Cashout Details

I did a bit more research on the bizarre partial cashout of the (FGNT) shares that occurred in my BrownCo account. Yesterday, I received a reply to my email to concerning the problem associated with the 124 shares that were not cashed out of my account that I detailed here on Tuesday. This is part of the response I received:

Thank you for contacting BrownCo, LLC; An E*TRADE Financial Company.

Corporate Actions informs me that did not accept all
the tendered shares for cash out. All the unaccepted shares were moved
to the new cusip, 351684204, FGNT.

Per our current fee and commission schedule, there is a $25.00 fee for
any mandatory cash reorganization. This information may be found on the
website home page by clicking the “Fees and Rates” tab.

Should you need additional information, or would like to speak with a
representative, please call us at 1-800-822-2021, Monday through Friday
7:30 AM – 8:00 PM ET.

I was not too convinced by this response, so I called up the number that was provided. My call was directed to John, in Corporate Actions. John indicated that all shareholders with BrownCo had about 75 percent of their shares cashed out.

I asked him why this occurred. He indicated that the instructions to cash out 75 percent of the shares came from the Depository Trust Company(DTC). The inference being that did not provide the DTC sufficient funds to cash out all the shares. I found this hard to believe since there are no regulatory filings with the SEC indicating that the cash tender for those holding less than 499 shares would be less than complete. In addition, I’ve heard back from several readers here that they have been completely cashed out of their shares of at other brokers.

I told John all of this, and I also told him that I thought that BrownCo might have received less than sufficient funds to cash out the shares because some shareholders with BrownCo might not have filled out the form that required for shares to be tendered. This thought gave John some pause and he put me on hold. When he returned, he told me that their records indicate that all shareholders with BrownCo submitted the required form. John thought that I should contact to find out what was going on. I chuckled that it is almost impossible to get information from investor relations at, since all such calls are only handled by the CEO according to the staff there. Needless to say, I haven’t had much luck getting information from the CEO, Dennis M. Apfel, in the past.

This afternoon, I decided to try to call anyways. The same usual routine occurred where I got transferred to Mr. Apfel’s assistant who indicated he was in a “meeting” and that she could take down my name and number so that he could call me back. I did this grudgingly and then I hung up.

After steaming for a few minutes, I decided that I was going to file a complaint with the SEC regarding this whole mess. My smart wife told me to call back and have my message for Mr. Apfel indicate that I would be contacting the SEC next Wednesday to file a complaint and that he should contact me before that point if he wanted to address the issue. Sure enough, the assistant quickly changed her message taking routine when she heard that. She told me to wait on hold and that Mr. Apfel would speak to me. After being on hold for a minute she came back on the line and told me that Mr. Apfel was on a call and would return my call in the next few minutes.

To my surprise, he actually called me back in ten minutes. Mr. Apfel did not sound too happy to hear that I was planning to file a complaint with the SEC. I told him my complaint that BrownCo was not properly funded to cash out its shareholders. Mr. Apfel confidently told me that he had cashed out 100 percent of shares from all shareholders owning less than 499 shares. He also indicated that I was the second upset caller from BrownCo he had received today. Mr. Apfel went on to tell me that 2,900 shares were in fact denied the tender offer, but they were associated with people who held more than 499 shares in total. Some shareholders just held the shares in different units according to Mr. Apfel and those were denied. Mr. Apfel also stated that he sent a copy of a letter sent to DTC to BrownCo indicating which shareholders should not be cashed out.

Given this explanation, I am starting to understand what is going on. I believe the problem is indeed with BrownCo or possibly DTC if they didn’t forward to letter to BrownCo. It appears that BrownCo did not identify the shareholders that Mr. Apfel identified as having more than 499 shares potentially across several of their accounts. Instead, it looks like all shareholders of at BrownCo were treated equally and that is why the partial cashout occurred.

This also helps explain why one commenter here using Fidelity did not get cash but instead got new shares, while one member of Contributor’s Corner also using Fidelity did get cashed out. It looks like Mr. Apfel, using that form that was mailed out in November, went the extra mile to identify shareholders that held in multiple accounts and exclude them from being cashed out.

The lesson here is that there is real danger in double dipping on these going private transactions using multiple accounts. If was successful in preventing these accounts from being cashed out, other companies might take similar action in the future.

BrownCo still needs to address this issue. I sent them an email with the details Dennis Apfel provided. I’ll let you know what kind of response I receive.

4 thoughts on “ Cashout Details

  • December 23, 2005 at 12:16 pm

    I had 499 shares in one account and 460 shares in the other, both acconuts are with Fidelity and both were cashed out without much issue on December 19th. One of the accounts is my wife’s IRA and the other a UTMA account for my son. So even if they tried to link multiple accounts, these two should show up as belonging to different owners.

    I am sorry that things didn’t go smoothly with your BrownCo. account. But thank you for sharing this with everybody. This is great learning experience for all of us. It reminds us that with this strategy, we are dealing with thinly traded, very small companies, and there are a whole different set of issues we have to face.

  • December 23, 2005 at 2:58 pm

    How much time has been spent on this investment?
    What’s the absolute real dollar return?


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