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No stock exchange for old, new GM shares

By Michelle Singletary
Washington Post Staff Writer
Wednesday, November 17, 2010; 11:53 PM

General Motors will be issuing new stock, a signal that the company is emerging from the ashes like the mythical phoenix.

There is much to celebrate with this public offering. The corporate giant and employer of 205,000 people worldwide successfully emerged from bankruptcy proceedings in July 2009. It was a hallelujah moment when GM repaid taxpayer-backed loans five years ahead of schedule.

And now the company is planning to sell millions of new shares of common stock for $32 to $33 per share. The initial public offering, or IPO, will allow the U.S. government to begin selling its majority stake in the company.

But investors who are holding the old GM stock are probably not so elated. Their shares are nearly worthless, except to those who sell them to lock in their losses for tax-deduction purposes. If you are still holding GM shares issued before the company filed for Chapter 11 protection in June 2009, so sorry, but you lose. You are not entitled to receive the newly issued shares in exchange.

It also won't be good news to naive investors who loaded up on the old GM stock after the bankruptcy filing, thinking they might profit from the company's eventual IPO. The Financial Industry Regulatory Authority, or FINRA, which regulates securities firms, recently issued a warning about the old GM stock.

"With the news that the IPO was happening, we did some Internet searches and realized there continues to be confusion about the stock of old GM," said Gerri Walsh, FINRA's vice president.

She said she saw posts from investors asking what would happen to their stock after the IPO. Others asked if they would be able to cash in on the new offering.

"The answer is no," Walsh said. "People have to recognize purchasing a stock of a bankrupt company is speculation and you can lose all of your money."

When companies can't meet the listing requirements to trade on the New York Stock Exchange or Nasdaq, they are delisted. However, shares may still be traded on the OTC Bulletin Board or Pink OTC Markets, formerly known as Pink Sheets, the electronic quotation system that provides pricing and financial information for stocks sold over the counter.

Initially, the old stock was listed over the counter under the ticker symbol GMGMQ. To avoid investor confusion, FINRA stopped trading in old GM on July 10, 2009, and gave the old stock a new ticker symbol, MTLQQ. In both cases, the letter Q at the end indicates that the company is under bankruptcy protection, which should be a huge warning sign for investors. The old bankrupt GM is now known as the Motors Liquidation Co. It is separate and distinct from the new General Motors.

One would think that after the well-publicized bankruptcies of Kmart and WorldCom and the fact that the old shares of those companies became worthless, investors would know better than to jump on any Internet, e-mail or fax speculation that the old GM stock would significantly rise again.

Except if you do an Internet search for MTLQQ, you'll find that some sites are pumping the stock. One blog is headlined "Hot OTC Pink Sheets Stocks to Watch" and puts MTLQQ on the list. On Nov. 16, more than 17 million shares of the penny stock were traded, reaching a high during the day of 29 cents per share. The day before, the penny stock price surged 17 percent. The stock has traded at a 52-week low of 6 cents and as high as 88 cents, according to MarketWatch.

Often in situations like this, people will pump up the stock of well-known bankrupt companies with the hope that less-informed investors will also buy, figuring they can reap the rewards when the company emerges from bankruptcy. In the end, it's only the pumpers who make a profit.

Walsh said FINRA wanted to remind investors of the downside of being a shareholder in a bankrupt company. They are last in line to be paid. GM pointed out to investors on its informational Web site about its bankruptcy filing (www.gmcourtdocs.com) that owners of a company under bankruptcy protection may not receive anything if the secured and unsecured creditors' claims are not fully repaid. GM also noted that none of the publicly owned stocks or bonds issued by the former General Motors Corp. would become securities in the new GM.

So if you're trying to make a quick buck before the new GM stock is issued, consider yourself warned that in the end, your investment could go up in flames.

Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071. Her e-mail address is singletarym@washpost.com. Comments and questions are welcome, but because of the volume of mail, personal responses may not be possible.

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