Investing In Companies That Are In Bankruptcy Can Be A Risky Business

Reno, NV Attorney serving Nevada & California

Share:

As a result of DISH Network Corporation’s recent acquisition of most of Blockbuster’s assets, FINRA has issued an alert to investors in an effort to clear up some confusion regarding the decision of whether or not to invest in companies that have declared bankruptcy. This alert was made in response to some Internet buzz that was created by third parties in an effort to entice investors into buying shares of Blockbuster’s struggling company. It also was intended to address some inaccurate information suggesting that Blockbuster has exited Chapter 11 bankruptcy.

With almost all of Blockbuster’s assets going to DISH Network Corporation, that which remains of the company has changed its name to BB Liquidating. Its shares still trade under the BLOAQ and BLOBQ stock symbols, despite the fact that it holds no value and has no related resources. This particular case has inspired FINRA to advise investors that holding or buying shares of any company in Chapter 11 bankruptcy can be a very risky decision that commonly leads to financial loss. It can take as long as several years for a bankruptcy proceeding to be completed, which allows a previously bankrupt company to emerge as a newly reorganized entity.  There is often investor confusion over the fact that during this process a company’s common stock may continue to trade.  Normally, the stock of a company that has entered bankruptcy will trade on either the OTCBB or the Pink Sheets. The letter “Q” will be added to its four letter stock symbol to represent the company’s bankrupt state.

Furthermore, investors are often tempted to purchase stocks of companies that have filed for reorganization with the hope that the new company will emerge as a profitable entity after the bankruptcy proceedings have been completed.  The reality of the situation, however, is that in most cases any shares held prior to bankruptcy are worthless after the company emerges as a new entity. This occurs because most companies cancel existing shares as part of their reorganization plan.  A normal bankruptcy reorganization plan allows the reemerging company to send out new shares under the new trading symbol. Investors holding the old common stock generally do not receive any of these new shares in exchange for their old ones. Therefore, there is very little monetary value left after a newly reorganized company pays its old debts to bondholders and creditors.

If you own shares in a company that has filed for Chapter 11 bankruptcy or are considering investing in such an organization, it is necessary to thoroughly research and analyze the company and the situation at hand. You can utilize the SEC’s EDGAR database to check the company’s SEC filing, and take advantage of the company’s own website to check on the status of the bankruptcy as well as information regarding the plan for its reorganization.

If you have any questions or concerns about investing in a company that has declared bankruptcy, a wise course of action would be to see a trustworthy securities attorney. Contact experienced Securities and Stock Fraud Attorney Thomas C. Bradley, serving San Francisco, Sacramento, Oakland, California and Reno, Nevada, for your free consultation.

Category: