Invest long enough and you accumulate scars.
Some are remembered only when you look back at an old trade and wonder what on earth you were thinking.
Others are more considerate. They remain right there in your brokerage account, where you can look at them every day.
$0.00.
A bankrupt company. A dead ticker. A mysterious CUSIP. Perhaps a security whose name your broker no longer even bothers displaying.
The investment has been gone for years, but the brokerage account refuses to let the wound heal.
I have a collection of these things. I previously wrote about the graveyard at the bottom of my portfolio, where failed investments and the debris left behind by corporate actions continue to occupy little rows on the screen.
Eventually an obvious question arises:
Can I please just get rid of them?
Often, yes.
Major brokers have procedures for abandoning, relinquishing or otherwise removing securities that are genuinely worthless.
Unfortunately, there is a catch.
A security showing $0.00 is not necessarily worthless.
Before erasing one of your investing scars, make sure you aren’t amputating something that can still twitch.
Yes, Your Broker May Be Able to Make the Corpse Disappear
If you have an obviously dead position cluttering up your account, contact the broker and ask about its process for a worthless, non-transferable or unpriced security.
The terminology varies.
- Charles Schwab publishes an “Authorization Letter for the Abandonment of Securities Deemed Worthless.”
- E*TRADE has a process called “Relinquish Worthless Securities.”
- Merrill uses the rather antiseptic phrase “Withdrawal of Unpriced Security.”
Other firms may handle it over the phone, through a secure message or with their own form.
So if your account contains eight shares of something that went bankrupt during the George W. Bush administration, there is at least a chance you can finally give it a proper burial.
But don’t start filling out forms yet.
Your Broker’s $0.00 Is Not a Death Certificate
This is where things get interesting.
Brokerage systems are very good at displaying prices for things that trade every second.
They are considerably less informative when something falls outside that neat system.
Several completely different assets can all appear in your portfolio at exactly the same value:
$0.00.
That could represent:
- Common stock that really was canceled in bankruptcy
- A company that no longer trades but still exists
- An unlisted spinoff with an actual operating business behind it
- A warrant that is still legally alive but hopelessly out of the money
- A contingent value right waiting for a future milestone
- An illiquid or private security for which the broker simply has no price
- A corporate-action remnant that nobody seems quite sure what to do with
Those are not remotely the same thing.
In my tour of the non-CVR zombies in my own portfolio, I found precisely this problem. Some positions were genuinely dead. Others were merely strange.
Brokerage software has flattened all of that nuance into a single number.
Zero.
First, Identify the Body
Before asking the broker to dispose of anything, figure out what you actually own.
Start with whatever remains available:
- The ticker symbol
- The CUSIP
- The original company name
- The corporate action that created the position
- Bankruptcy documents
- Merger documents
- Spinoff filings
- The transfer agent
Sometimes this is easy.
The company went through bankruptcy, the reorganization plan explicitly canceled the old common stock and the former shareholders received nothing.
Fine. Dead is dead.
Other times you find that the apparently worthless object in your account still represents a legal claim on something.
That is when cleaning up the portfolio can become surprisingly expensive.
CVRs Are Exactly Why You Should Be Careful
Contingent value rights are particularly good at masquerading as corpses.
A CVR may not trade at all. Your broker may have no way to price it. The account therefore displays zero.
Yet the entire purpose of the security is that it may pay you later if something happens.
A drug gets approved.
A sales milestone is reached.
An asset gets sold.
Years pass, everyone forgets about the thing and then one day money appears.
Or nothing happens and it really does expire worthless.
That’s the peculiar world of CVRs, which I explored in CVRs Explained: The Weird Portfolio Zombies That Might Still Pay.
I would not surrender one simply because a brokerage computer assigned it a price of $0.00.
Unlisted Stock Can Look Dead While Being Quite Alive
The same problem occurs with unlisted securities.
Imagine receiving shares in a spinoff that never obtains a normal exchange listing.
The company can have employees, customers, revenue and assets.
What it may not have is a price feed that your brokerage system knows how to display.
Your account can therefore make a real business look indistinguishable from a bankrupt shell.
This is an excellent example of why no market price and no value are two very different statements.
Warrants Can Spend Years Looking Worthless
A warrant can produce another version of the same illusion.
Suppose a warrant lets you buy stock at $25 per share.
The underlying stock trades at $3.
Nobody is particularly eager to pay you for the privilege of buying a $3 stock for $25, so the warrant may have effectively no quoted market value.
That does not mean it has ceased to exist.
If it doesn’t expire for several years and the underlying company stages an improbable resurrection, the warrant can become valuable again.
Unlikely is not the same thing as legally dead.
As investors, we have occasionally learned that lesson the expensive way.
If It Really Is Dead, Ask the Broker to Remove It
Once you are satisfied that the security is truly worthless, the conversation with your broker can be remarkably simple.
I would ask something along these lines:
“I have a security in my account that appears to be worthless and non-transferable. What is your procedure for removing or relinquishing a worthless security?”
The broker may then investigate whether:
- The shares have officially been canceled
- The security can still be transferred
- A transfer agent remains active
- The position qualifies for the broker’s worthless-security procedure
- You need to sign an abandonment or relinquishment form
There may also be securities the broker simply cannot get rid of cleanly.
Even the undertaker occasionally refuses the body.
Schwab Will Let You Formally Abandon a Security
Charles Schwab currently publishes a form rather dramatically titled Authorization Letter for the Abandonment of Securities Deemed Worthless.
The form allows a customer to instruct Schwab to remove securities the customer has deemed worthless.
But Schwab’s brokerage agreement contains the more important part: removing certain canceled or invalid securities can involve waiving rights to future distributions.
You can read the current language in Schwab’s brokerage agreement.
That is not simply clicking “hide this position.”
You may be saying goodbye for real.
E*TRADE Calls It Relinquishment
E*TRADE currently offers an online request called Relinquish Worthless Securities.
Its current pricing schedule lists worthless-securities processing at $0.
The relevant pages are E*TRADE’s forms and applications library and its current fee schedule.
Of course, procedures and fees change. The important point is that this is a routine enough brokerage problem that firms have built machinery specifically to deal with it.
We are apparently not the only investors who have made mistakes.
Merrill Calls It an Unpriced Security
Merrill uses another bit of financial-industry poetry.
Its forms library includes a Withdrawal of Unpriced Security Letter of Authorization.
You can find it in Merrill’s forms library.
Worthless. Unpriced. Relinquished. Abandoned.
Wall Street has developed an impressive vocabulary for things that investors wish they had never bought.
Then There Is the Tax Question
The desire to clean up the account isn’t always cosmetic.
There can also be a tax loss involved.
The IRS says that stocks, stock rights and bonds that become completely worthless during a tax year are generally treated as though they were sold on the last day of that year.
That can create a capital loss even though there was no ordinary sale.
The IRS also recognizes properly abandoned securities as worthless securities. To qualify as abandonment, however, you must permanently surrender and relinquish your rights and receive nothing in return.
The current rules are described in IRS Publication 550.
Worthless-security losses are generally reported using Form 8949.
There is, however, an unpleasantly philosophical question buried inside the tax rule:
Exactly when did your terrible investment become completely worthless?
A Bad Investment Can Be Almost Worthless for a Very Long Time
This question is more difficult than it sounds.
A stock can fall 99.9% and still not be worthless.
A company can file for bankruptcy and the common equity can continue trading.
A security can be delisted and retain some value.
A company can appear hopeless while shareholders technically retain a possibility of recovery.
The tax law cares about when the security became completely worthless.
Unfortunately, investing losses rarely have the courtesy to die at a clearly marked moment.
If the amount involved is meaningful, determining the proper tax year is something I would discuss with a tax professional rather than improvise.
The IRS Gives Worthless Securities an Unusually Long Afterlife
There is at least one useful quirk in the rules.
If you failed to claim a worthless-security loss on the original return for the year in which the security became worthless, the IRS generally provides a longer period for certain refund claims involving worthless securities.
Publication 550 describes a period that can extend to seven years from the due date of the original return, subject to the applicable rules and circumstances.
So even the tax code recognizes that it can take investors quite a while to admit that something is dead.
What If the Broker Won’t Take It Away?
Sometimes the answer is no.
Your broker may tell you that the security cannot currently be removed.
Ask why.
Perhaps the stock has never been formally canceled. Perhaps the transfer agent still recognizes the shares. Perhaps the security is non-transferable. Perhaps the broker’s systems simply cannot process whatever strange relic you own.
There can sometimes be alternatives, including transferring or directly registering a security.
Those alternatives may cost money and create more trouble than the ugly little $0 line was causing in the first place.
At some point, leaving the corpse where it lies may be the least inelegant solution.
Maybe the Scar Has Some Value After All
I am conflicted about removing some of these things.
Yes, I would prefer a clean brokerage account.
There is something aesthetically offensive about a position that has contributed nothing to my net worth for fifteen years continuing to demand screen real estate.
But the graveyard also has a certain usefulness.
Those positions are scars.
They remind us that the brilliant thesis wasn’t brilliant. That management team we trusted wasn’t trustworthy. That turnaround didn’t turn. That bankruptcy recovery never materialized. That speculative position we were certain was absurdly cheap somehow found another 100% to fall.
Brokerage statements usually celebrate the survivors. Apple compounds for years and becomes a larger and larger percentage of the account. The great investment grows until it overwhelms the evidence of all the smaller mistakes.
The $0.00 positions don’t let us forget quite so easily.
Perhaps that isn’t entirely bad.
Still, Some Corpses Deserve Burial
Before removing one, I would ask three questions:
- Is this security unquestionably dead?
- Am I surrendering any possible future payment or legal right?
- Is there a tax or administrative reason to get rid of it?
If it is unquestionably dead, carries no remaining rights and serves no useful purpose, I am happy to let the broker take it away.
There are only so many reminders of one’s investing genius that a person needs.
But if the position is a CVR, an unlisted stock, a live warrant or some other strange corporate-action relic, I would investigate first.
A scar may be ugly.
Cutting it off is considerably worse if it turns out the patient is still alive.
This article is for general informational purposes and is not tax, legal or investment advice. Worthless-security treatment depends on the specific security and the circumstances under which it became worthless. Consult an appropriate professional about your own situation.