Chuck Jaffe: Remedies available for lost stock certificates
BY CHARLES JAFFE Market Watch
Wednesday, November 14, 2012
11/14/12 at 2:46 AM
Rachel is a 50-something New Jersey resident whose rush home from a visit to her parents' house to beat the worst of superstorm Sandy had an unusual consequence.
She left the paperwork she had brought home in the front seat, so as not to get it soaked in a downpour, only to wake up the next morning to find that a fallen tree branch had cracked her passenger window, and the papers were sodden and torn.
They were mostly stock certificates she had taken from her parents because they were looking to sell some shares and retitle others into a trust.
The lesson for all investors who hold their own certificates is obvious: There will always be some crisis, disaster, storm or event that could threaten your ownership papers, and it pays to be prepared for just such an event.
Paper certificates generally aren't necessary any more - they typically cost extra for an investor who wants them, and they add time to processing a transaction - but they typically are a matter of personal preference for people who like to hold their own issues.
Rachel's parents, for example, like holding their own securities in part because her father feels it gives him the chance to get the best execution on his trades - taking the certificates to different discount brokers when he wants to trade. He also likes the feeling that he really "owns" a stock because he has a certificate to back it up.
Most investors avoid certificate issues by having their stocks and bonds held in "street name," where they do not ever possess the certificates, and instead let the brokerage firm - and its custodian - keep any papers. Functionally, the entire process becomes electronic.
For Rachel, however, the problem is a little tricky, at least in terms of reconstructing records or recapturing the lost certificates (though I did suggest she put the water-logged documents into the freezer, which can sometimes make them easier to dry and separate).
When a stock or bond certificate is redeemed or retired, or ownership is transferred, the transfer agent cancels the certificate, a process that typically involves an electronic accounting entry and some physical alteration of the certificate.
The Securities and Exchange Commission has a Lost and Stolen Securities Program that allows for reports and inquiries. Most financial institutions are required to report any certificates that they discover to be lost, stolen, missing or counterfeit.
An investor who holds certificates and who fears that they are lost or stolen should immediately contact the transfer agent to request a "stop transfer" that prevents ownership of the securities from being turned over to anyone but you. If you don't know the name of the transfer agent, call the broker who processed the transaction to find out who they work with and get the contact details.
Getting a new certificate typically requires the owner to state all the facts surrounding the loss in an affidavit, which must be done before an "innocent purchaser" acquires the securities. The owner may also have to buy an indemnity bond to protect the issuer and the transfer agent against the possibility that the lost certificate may be presented later by an innocent purchaser. The bond usually costs between 2 percent and 3 percent of the current market value of the missing certificates.
Investors with paper certificates who want to avoid the issue can deliver the securities to a brokerage firm where they have an account, and the shares can be converted into street name.
Another option, in the case of stocks, is to contact the company directly; if it has a direct-ownership plan or dividend reinvestment program, the shares can typically be converted to book entries, with the investor then executing buys or sells directly with the company's investor-relations department.
Original Print Headline: Remedies help with lost stock certificates
Chuck Jaffe, senior columnist for MarketWatch, can be reached at firstname.lastname@example.org or at Box 70, Cohasset, MA 02025-0070.