Expert: Gina Boykin - 9/18/2008

Question
I am using WAMU as an example.same can be done for LEH.
q1. I have WAMU shares.What happens if wamu is bought ?

2.What happens as LEH goes under chap 11-what happens to my shares ?should I hold them ?

3 what kind of proof I need  to prove that I had this shares in case of class actions ?

Thank you,
Bart.

Answer
I'll start with Lehman Brothers.

When a company files Chapter 11, they submit a plan to the bankruptcy court to reorganize and get out of debt.  Here is the order of people that are paid as a part of this plan:

1-secured creditors (like any banks that lended money for buildings, land, or equipment)

2-unsecured creditors (Anyone that has lent money to the company, but did not secure the loan with an asset.  Examples include general business loans and bondholders)

3-Last are the stockholders.  Stockholders have the greatest risk, because everyone else has to be paid first.  If the secured and unsecured creditors are not fully paid, the stockholders could end up with nothing.  This is why the shares drop so drastically.

Since the company filed chapter 11, this means it is going to reorganize.  It has to submit a plan to the bankruptcy court with plans to emerge as a healthy company sometime in the future.  The problem is that some companies' plans include canceling the old shares.  Creditors become the new owners of the new company and the new shares and the old stockholders are left with nothing.  This doesn't always happen, but it happens enough to say that it is extremely risky to keep shares of a bankrupt company.

If you do keep the shares, and they do end up becoming worthless, you have one good thing to take away from this experience, and that is the fact that you can claim a loss on your tax return.

Contact your local IRS office for information about how to report worthless securities as a loss on your income tax return.

Keep your brokerage statements because this proves the number of shares you hold.  You should actually keep statements for all of your holdings (bankruptcy or not) to prevent errors.  If you plan to sell of the shares, when you contact the IRS, you can also get a list of the documents required for their purposes to claim the loss.

Now on to WAMU.

Actually, it depends on who buys them and what they decide.  It is possible that the company that purchases WAMU will do a stock deal, where people who have stock in WAMU will instead receive a certain number of shares of the acquiring company.  It is possible, that WAMU will remain independent, and will be run by the acquiring company, in which case the shares will remain as is.