Roadblock

I’m sure I will make it past this snag, but it is certainly annoying.  I’m going to be delayed a few more days in setting up due to a takeover that happened over a decade ago, and snags in the Automated Customer Account Transfer [ACAT] system.

I’m glad that I have to transfer my accounts to Interactive Brokers ahead of my clients.  It is making me more aware of the troubles they may go through, that I can help them.  So, in mid-December, I submitted a full transfer, which Fidelity complied with, and Interactive Brokers rejected.

I contacted IB, and they said that they could not accept one security, a legacy security in my account entitled, “ESCROW RISCORP INC CONTINGENT VALUE RTS,” ticker RISOR.PK, CUSIP 767597982.  What, you ask, is this sorry excuse for a security?

Well, back eleven years ago, I was doing small deal arbitrage, at which I did poorly.  Riscorp was taken private by its controlling shareholder, but there was an outstanding lawsuit against Zenith Insurance Company and Arthur Andersen LLP.  From the SC 13E3:

Each share of Class A Common Stock issued and outstanding immediately prior to the Effective Date was converted, as of the Effective Date, into the right to receive $3.075 per share, less any required withholding taxes, plus a contingent right to receive an additional pro rata cash amount if RISCORP recovers any amounts in connection with the litigation currently pending against Zenith Insurance Company and Arthur Andersen LLP.

That’s how the rights got created.  But there was no one with a concentrated interest to follow the lawsuit, and over time, the “security” lost its transfer agent — I am not sure how.  There have been a lot of insolvencies and mergers in financial firms, and many things slip between the cracks.  As it is now, the securities are non-transferable.

So, I requested a partial transfer of assets — everything except the Riscorp Contingent Rights.  This time Fidelity rejected the ACAT, initially for reasons I could not fathom.

I had been researching the rights, and contacted Zenith Insurance, now a part of Fairfax Financial Holdings, to see if the case had been resolved.  Truth, there had been several cases, and it took two tries, but a lawyer at Zenith pointed me to a resolution of the case. (What a good guy.  Zenith did not have to help.  And Arthur Andersen was dead.)

He pointed me to this 10-K, page 26:

On April 1, 1998, pursuant to an Asset Purchase Agreement dated June 17, 1997 (the “Asset Purchase Agreement”) between Zenith Insurance and RISCORP, Zenith Insurance acquired substantially all of the assets and certain liabilities of RISCORP related to RISCORP’s workers’ compensation business (the “RISCORP Acquisition”). On January 13, 2000, RISCORP filed a complaint against Zenith Insurance and another defendant in the Superior Court of Fulton County in the State of Georgia. RISCORP’s lawsuit sought a declaration that would have had the effect of requiring Zenith to pay either $18.1 million (and related charges) or $5.9 million. On September 4, 2002, by stipulation, the litigation filed by RISCORP was dismissed with prejudice and with no liability to Zenith.

Okay, so the rights are worthless, and should be canceled.  So I called Depository Trust & Clearing Corporation [DTC], and asked them to do so.  They told me that I could not ask that, but that I had to go through Fidelity.

Next call, Fidelity.  It took some wrangling (one hour), but with the help of their Private Client Group, they managed to get the attention of their group that dealt with DTC, and get them to submit what I had learned.  They said they would have an answer for me in 48 business hours.  That will be on the day the market opens in January.

But on a parallel track, I called Fidelity again to see why they had not processed my partial transfer.  They said that in one case, Interactive Brokers had not asked for the cash, ans in the other case, if I had asked for cash less the $50 termination fee, it would have processed.  So, today (try #3) I submitted another request for a partial transfer, minus $50/account.

So, I should be ready to go sometime next week, given the ridiculous 3-day settlement period.  Fascinating that one worthless piece of paper would delay my startup,  but it did.

When I started this, I expected that the roadblocks would be the Maryland Division of Securities, or my E&O insurer.  That a worthless security would hold me back is fascinating.

But I will use the time for good.  I want my initial investors to benefit from my current insights, so I will take the extra time to set up the trades for the current rebalancing, so that they can benefit from that.

I look forward to the challenges here in the coming year, and wish all a Happy New Year!