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Should I Sell a Delisted Stock?

Question: I bought stock in a company that has since delisted from NASDAQ amid allegations of fraud. Recently there has been no news on the company. As an investor looking at losses in the stock, do I have any recourse at all in this matter?

Answer: There are two issues here.  The first is whether there is legal recourse for the money you lost in the stock.  If your loss is attributable to accounting fraud, broker misrepresentation or the like, you might be able to sue. Talk to a securities lawyer about how best to proceed, but keep in mind that stockholders have a lower standing than bond holders when it comes to distributing the assets of a distressed company.  It’s possible that you’ll get no money back even if the company is found liable.

The second issue is whether you can get tax relief for your loss. The answer is almost certainly yes.  First, check to see if the securities can be sold by your broker on over-the-counter markets. Companies that have been delisted from trading on major exchanges–even ones that have filed for bankruptcy protection–often continue trading in limited form on these markets.

If you sell the stock before year’s end, you can use the loss to offset gains this year, and beyond that, to offset up to $3,000 in ordinary income.  Unused losses can be carried forward to be used in future years. Even if you can’t sell the stock, the IRS allows you to claim it as a total loss for tax purposes.  Just be sure it has no value before going this route. Again, your broker should be able to help.

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