Published July 13, 2009

Investors buy up worthless GM shares

They may have thought they were buying shares of the new GM

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(NEW YORK) Shares in 'General Motors', the company says, are worthless. But many investors apparently have missed the message.

GM's stock, which now represents the company's bankruptcy estate, continued an improbable rise in price on Friday, prompting concern by company officials and securities regulators that investors are confused.

The stock, which trades under the ticker symbol GMGMQ, gained as much as 43 per cent on Friday, after GM announced that it had completed the sale of its assets to an entirely new company.

Nearly 75 million shares traded hands until the securities industry's self-regulator, FINRA, halted trading at 2:09pm, citing 'extraordinary events'.

The stock closed at US$1.15 a share, up 31.3 US cents, or 37 per cent, for the day, giving the bankrupt company a market value of US$702 million, up from US$512 million last Thursday.

'This certainly has all the hallmarks of market manipulation, but it's very hard for the SEC to prove,' said Peter Henning, a law professor at Wayne State University in Detroit. 'Someone made a lot of money here.'

GM has issued statements telling investors not to buy the shares because they are destined to become worthless.

The shares represent ownership in the old GM, now known as Motors Liquidation Co, which will be wound down in bankruptcy court.

It contains unwanted factories and equipment, and billions of dollars in unsecured claims related to asbestos litigation and product liability lawsuits. Proceeds from the wind-down will go toward repaying secured and unsecured creditors.

The new GM, formally General Motors Co, is privately held and will not seek a public listing until next year at the earliest.

In a letter sent to the Securities and Exchange Commission last Thursday, lawyers for Motors Liquidation said they had gone to great lengths to discourage trading in the stock.

The company said it 'strongly believes that stockholders will receive no value in the bankruptcy liquidation process' and has cited the bankruptcy court's decision, which calls the company 'hopelessly insolvent', several times in press releases and on its website.

For decades, GM traded on the New York Stock Exchange under the ticker GM. But after the company filed for bankruptcy on June 1, its listing moved to the over-the-counter bulletin board, becoming GMGMQ.

FINRA decided to halt trading in the stock after concluding that investors thought they were buying shares of the new GM. Over recent weeks, the regulator received numerous calls from brokerage firms and investors asking which company the securities represented, officials said.

Trading in GMGMQ shares can be halted for the next 10 trading days, and FINRA officials are expected to release an official notice to investors this week explaining exactly what the securities represent.

The regulator also plans to change the stock's ticker symbol before allowing investors to resume trading, officials said.

Between June 3 and June 24, an average of 60.6 million GMGMQ shares traded every day on the over-the-counter market.

Regulators say some investors may have been encouraged to buy the shares after receiving e-mail messages from several publications that provide tips on penny stocks.

For example, a company called Penny Stock Chaser, which runs a website that gives stock tips, issued a news release on Friday saying it expected GMGMQ shares to rise after surging 39 per cent 'as the company emerged from the remains of bankrupt General Motors Corp by taking over the best assets of the biggest US automaker'. -- NYT