Replies to post #330689 on Spongetech Delivery Systems, Inc. (fka SPNGQ)

[loanranger]

The share certificate hot potato:

By now I guess that it's clear that the DTCC freeze prevents a person from getting a certificate to evidence their share ownership. The following exchange with Scottrade assumes that no freeze is in place....I intentionally omitted that factor in my line of questioning for ease of communication.

My questions:
Please confirm that the following understandings, which are based on the information that you and your predecessors in this conversation have provided, are correct.

1. One can have their shares transferred to an account with the company's transfer agent if the security is eligible for transfer through the Direct Registration System (DRS).

2. Shares that are already held in "Book Entry" format are eligible for transfer through the Direct Registration System (DRS).

3. The issuance of a stock certificate assures that the shares were legitimately issued by the company and not created from "uncovered short selling".

4. Scottrade assumes no responsibility for that legitimacy because the validity of the shares in a Scottrade account is "between you (the Scottrade customer) and the transfer agent."


Scottrades responses:

1. If a stock is eligible for transfer through the Direct Registration System (DRS), the shares can be moved to an account at the transfer agent. This statement is true for taxable accounts only, not for retirement accounts. Retirement accounts require a custodian. Scottrade is the custodian for your Rollover IRA account. If the shares are moved to an account with the transfer agent, Scottrade would remain as the custodian but we would not have any control over the assets. As custodian, we would be responsible for IRS tax reporting with no access to your records in the account at the transfer agent. Therefore, we would not be able to properly perform our duties as custodian if we do not know what activity is occurring in the account at the transfer agent.

2. Shares that are held in Book Entry form in a taxable account are eligible for transfer through the DRS.

3. A transfer agent is hired by a stock issuer to maintain a list of all registered stockholders and to be responsible for canceling/reissuing new certificates. By obtaining a certificate from the transfer agent in your name, you would have possession of shares that have been deemed legitimate by the transfer agent.

4. Scottrade does not have the ability to verify the validity of shares that are traded in the marketplace. The validity of the shares in a Scottrade account is between you and the transfer agent.



Getting to this point required much tooth-pulling, however I think I finally got to Scottrade's bottom line on the issue. My purpose was simply to find out, in the absence of the freeze, how one could determine whether the shares in their brokerage account were real shares. And, as you can see, Scottrade would have you transfer them out of your account to the company's transfer agent for registration in your name. You could then request that the transfer agent mail you a share certificate. Your receipt of that certificate would assure you that your shares are real.
That's Scottrade's explanation. If one accepts it, and I do, then the folks that are demanding that their broker provide them their share certificates as proof of both ownership and legitimacy can cancel those requests. There IS a process and only the lifting of the DTCC freeze.....which has nearly a zero chance of happening......would allow a shareholder to execute it.



ps. As you can see, there is a lack of clarity as to how one secures certificates and proof of legitimacy where non-taxable account shares are concerned. I suspect that determining this would probably require several times as many exchanges with Scottrade as the five that have already transpired. I'll leave it to someone else, especially since I suspect only a couple people have bothered to read this far anyway. I've got fishing to do.