I've now been worth $80 million for almost 48 hours. I can't say it feels much different than before....though I am surprised I haven't heard back from the company yet. Maybe they decided to consult their lawyers before calling me.

Here's a photo of the stack of stock certificates--click on the thumbnail for a large version where the number of shares on the top certificate (4,477,132) is clearly visible.


I've been asking myself a bunch of questions over the weekend, and while I'm not a securities lawyer, I've come up with at least a few answers:

Are the stock certificates real?
Yes.

Do I really own 5.7 million shares of ShoreTel?
Sort of, maybe. Fifty years ago, if you held the stock certificates then you owned the stock. These days the stock certificates are less important, and the company's share register (the list of stockholders and the number of shares they own) is usually considered the legally binding way to know who owns the stock. Stock certificates nowadays are mainly used to demonstrate ownership and transfer it to someone else.

So if this is a simple printing error (most likely) then these certificates don't actually represent any ownership in the company. On the other hand, if the company's share register got mixed up somehow, then things are much more complicated and I might actually be the legal owner of the stock.

If I own the stock, can I sell it?
Even if it turns out that I'm the legal owner of this stock, there are some legal restrictions because it's all stock issued pre-IPO. Each certificate is stamped "TRANSFER OF THIS STOCK IS RESTRICTED SEE LEGEND ON REVERSE SIDE." The fine print on the back has two main restrictions: first, it can't be sold until 180 days after the IPO (which would be sometime in January). That gives everyone lots of time to sort out the problem without the risk that I would sell the stock first. The other restriction is that the stock needs to be registered with the SEC before being sold (this is called a "144 sale" after the form you have to fill out to sell the stock). That means that selling these shares will create a paper trail a mile wide.

Even assuming that it would be legal and ethical to sell the stock, it would still be very tricky. When you're selling 14% of a company, you don't just log on to your Charles Schwab account and click the "Sell" button. That much stock hitting the market all at once will cause the price to tank, and you won't get as much for it as you should. Instead, you need to work with an institutional stock brokerage to sell the stock in a controlled manner to buyers who are willing to take millions of shares at a time.

So there's pretty much no way to sell the stock quickly, and even if I could, it wouldn't be a quiet anonymous process.

How do I fix this mistake?
The short answer is: contact the company and do whatever they ask me (within reason).

How hard this is to fix will depend on where the mistake happened. If this is just a matter of the printer jamming and misprinting a few certificates, they may just reprint the certificates and ask me to destroy the ones I have.

On the other hand, if they messed up the share register and I actually own these shares, it might get more complicated. I may have to sign the certificates over to the proper owners in order to effect a share transfer, and there may have to be some nominal consideration for my giving up ownership of the stock (I would accept a logo mug or T-shirt from each of the VC funds whose stock I wound up with). The nominal consideration is something some lawyers insist on to make sure it looks like an exchange rather than a gift.

In any event, it's reasonable to expect the company to reimburse me for any direct expenses (for example, legal fees) I incur in helping correct the problem.

Is there any way I could get to keep the stock?
A year or two ago here in Minnesota, the state mistakenly sent a $5 million check to a small contractor, instead of the few thousand she was owed. The woman was convicted of fraud because she deposited it in her bank account and made no effort to try to return the money (she might have also spent some of it, but my memory is fuzzy on the details). The state argued--successfully--that the $5 million check was so obviously an error that the woman should have known it wasn't really hers.

My situation here is pretty much the same, though an order of magnitude bigger. These stock certificates are so obviously a mistake that anything I do to try to cash in on them could be considered fraud.

So my duty is to take whatever reasonable steps I can to rectify the error, which basically means contacting the company right away and asking them what they want me to do (which I've already done).

I've not yet heard back from the company, though, so I don't know what their response might be. It's conceivable (though extremely unlikely, given the sums involved) that the company might insist that there's been no mistake, or even affirmatively declare that the shares really are mine. In that case, there is a point at which I could give up trying to convince them of their mistake and take the company at its word.

As I understand it, the law asks me to make a reasonable effort to rectify this kind of mistake; it does not require that I martyr myself on the cross of insufferable bureaucracy. Given the sums involved, though, even if the company insisted up down and sideways that the stock is mine, I wouldn't make any effort to cash it in without the advice of some very expensive lawyers.

The way I figure it, the odds that the company tells me to keep the stock are about the same as being hit by lightning and winning the lottery. Simultaneously.

If I was dishonest, how could I turn this to my advantage?
Since I'm an honest guy, I'm pretty much resigned to the notion that all I'm going to get out of this bank error in my favor is a fun story to tell the grandkids, and maybe a free lunch or T-shirt.

Ah, but if I was dishonest....

The mind boggles at the possibility. Even though the certificates are basically worthless (and couldn't be sold for months in any event), the paper could make fairly convincing proof of great wealth, proof which would stand up to fairly close scrutiny. It could form the basis of an elaborate con job, one where I used the stock certificates to prove my investing prowess.

The simplest con might be to take them to a large bank (one which handles private banking for wealthy individuals) and ask them to hold the certificates for me, mentioning that I'll probably want their help with a 144 sale after the 180-day lockup expires. Then return a week later and ask for a personal unsecured loan for $5 or $10 million. It's illegal to borrow money using restricted stock as collateral, but it's perfectly legal for the bank to approve an unsecured loan using the stock as proof of my eventual ability to repay. Then, check in hand, I can hop a flight to the nearest third-world country without an extradition treaty.

It's a good thing I'm honest.

UPDATE (8/13/07): My vast fortune is gone!