Is this wrong?

[bobo60]

What is the name of your state (only U.S. law)? NY
hello
my friend purchased 4000 shares of stock for $8000, from a company. he had the stock for about three years. it has always done poorly in the market. near the end of 2011, the company takes back, 3,600 shares of their stock from his portfolio. they dont reimburse him for the 3,600 shares they took back. they leave him with 400 shares of stock!!! can they do this? he asked his broker about this and she just shugged, and told him, companies will do that sometimes, if their stock is doing poorly for a long time. isnt this stealing from my friend? is this legal?

bob

 

[LdiJ]

What is the name of your state (only U.S. law)? NY
hello
my friend purchased 4000 shares of stock for $8000, from a company. he had the stock for about three years. it has always done poorly in the market. near the end of 2011, the company takes back, 3,600 shares of their stock from his portfolio. they dont reimburse him for the 3,600 shares they took back. they leave him with 400 shares of stock!!! can they do this? he asked his broker about this and she just shugged, and told him, companies will do that sometimes, if their stock is doing poorly for a long time. isnt this stealing from my friend? is this legal?

bob

I think that your friend should come here and ask his own questions. I suspect that there is more to the story. No, a company cannot simply take back stock without paying for it. However, if the broker sells it to them at fair market value at the time, that is perfectly legitimate.

So..for example if the stock is worth 2.00 a share when he buys it, and worth .01 cents a share when the broker sells it back to them, that is legitimate if the broker has the authority to make that sale...and its sometimes quite wise, because that sale would allow him to take a capital loss on his taxes. If he cannot take a capital loss then his money could be lost without getting any tax break for that loss.

 

[justalayman]

What is the name of your state (only U.S. law)? NY
hello
my friend purchased 4000 shares of stock for $8000, from a company. he had the stock for about three years. it has always done poorly in the market. near the end of 2011, the company takes back, 3,600 shares of their stock from his portfolio. they dont reimburse him for the 3,600 shares they took back. they leave him with 400 shares of stock!!! can they do this? he asked his broker about this and she just shugged, and told him, companies will do that sometimes, if their stock is doing poorly for a long time. isnt this stealing from my friend? is this legal?

bob

just how would the company "take back" the stock? If he owned it, it was registered in his name and unless he relinquished it, it remains in his name. If the broker had authority to sell the stock, then the broker could have sold it without further input from our friend. As LdiJ states; your friend needs to ask his own questions. I doubt you have the necessary information to be able to further this discussion.

 

[Zigner]

It's also possible that the issuing company was changing the number of stocks available in the company. What I mean is that it's possible that those 400 shares are now worth the same as what 4,000 shares was previously.

 

[ShyCat]

It's also possible that the issuing company was changing the number of stocks available in the company. What I mean is that it's possible that those 400 shares are now worth the same as what 4,000 shares was previously.

Yes, that's called a 'reverse split'. OP's friend should google it and learn more about his stock investments before panicing.

 

[bobo60]

Is this wrong

hello,
thanks for the info. my friend has been in the market since 1968, and has many many shares of stock in many companies. but he is like stuck in the 60's! he doesnt even have a pc, or for that matter, even caller id!!! so he cant google anything. i told him that he needs to have a sit down with his broker, and have her explain it, in laymans terms, just what happened! i thought it was the brokers responsibility to keep the clieant informed, and to answer any questions the client may have. i also told him, maybe he should look for another broker! he needs to be more agressive, and his broker needs to listen, and answer his questions. in the meantime, ill google for him, and see what i come up with...thanks again...bob