The Black Box: Brokerage Held Shares; missing data from my transfer says a lot about how and when my brokerage had to locate shares to satisfy my DRS request.
TLDR; Wall Street, to include hedge funds, brokerages (minus Fidelity it seems), and market makers are colluding to keep the excessive float, and real price of GME hidden. Vanguard did not provide ComputerShare the cost basis for my shares in my DRS request, as required by IRS laws, and instead marked them as "noncovered" so that I don't see the cost paid per share on record. This violates IRS laws, by telling ComputerShare that my shares were purchased prior to 2011 (they weren't). The only reason I can think Vanguard would do this, is to hide the fact that they had to buy real shares to fulfill my DRS request. More evidence that DRS is putting pressure on brokerages to buy shares.
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First some backstory, before we get to the "price is wrong punchline"...
September 13th I initiated a DRS of 10 shares from Vanguard to ComputerShare. Three days later on the 16th those shares showed up at ComputerShare...
You can check this yourself on your CS account by clicking on "View your recent activity" and checking under the "Transactions" tab. Then expand GAMESTOP CORP and click on "View Details" for each DRS transfer you have. Here is what I see...
I DRS'd the remaining 40 shares on October 1st from the same account, same block of GME I purchased this year that the initial 10 came from, and they showed up yesterday as non-covered as well -- my how the wait line has grown... from 3 days to 18 to DRS in just a couple weeks.
I was curious to see if the cost basis, or what I paid for the stock as recorded, from these blocks -- the 10 shares that came in on the 9/16 and the other 40 that came in on 10/19 -- were the same, as they should be.
But when looking at the details of the shares on ComputerShare, I found that my shares were all listed as Non-covered. What's that mean? (you're wondering, me too)...
So I found the following document on CostBasis from ComputerShare (it's only 2 pages, some easy reading) that explains more about covered and noncovered marking. Here are the important parts...
https://www.computershare.com/us/Documents/CostBasis-%20FAQ-021218.pdf
Emergency Economic Stabilization Act of 2008... interesting, more on that later. But for now, let's keep digging into this Cost Basis thing...
Ok, so cost basis is important to the IRS, because you don't pay taxes on your initial investment/cost to buy the stock, but rather you just pay taxes on the gains (or you write off losses below your cost basis when it goes down, which is important to note). The IRS wants to know how much a stock cost when you bought it (or was bought on your behalf; key point here) so that you can't lie on your tax write-off and so that he gets his fair cut of your gains. Uncle Sam wants his cut, and you don't mess with the IRS, it's one of the government entities billionaires fear.
Continuing on in this document…
So why are my shares recorded as Noncovered? I'm wondering, you're wondering. I mean, it would be really nice to know exactly what Vanguard spent on the 50 shares I DRS'd from them... because when I bought these shares (and by bought, I mean I gave Vanguard my money and they told me I owned GME at that price) for around $150 a share, I suspect Vanguard, on books, assigned me something they already owned or would later locate (once I DRSd), rather than actually going onto the open market to buy 50 shares at $150 each when they took my money. Oh the joys of not actually owning the shares you bought, just IOUs. Thanks brokers.
Important historical note: Remember in the spring when Apes reported during the exodus from RobinHood seeing cost basis numbers on their transferred shares in the thousands per share for GME? Some speculated, at the time, this is what Robinhood had to pay Citadel to unfuck their lack of buying shares when they took your money and thought they'd buy the shares later. This might have been the actual cost of GME at the time. Robinhood wasn't smart enough to mark those shares as Non-covered? Maybe brokers (Vanguard at least, as I'm seeing) are doing this now to avoid reporting what's really being spent to locate (buy from Citadel legitimate shares) when they are forced to locate to DRS. Could it be that brokers (such as Vanguard) know...
this is an easier way to not let people see that the delay in DRSing isn't actually a backlog of requests, but rather a scramble to juggle (realign a dwindling supply of) their assigned shares as GME is plucked from their books as a DRS to ComputerShare. BTW this is a good time to plug DRSing, if you've been living under a rock... your brokerage holds your shares on your behalf, but they literally don't belong to you, unless you DRS. They belong to Cede, and your broker assigns them on books to you. There is no way to sugar coat brokerage owned shares of GME, you're trusting your broker to make good on your holdings. And you're hoping the NCSS and DTC will police and come in to back you up if brokerage gets caught with too many assigned shares than on record with Cede belonging to them -- or worse, if your brokerage goes under. I'm not saying the DTC wouldn't come running to your aid, I'm just saying, you're putting that faith in players who have clearly worked against our interests from the start of this... as evidence by all the DTC laws having been passed this year to avoid being caught holding the bag for this shady business.
DRS, and sleep better at night (not financial advice, but rather some common sense).
So I called Vanguard, and got nowhere. Canned response basically telling me to look at my history on my account. I know, they know, that the price they recorded as me paying them for my shares, isn't necessarily the real price that the real shares that are now registered in my name with ComputerShare. This is the data point I'm trying to get, to confirm what was actually spent on the legitimate shares I now hold in my name at ComputerShare. I want that data. How much did they cost Vanguard to 'locate'?
So I decided to ask ComputerShare...
Hmm. So tells me that ComputerShare records shares as "noncovered" when brokerages fail to report (as required by law for cash bought shares after 2011) what the cost basis is on those shares.
Again, the IRS wants this information so that people can't manipulate pricing to avoid, or cut short, on tax requirements. See, when Robinhood reported a cost basis of $3,000 per share, on shares transferred to Fidelity (others reported this, not me, to be clear)... it means that whenever that Ape sells his/her share for $10,000,000 they are skipping paying tax on $2,800 (give or take $100 based on the real price they paid for it) of the cost basis, and Uncle Sam misses something he's owed. More importantly (though it might not seem to us who HODL) is the alternate point that if said Ape sold GME tomorrow (*gasp*), to cover life threatening illness, then the IRS would see a net loss from the cost basis of $2,815 (at current price of GME) when compared to the reported $3,000 purchase price that RobinHood provided on the transfer (what they paid to locate). This would set off alarm bells with the IRS, because GME hasn't (yet) ever been $3,000 a share. But according to the reported Cost Basis, someone could write off a loss of $2,815 on their taxes, because of that RobinHood reported. Back to my point of why Vanguard may have reported my transfer (both of them) as noncovered. Maybe the penalty for not properly reporting the transfer isn't as bad as the IRS digging through brokerage records to uncover why located shares show on record purchase prices in the thousands.
One last part from the CostBasis documents from ComputerShare...
Wait a minute. I bought those shares this year way after 2011 -- so they must be covered shares. I can say for certain I never owned a share of GME prior to 2020 (though I wish I had a time machine and could go back and change that). So what exactly is the law on this... back to the reference above about the Emergency Economic Stabilization Act of 2008. Turning to Investopedia...
Made the hair on the back of my neck stand up. Too Big To Fail. I'm going to stop here... but first I will draw some parallels. This part is my own opinion, and shouldn't be taken as DD from this point forward... though it's my opinion, it's supported by countless DD's and observations from this community over the last several months, explaining what's going on in rational terms in an attempt to bring this all together...
Conclusion
Many brokerages (not just RobinDaHood) in collusion with Citadel, are up to some really really shady stuff. We've been seeing the shadows of this shady for some time now, collecting as much data as we can to help explain what we know to be the case... that many multiples more than the float is held. Brokerages have profited a great deal in lending shares cheaply for Hedge Funds to short companies into the ground, and these brokers have also turned a blind eye in their duty to hold themselves, and Market Makers (Citadel) accountable to proper tracking of shares bought on behalf of clients (retail) that they hold with Cede (the company that is listed as owner of the shares that brokers track on record as assigned to clients who gave them money for said shares). The reason brokerages aren't ringing the alarm bells on this is because they profit greatly from lending hundred of millions of shares of GME, to forward shares held in their books to shorts.
Now that GME is toxic to those with a bearish sentiment, they (brokerages, MMs and hedge funds) all know they are in for a shitstorm if when GME takes off, so no one wants to press the button. The mutual assured self destruction analogy is a perfect one here. DRS is breaking this black box open and getting us closer to the explosive event that in launch, as it plucks shares away that need to be accounted for when they are no longer in the Black Box of Games. "Noncovered" is an assignment that tells the IRS this stock assignment was purchased prior to 2011 (lie), to avoid reporting the locate price paid by the broker. Once a share is DRS'd it has to have a cost basis, as it is now written into the books with ComputerShare (Gamestop's registrar) as being assigned to someone outside this circus that is Wall Street. Vanguard isn't reporting this number, but instead providing information that makes ComputerShare assume the stock was purchases prior to laws requiring the number to be provided on a DRS transfer. The music is winding down on this carrousel...
Tick Tock.
Edit 1. Wanted to address a good point I've seen mentioned a few times in the comments already. The fact that brokers have 2 weeks (or maybe it was 15 business days?) to report to the registrar (ComputerShare) the cost basis information for the shares that were DRS'd. Some report that for the first few weeks they say noncovered, and then after a few weeks the cost basis information showed up. I can report that, in my case, this did not happen. The first screenshot in this post showing the 10 shares I initially DRS'd were DRS'd on 9/13 and arrived at CS on 9/16 (5 weeks ago). They are still listed as noncovered.
Edit 2. Adding to the discussion -- my interest (and others who have DRSd) in knowing what Vanguard paid for the shares that are now registered in my name is to discover potential fraud (that in my cash account shares were not actually assigned to me during the purchase date or T+2 period around it). My right to see what Vanguard paid for the shares appears to be baked into IRA laws. I'm not saying Vanguard owes me this data, I'm saying they are violating IRS laws by not providing it to ComputerShare. Could this be a simple error on their part, or a backlog from DRS requests piling up, sure... but I doubt they'd knowingly violate laws, instead they'd simply hire more people to abide by them - so I doubt it's the case. I'd love to know what they spent on the shares to confirm said suspicion about T+2... I can look up the price range of GME for the day I purchased these shares that should have been assigned to me on Vanguards books from those dates, plus the two days after. I'm curious if Vanguard actually assigned me shares during that time, or not, or if my position was naked until they located for this DRS. This data would tell me. I'm not arguing that the end result is me having these shares I paid $150 a piece for... the point is to see what is happening in the black box.
Posted Oct 20, 2021, 7:09 PM UTC · edited