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Field Notice: Worthless Security Transactions

ESI has developed a process to assist Brokerage account customers in handling worthless securities. This process aims to help customers declare losses on these positions, discontinue the generation of periodic account statements, and avoid ongoing service fees related to maintaining an account.

Effective June 30th , customers can instruct ESI to undertake the unsolicited sale of specific equity securities for a total price of $1.00 by completing the worthless security request form, available in Merrill at Cat #54033, Form# ES0749

What is a Worthless Security?

For this process, a worthless security is defined as an equity security having no market value. In ESI Brokerage accounts, these securities typically fall into two categories:

  1. No Stockholder Equity/Officially Deemed Worthless
    1. Companies officially deemed “worthless” are typically reflected in the position description (either on statements or at the account level) as having “No Stockholder Equity.”
    1. To be deemed worthless, one of the following scenarios must generally occur:
      1. A bankruptcy court has declared the company bankrupt under Chapter 7 or 11.
      1. The company has no shareholder equity.

If a position meets these criteria, ESI can remove the position from the account through a “worthless security journal.” Customers can request this removal verbally over the telephone or by submitting a written letter of instruction.

  • Non-Trading or No-Value Securities:
    • A security that is not trading and/or has no value but does not meet the criteria above.
    • If this condition is met, ESI can now take instructions (via the Worthless Security Sale Request Form) from the customer to take possession of the security for $1.00 and remove it from their account. Clients should note that the company may not be considered worthless even if the stock holds no value at a specific point in time.

Tax Implications

Once the security is removed from the account, the client may be able to declare a capital loss for tax purposes. We recommend that clients consult with a tax advisor if they have any tax-related questions.

Questions

For any questions, please contact the ESI Brokerage Trading Desk at 1-800-344-7437 or send an email to ESITrading@nationallife.com to schedule a call to discuss the new process.

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