Where is this boogeyman, ‘James”? Is he Professor James Moriarty?
One of the footnotes – “• Whistleblower tip leads to massive monetary sanctions. In earning an almost $279 million award, the largest in the history of the Program, a whistleblower provided information and substantial ongoing assistance to a Commission investigation and another federal agency’s investigation.”
Nice work if you can get it………
just FYI, I’ve heard that the SEC is much more stingy with whistleblower awards than their headlines would like you to believe. Yes, they pay 30% on very big headline settlements in the $100M’s, but for smaller cases in the $M’s and $10M’s, I’ve heard of successful whistleblowers having to retain lawyers (and ex-SEC expert ones at that) to sue the SEC to try to get paid when their hard fought evidence was used against the wrong-doing company but they got nothing for their trouble. Several such examples:
https://www.wsj.com/articles/whistleblower-lawyer-sues-the-sec-over-bounty-program-rule-changes-11610586245
https://news.bloomberglaw.com/securities-law/whistleblowers-who-exposed-1-billion-fraud-denied-sec-windfall
https://news.bloomberglaw.com/securities-law/sec-enriches-fraudsters-lawyers-as-secrecy-shrouds-tips-program
If the SEC looks into this and finds that the conversion of preferred shares into common shares is a legitimate process, why would there be any issue with the increase in the price of the preferred shares?
What specifically is your complaint? Did you miss the boat and now you want to sink it for everyone else?
Wow, such a financial run on MSEXP this week. Starting at $115 on Monday morning and then running up to $500 in a such a few days. The security had not been traded in a long time. Well done -if the funds are not clawed back.
Tonight I sent a formal complaint to the SEC for a Pump and Dump scheme and manipulation of an illiquid security. They may have evidence that a party named as “James” has been doing this on message boards for a number of years.
Links to message boards please.
which boards?
I think that’s what Charles M is asking.
So are you saying MSEXP does not convert into 12 shares of common stock? Because if it does (as the SEC filings quoted here seem to indicate) then it is still underpriced.
And when you say “They may have evidence that a party named as “James” has been doing this on message boards for a number of years” would that be “evidence” you supplied them in the past?
I would not take kindly at all to being misled, but I have no reason to think that happened here. Now is your chance to provide any evidence you have to the contrary. Pump and dump requires someone to knowingly make false and misleading statements. I would very much like to know what you are contending those statements were.
Jim, Normally it’s difficult to run a pump and dump scheme by a 1 man show. Usually a coordinated effort between a group of people.
I have the honor of having been named as one of Grid’s partners in a supposed Pump & dump Scheme for CNIG and it’s preferred.
I wear the badge with honor bestowed by the same person.
BTY, I own no MSEXP never have and never will considering the current price. I don’t keep this message board open on my cell with alerts so I missed the fun.
Jim:
My guess is that anyone who bought and sold MSEXP this week (including myself) will eventually be contacted by a regulator (even if party spoiler Kaptain Lou had not filed his complaint with the SEC). The advance in the stock price will shoot off alarm bells.
I worked at a $100+M hedge fund many, many years ago and we would dabble in illiquid securities from time to time (nothing as illiquid as MSEXP, though) – and we got hit at least 5 times from the SEC inquiring about trading violations when these securities would zoom in value and we would sell. They never succeeded as we always backed it up with homework, but it was a huge pain in the butt dealing with them. And the profits we booked were miniscule compared to what some of the readers on this site have realized in MSEXP.
So I would HIGHLY encourage anyone who has traded in this security this week to save all the posts from this MSEXP thread here on III, and particularly those posts showing that the value in MSEXG was determined by good old-fashioned homework and from readers posting communications directly from MSEX’s Investor Relations office.
You will likely be glad you did…better safe than sorry!
Kid,
ref. your last few sentences. I’ve read this thread now 3 times. I can’t for the life of me figure out how anyone can read about the past week’s events regarding MSEXP and how board readers acted and reacted and feel some type of fraud, or misrepresentation was underway. I came away in awe and very impressed with those willing to dig and share their findings about a security that, lets face it, didn’t need to go viral to make money for someone due to the conversion nature of it; furthermore to post what correspondence they received from brokers and actual company officials. Just my admittedly layman opinion on this whole thing.
I acknowledge the situation is bizarre so I can understand how the MSEXL story makes people wonder. This is a very unique situation – one of those situations that seems obvious in hindsight.
With that said.. everything posted on this board checks out, plus I verified the conversion amount directly with the company. If I end up losing $, then that’s on me.
It’s also interesting to see that the liquidity gets more and more thin as the days progress. This checks out with the speculation that ~5,000 shares were released onto the market recently – causing this whole run. If this were some sort of scheme, then more shares would be available.
Happy 4th!
The person that should be investigated is the broker/advisor who sold 4,786 shares at $92-$95 on June 18th.
Talk about an “oopsies!” 🙊
Well also maybe the one(s) that bought at $92 and then in turn took the quick 10%-15% ish and ran, lol.
Maine:
I agree everything seems to check out. But when a security with 10,000 shares outstanding that barely trades in an entire year advances 400+% in a few trading days, then regulators will likely take notice.
All I’m saying is that this has happened to a firm I was involved with in the past and we got investigative calls from the SEC. But I don’t think anyone who bought and sold has anything to worry about. I’m certainly not worried, but I’ll make sure all my ducks are in a row. And this security could certainly be too small for the SEC to even bother with it.
But I was definitely a little alarmed by this comment posted by Grid:
“Gridbirdsays:
07/05/2024 at 7:36 am
Well also maybe the one(s) that bought at $92 and then in turn took the quick 10%-15% ish and ran, lol.”
Not sure trying to insult and poke fun at people who decided to take profits too early (some certainly on this website) is the way to go. Normally Grid is way better than that. Definitely shows that all those once-in-a-lifetime fluke profits earned on MSEXP might not have done much to improve somebody’s character? A comment like that implying that folks were stupid to sell too early (considering that MSEXP was probably the most bizarre situation in the history of preferred land) just really doesn’t belong on this website.
I mean how about the poster who sold all 200 shares at $160 that were purchased for $100? You never go poor taking $12K in profits, but they left $70K on the table. You think he/she feels good about that? Way to rub it in, Grid.
Just be careful, Grid…karma can be very painful at times.
Kid, I didnt mean it that way. See I was joking at myself too. I have held these before in the past and sold and thought I was making out good too. Because I have been a “92” type seller before also. Not only once…but twice! But I didnt know either. Without the help of people here, explaining what I actually have, I would have been fleeced a third time without question.
I hear you Kid. I don’t think Grid meant it like that.. I know I had a bid in for it a couple of weeks ago at $95 and it never it. Had it hit, and subsequently went to $105 or even $100, I would have sold as quick as possible. These illiquids can be inefficient and I would’ve simply thought someone was over bidding for it. All good..
BTW, I also have another email to the company to get some more specifics on the restrictions. Will forward upon receipt.
Maine and Grid:
My apologies if I interpreted anything incorrectly.
Maine – regarding your comment:
“Maine says:
07/04/2024 at 8:57 pm
The person that should be investigated is the broker/advisor who sold 4,786 shares at $92-$95 on June 18th.
Talk about an “oopsies!”
As was previously mentioned, that seller was very likely an Administrator for an Estate who couldn’t really be expected to know about the conversion ratio. Those 4786 shares were likely held for many years by the original owner who passed away. But I spent a good portion of Sunday, June 30th thinking about the 12-to-1 ratio that the amazing detectives like Dick Whitman, Grid, Ken, etc. came up with over that weekend. Even at the golf course!
I just couldn’t get my head around how that holder could own half of the shares outstanding and not know about the convertible feature. I assumed that holder paid $100/share (or even less) for MSEXP given how that security traded by appointment for decades.
When MSEX common traded for $100+/share in early 2022, not converting to common cost that holder $5.2 million in profits ($1100*4786). Even if they thought the conversion ratio was still only 3-to-1, it would have been nearly $1M in profits ($200*4786). How could somebody with so much money invested in MSEXP and owning so many of the shares outstanding not know? Just truly bizarre and an ultra expensive lesson in “know what you own”.
That is the real “oopsie” here. That is life changing money for many folks!
Kid – no doubt, there will be an article written about this once all said and done.
Matt Levine, Jason Zweig, or maybe even an odd lots episode with Tracy and Joe Wiesenthal. As long as it isn’t any schmuck from SA! Haha, jk there are some “not horrible” authors there.
As expected, liquidity has dried up! Now we wait..
If I had to bet, it was just an executor of an estate selling everything and if the shareholder was elderly, not converting the shares when the parent was over $100 a share is almost expected.
True Story.
One of the lawyers I met at a CLE had some clients in rural WV walk into his office with a shoebox they found under the bed in their mom’s mobile home.
They thought they hit the jackpot with a $5000 Raytheon bond.
But it wasn’t $5000 dollars. it was a stock certificate of 5000 SHARES and the mom was a retiree of one of their factories and living off the dividends.
But that stock certificate was issued in the 1980s, so the lawyer checked and saw there were two stock splits in the 1990’s, and those shares were in DRS form.
She owned a total of 20,000 shares worth $1.6 MILLION.
K.T.,
You’re out of line. Your back-stroking notwithstanding, your indelible comments are inappropriate:
“I was definitely a little alarmed by this comment posted by Grid”
“trying to insult and poke fun at people”
“implying that folks were stupid”
“Way to rub it in, Grid.”
“karma can be very painful at times.” (I mean – that’s a threat)
At a minimum – none of us needs you telling others how to think and act. On a more offensive level, your agenda is thinly-veiled.
Grid has offered more to this community than many other posters combined. He has generously tutored, instructed, shared and probably made readers a lot of $$ over the years by through his limitless insight and keen observations regarding preferred-land. The MSEXP episode is only one of many, many similarly astute observations over the years.
Your writing style looks familiar and I cannot help but wonder if you’re an old provacator with a new handle.
Regardless, suggest you back-off and re-consider where you fit in the stack here.
alpha:
I already apologized to both Grid and Maine for my incorrect interpretation of Grid’s comment. I have complemented Grid numerous times over the years.
As to your comment:
“Your writing style looks familiar and I cannot help but wonder if you’re an old provacator with a new handle.”
You are way, way off base. Not even close.
And no threats were made. Karma tends to come back and bite those who boast and treat others unfairly…and I incorrectly interpreted that is what he was doing. When I’m wrong I say I am wrong.
Adios.
I guess I can write a smooth email. I made sure to butter the bread on both sides. Mrs Sohler emailed me back at 11:30 PM EST. Got a reply in less than 30 minutes. I shared the info with schwab, explained we might have dozens of people doing a conversion that could be expedited if they released info to brokers, and i appreciated her time and efforts.
“Thanks Mr. XYZ:
We have been in consultation with Broadridge who is our current transfer agent and are discussing the steps required as well as a plan to communicate the conversion process with brokers. We concur a letter of opinion will be required of our General Counsel, coordinated through Broadridge, to essentially unrestrict the shares. Some of the information below may need updating and we are conferring with Broadridge on this matter. We will keep you posted. Thanks for sharing the info below.
Regards,
Bernadette M. Sohler, Vice President of Corporate Affairs
“
Thanks for sharing, fc. And if you don’t mind, please also ask them why the hell the MSEXO preferred shares aren’t trade-able anymore and bring them back by popular demand!
Good work FC!
Sounds like they will get rid of the certificate requirement and use a normal process to do the conversion and issue shares, which should be easier for everyone.
Now the difficult choice for me is when to redeem. I have a lot of capital losses (a long story, not from investing choices) I could apply so the calculus is a bit different for me.
That is good news for sure; hopefully this will make the issue of the preferreds being removed from the account in the conversion process and the possible tax consequences for a tax-deferred account go away. I hold in an HSA account, same would be true for an IRA.
I do want to thank all here – I’m glad I checked in a week or so ago after not regularly checking in, I think I need to check in regularly now. Plus I need to donate again to Tim. One thing I learned through this is that I need to open a regular brokerage account at Schwab since Vanguard doesn’t allow trading in these types of issues. As someone said, and I’ve experienced this as well, when you call in to Vanguard they treat you like a child. My call in to Schwab yesterday was handled professionally.
I think we should do a tally of shares owned by III readers. I’m at 160.
Nice work fc. Thanks for your tenacity on getting information about this situation.
I really thought I found some useful information on this website but it turns out it is not very useful at this moment in time. It has all sort of links to forms, FAQ, etc.. if you look it over carefully.
https://shareholder.broadridge.com/middlesexwater/
What some should also consider regarding MSEXP is that its value correlates to the price of the common shares. Since 2021, MSEX has been falling from an all time high, but some monthly technicals may show some promise for it rebounding in the future. No guarantee that even years later that it goes back to all time highs, but it could be a decent enough bounce that I can hold onto my 7% annualized yield right now and wait for a better time to convert. Since it can’t be called, I have time.
Legend remember the 7% yield is long gone. That left the station 2 days ago. You have a 1.56% yield on your preferred now. The preferred is subordinate to the movement largely of the common now. And the common pays 2.56%.
So the math clearly states if that is your goal you buy the common and hold it. Which I am not suggesting you do, just making sure you are mark to marketing what you have and not padding the stats on having your cake and eat it too with yield off cost and raking the mental cap gains now too.
Thats a good point.
Actually MSEX can call 10% of it each year if they so desire but I cannot recall if that is cash value of 12 shares or common.
The true 7% uncallable which has a float of < 1000 shares has no ticker symbol. It appears that one was issued back in the 1960s or 70s. Once again I forget the exact details. MSEX appears to have been using preferred for a very long time.
Great detective work by all of you. fc, what’s the cusip for those 7% shares?
I have absolutely no idea. No ticker symbol. I did not ask MSEX. I do not have access to a bloomberg terminal. I do not pay for specialized information.
I wish I knew! Could have made this all so much easier to figure out.
I just sold 1/6 of my mexp shares and collected over 2/3 of what I paid for all of them. Not bad in my book. Whoever bought them for $460 each, I hope it works out for you. I just couldn’t resist the temptation to get some cash back in the present just in case the conversion thing doesn’t work out in he future.
I think I will wait and see how and conversions work out for other iii owners before I try it.
I hope it works out great for all of us. It sure seems to have a lot of potential.
Basically this is how the price will be determined going forward. People would rather not get into the whole mess of conversion and it is simply easier to sell the preferred. Once information is more well known how it goes the price goes up. If it is truly a pain in the rear the price suffers a bit.
I will bet you a nickel many people are considering doing exactly what you just did. Especially in IRAs.
I am trying to figure out what I am willing to pay for more and frankly I cannot get very excited paying the current ask of 450. Which is odd when you think about it. It still represents a very decent gain if some basic assumptions hold true like being able to sell one day down the road.
fc/New,
I’m out. Sold my 200 shares this afternoon. Would have kept them if not in an IRA. Pig pile Sr is still in the game with his 500.
Roth would be the best place to hold these, for sure.
I am curious if any forum member was collecting more of these shares at prices above 350? Otherwise these shares are even more distributed among even more people. Middlesex is going to get annoyed. 😉
fc, lots of onesies in there, single share transactions. never seen anything like it these last few days.
Pig,
I guess the main reason this was so illiquid is that nobody was bidding the correct amount to draw them all out! So many single shares being sold it is amazing. Creating volume with trades well under 10 shares per purchase.
I find it hard to fathom that all these 1-10 share trades are from people buying it the last few days… or is it just constant recycling/flipping? Who knows.
We are reaching the point there will be very little meat left on this bone if this keeps up.
I bought 2 at abt 400 but sold at abt 480.
Yazzer, $400 actually looking like a decent entry point. However crazy that might sound.
I did get some above $400.
Couldn’t resist not being part of one of the greatest pref trades of ALL TIME.
Plus, the math makes sense.. and everything checks out (so far).
Maine, I gots me some convertible fever baby! Although of the nasty type today. Just landed 200 shares of VNORP today at $45.50. I have played this one before over the years when “office reit” didnt mean disaster. But back in the sandbox today as this has been a good play for me a few times. It like MSEXP is a “live convertible” at 1.9531 shares of common VNO for each VNORP share. So in essence as of today anyways buying $50.78 of VNO for a discounted price of $45.50…. Fun….But aint no MSEXP baby!
Grid – regular Vno prefs are some of my fav positions. They have enough trophy assets to protect the prefs.
That is my hope anyways, too! The other VNO preferreds are certainly less of a hassle to acquire. There are less than 13k shares outstanding of VNORP. It was issued long ago, and delisted long ago also.
On quantumonline, The preferred shares are convertible any time at the holder’s option into 0.68728 common shares of Vornado Realty Trust
How did you get 1.9531 shares of common VNO?
J, that was long ago on a far away distant planet. With these old convertibles they adjust over time to keep from dilution from certain company activities. You always need to go to annual filings of company. VNORP is the Series A. It used to be VNO-A before being delisted. This preferred was issued last century. Here is the cut and paste best I can do to show you from this years annual filing.
nvertible preferred:
6.5% Series A: authorized 12,902 shares/units(2)
0.8125 0.8125
Cumulative redeemable preferred(3):
5.40% Series L: authorized 13,800,000 shares/units
0.3375 0.3375
5.25% Series M: authorized 13,800,000 shares/units
0.3281 0.3281
5.25% Series N: authorized 12,000,000 shares/units
0.3281 0.3281
4.45% Series O: authorized 12,000,000 shares/units
0.2781 0.2781
____________________
(1)Preferred share dividends/preferred unit distributions are cumulative and are payable quarterly in arrears.
(2)Redeemable at the option of Vornado under certain circumstances, at a redemption price of 1.9531 common shares/Class A units per Series A preferred share/unit plus accrued and unpaid dividends/distributions through the date of redemption, or convertible at any time at the option of the holder for 1.9531 common shares/Class A units per Series A preferred share/unit.
(3)Series L and Series M preferred shares/units are redeemable at Vornado’s option at a redemption price of $25.00 per share/unit, plus accrued and unpaid dividends/distributions through the date of redemption. Series N preferred shares/units are redeemable commencing November 2025 and Series O preferred shares/units are redeemable commencing September 2026, each at a redemption price of $25.00 per share/unit.
…” Basically this is how the price will be determined going forward. People would rather not get into the whole mess of conversion and it is simply easier to sell the preferred. ”
That is where I am at now. I am gladly sharing the wealth. Sold a fair amount yesterday around $475, more at $500 and even bigger at $525 today. At $550 anybody can have the last couple hundo of them if they want. All they gotta do is ask…..What a week fellow players!
Closed at $525 today.
I regret not buying any in my 401k account. My shares are in a taxable account. I had no idea this sort of thing or anything close to it was going to happen. I am not sure any of us did. It was my intention to hold until I croak and enjoy a nice yield.
I think I may sell out at $525 on Friday and just pay some taxes. There are worse things that could happen to me.
Congrats! I would do the same if I bot at $100. Since I bought in the 400’s, looking for $550, lol. Still leaving some meat on the bond for someone.
Maine I will give some out Friday when I get home if interested. Just remember the numbers game which I am sure you do. If common would drop to say $40, its only worth $480 a share.
At today’s closing prices of MSEX and MSEXP, I calculate you could sell MSEXP for $525 and collect 82.95% of what the value of 12 shares of MSEX is.
Considering the unknowns of the conversion process, I wonder how close it will get in value. If I sell Friday at $525, I hope the buyer is indeed able to realize the remaining 17.05%.
It seems they are taking some very slight modest risk, and not collecting over an easy 370% to over 420% gain like I did on mine in short order. So they deserve some profits to carry out the process until the end. I still have a couple hundo left too. We will see. If I get $550 I will certainly think about leaving the party for good.
Yup. I have shorted common to reduce that risk.
I think I am in this for the long game for a few reasons. I do not want to pay short term cap gains. That is a big deal in a taxable account. I am willing to take the risk of the common stock going up or down.
It appears to be a very well ran company. I have no idea why water companies were so hot in 2021 and have now come way down to earth. They appear to have growing earnings and a possible take over candidate by someone like AWK?
I am willing to take risk to maximize my profits. It was a risk just buying this above >115 without concrete info due to lousy yield on cost and adding the risk of the common fluctuating is small in comparison.
So who is with me to convert? Do I have anyone to enjoy the ride with?
I’m with you – I plan to convert my 160 shares in a tax sheltered account, assuming I don’t run the risk of the conversion process creating a taxable event by removing the preferred shares from the account. I’m thinking (hoping, really) that Middlesex streamlines the process and it can be done within the brokerage account.
Well.. step one is to collect that nice preferred div due to us in a couple of weeks and allow MSEX to get their house in order. No point worrying about anything right now I suppose except MSEX common sinking like the titanic.
Happy 4th everyone!
I’m stuck with you on my last couple hundred and have to hold. Good Lord I just checked I’m already in 35% tax bracket plus state. Thank God much was in tax free to begin with. Might have to parcel the rest over 2 years to keep the lowest tax burden.
The way I see it is holding for a lesser tax bill could easily compensate if the common goes down a bit more. Say 45 per share or what have you. 20% fed tax rate versus 32-37% is no joke. I would have to run the math but heck no am I giving them that large of a cut. Patience is in order for this situation. I am fortunate enough to not need the money right away.
I also need to investigate a hedge like another wise poster mentioned. The right option play to handle the situation. Or shorting the stock but I have no idea what that would cost. I need to figure it out or ask for advice.
I already looked at options for hedging and they are too expensive and thinly traded. But I am not an expert of such things.
I’m gonna see how quickly they get the conversion process straightened out and collect the next dividend before deciding what to do. If it gets up close to the conversion price then I will be real tempted to cash out.
Theoretically, the less uncertainty there is, and the more widely the issue is understood then the closer it will trade to conversion price. I think the key will be unrestricting the conversion shares and normalizing the process. It is certainly in their interest to do so since otherwise they will start getting lots of requests to convert one or two shares and it will all be a manual process for them.
Another option may be to convert smaller amounts over time to keep the tax bill under more control. Some risk there for sure. Good problem to have I guess. I had to sell because IRA but trying to advise PP Sr best I can.
The current cost to borrow (Ie short) MSEX is 0.3% on IBKR – pretty cheap..
Thx Maine,
He is Schwab, but we don’t really play the short game. Not going to rule it out, nor selling outright. He has even talked about maybe converting them and keeping the common shares (or some number of them) awhile to see what happens with the company. As some might remember, the Pig Pile’s generally view water companies as favorable places to be. All good problems to have at this point though.
Remember too that in addition to the 35bps borrow fee, you also pay out the dividend on the common when short as well. Can easily outstrip the coupon yield from a cost basis in the $400 handle by a couple turns.
MIDDLESEX WATER COMPANY INSIDER TRADING POLICY
Some useful information here.
https://investors.middlesexwater.com/static-files/4a32e7fb-11a8-4f71-9c60-cbbdc026ddce
capt,
That is for employees and people with direct relationship to middlesex like a director or officer. It won’t apply to a preferred shareholder.
It applies as it gives some insight to the Restricted shares which general relate to insiders or employees and discusses general council
as the shares convert to Restricted stock
I would stand to bet it was at least relevant at some point at a minimum. Because I would take a reasoned guess insiders and family probably were issued these to purchase as a private placement.
Corning Nat Gas had a private convertible issued 8 or so years ago, and insiders chewed up the vast majority of those shares. But I got some good crumbs though. But over time people retire and die and such and then they spill around or are converted which leads to a situation such as this.
Thanks for turning me on to that one Grid 👍
Charles that was good one wasnt it. Made tens of thousands on that and was very happy with it. But dang MSEXP has came from another planet…Hundreds and hundreds of thousands of dollars of gains, and likely more to come. This one even puts Nvidia to shame and that is hard to do!
Grid:
I think we all realize by now that MSEXP appears to be an anomaly, a fluke, an unbelievable outlier, and a once in a generation opportunity that just fell into the laps of III readers because of that large seller (and because you informed the readership). The stars were truly aligned perfectly.
But what I will never understand about MSEXP is how that large seller in June (or original owner/entity if the sale was indeed done by an Administrator for an Estate) could not know about the 12-to-1 convert feature?
The original owner most likely was a somewhat sophisticated retail investor that likely held the stock for years, especially since they had nearly $500K in the preferred and owned almost half of the outstanding shares? How could they not try and convert when the common MSEX was trading for $100+/share during that crazy mania for anything water related?
We are talking about nearly $5M in gains on 4500 shares of MSEXP if the preferred was converted and 12-to-1 common shares were received at that time (assuming the owner paid $100/share for MSEXP). That is serious money.
You can’t blame the Estate Administrator for not knowing about the conversion ratio, but III posters/sleuthers figured out the 12-to-1 ratio in only one business day (via a group effort). Based on the $450 bid price of MSEXP today, that original owner likely deprived his/her heirs of $1.6M in value due to their lack of homework.
I was a CFA in my pre-retired life and still have a belief that markets are somewhat efficient (although that belief is weakening).
The very good news is that the $1.6M in value is being transferred to the readers of III that bought and held onto the shares!
I equate this to almost like having a winning lottery ticket. Based on the average cost you provided previously you are sitting on nearly a $300K gain if you haven’t sold yet (and it could go $100K higher). Just an unbelievable gain on an illiquid preferred stock.
Congrats as you have provided this site with so much incredible information over the years and you very much deserve it!
And I recently finally bought some deep out of the money long term puts on NVDA. Even if NVDA collapses the gains won’t come close to what you’ve banked on MSEXP!
What I cannot figure out is how people here who were using a broker that listed the stock with the key word “convertible” in the description did not figure it out earlier. My broker and every website I ever visited NEVER gave me a single hint. And yes I have typed MSEXP into my broker’s system dozens of times over the years as well as SA, quantum, preferredstockchannel.com, etc… Yet I visited a small account my wife has with Schwab just a couple of days ago and there it is. “convertible”. What I never did was read MSEX’s website for information as I thought it was pretty much unbuyable after trying multiple times with GTC orders that expired fruitlessly.
Go figure!
Kid, I was poisoned from owning a few times before COVID. And Vanguard and OTC Markets never had the word “convertible” on it. Just 7% preferred. So I naturally assumed I snagged some of those sub 1000 share float 7% fixed issue. Only Ken bringing up the 4800 share trade did it get my brain working. As I know I am getting forgetful, but I damn near would bet my life I knew it was sub 1000 shares. Then Dick chimed in about seeing the word convertible and that got me to do a mental reset. It only made sense it had to be the 7% convertible….BTW, I can’t find it and can’t prove it…But I swear there used to be a “MSEXO” preferred back in the day. Maybe it was the now redeemed 8% convertible. I swear I remember that ticker now and never finding any.
MSEXO Middlesex Water Company $4.75 Preferred Stock
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=40210683
fc, maybe my brain aint as foggy as I thought, ha. Now do us a favor and find us some around say $50 to buy up! 👍…. There are 10,000 of those little bastards so I wonder why that ticker symbol disappeared.
Regarding the MSEXP, my call in to Schwab to day about conversion.
MSEXP Cuss# 59668027, Sec # 2615323
A registration fee applies, there is a 45-90 day conversion process
Shares are converted to Physical Restricted Shares AKA Certificates-
Security # 2615320 mailed to owner Should not be converted between Record date and Payment date.
To sell shares A letter of Opinion is required form Middlesex General Council at time of sale may need to be processed with Middlesex preferred Registration and transfer company.
Relationship and transfer manager Steve Jones P800-866-1340, Ex 2991
Addition Phone #’s given to me to people involved p. 732-638-7549
P.732-634-1500, P.732-218-1100..
I was advise to contact .Bernadette M. Sohler, Vice President of Corporate Affairs MIDDLESEX WATER COMPANY “A Provider of Water, Wastewater and Related Products and Services”
Phone: 732-638-7549
That all I found out, Schwab indicated tax implications as my shares or in IRA.
Oh wow. I can get an actual physical share certificate? This so old school. I cannot think of a single example of this now days. (Yes it sounds like a total pain in the rear but in a way pretty cool). I guess writing a letter or email is not quite dead yet to get things done!
Let me copy this data to a file on my PC. Thank you very much.
CaptRob, thanks a bunch for posting this.
Quick question regarding your last sentence. Should be no tax implications if shares held in an IRA correct?
Also, I’m wondering how all this would be done in an IRA as I can’t have my hands on certificates. But thanks again!!!!
Because the shares are basically getting wiped from your ira at the time of conversion, and are no longer held in your IRA and certificate mailed to you , there is a tax issues. as per Schwabs Rep .. The issue with the General Council is the question? is there a fee? The Rep read to me all they had at the moment about this. and said there have been several calls. all I know.. Happy 4th July everyone!!
-pig – I am thinking, if they really do send you physical paper then that equates to a ‘withdraw’ from the IRA so, yes, in that event, taxable.
I tried to contact Bernadette via e-mail late yesterday and directly by phone today. In neither case was there a response. She may be taking the rest of the week off given there is a holiday on Thursday. The phone line had no answering machine so I was unable to leave a message. It did helpfully chime in with an automated voice saying that no one was answering my call after about 15 rings.
It is odd that Schwab is saying this would be restricted stock since no one has found any mention of such a thing in the documents that have been posted. Whoever has the pdf files should do a search on keywords like “restricted” “certificate” etc… to see if anything turns up, and to make sure that any references are to publicly traded common stock.
Scott,
I already did that. The only true mention of restricted in the annual report is the employee stock plan. There are restrictions for them.
What we do not have is the actual document fully describing the terms of the preferred. That would help solve a lot of questions.
Scott,
I wonder if we should ask Middlesex to send out an announcement to all the brokers on how to handle this. It might be in their best interest as well.
On top of that they might choose to stream line the whole process so it is not such a pain in the azz for them. Wishful thinking perhaps.
I agree nothing much will happen this holiday week.
I already asked them for help in streamlining any conversion hangups in my email to them.
If it really has to convert into restricted shares then it will be very problematic to realize the full value of the shares. Maybe someone with more experience would like to chime in here, but I don’t think it is as simple as sending the certificate to your broker and then being able to trade it like every other share. I find it very unlikely that a publicly traded preferred would convert into restricted certificates. And most often restricted shares convert to regular unrestricted common shares at some point so there is a lot of info missing here.
Well the way I see it, personally, is that I do not want to pay short term cap gains. I am holding it in a taxable account. So I have a year plus a day to figure this out. So I will first capture the preferred dividend. I will then start the process to convert to start collecting the common dividend to double my income. So holding a paper cert is fine at that stage. I want my mailbox check, lol.
As time rolls on eventually this will settle down in the back half of this 1 year period and I can sell one day.
So it appears to me I have plenty of time to figure it out. I really do not want to pay fed/state tax of > 37%. 25% sounds much more reasonable to me.
So, it is indeed more complex that thought but, still doable. Taking possession of the certs, if bought in an IRA, would be a taxable event since you would take possession outside of the IRA (i.e., tantamount to a ‘withdraw’) – plus penalty if you’re not at least age 59.5 (- I think). The kicker here to me is, why does the general counsel have to review? Can they say “No”? If they do, what happens then? I was late to the game so, I only have 2 shares at $400 but sitting on a nice “return” anyway, as of now.
Well, I had 2 shares at 400 and they just sold for 480, a nice 20% return in a few hours – no where NEAR the absolute or percentage return as others here but, I was very late to the game…plus the complexity of the conversion seems a lot for a measly 2 shares, so I sold.
PPWLM at 6.36% – pretty sure Berkshire owns them
CNLPM at 6.33% yield