What Part Of ‘Worthless’ Don’t Blockbuster Investors Understand?...

By Katy Stech and Joseph Checkler

“Please don’t buy our stock” isn’t a common request from most companies, but that’s essentially what Blockbuster Inc.’s parent company is being forced to tell investors after a weird surge in the video rental company’s shares since last week.

The legal team behind Blockbuster’s liquidating estate, which has taken over after Dish Network Corp. bought Blockbuster’s assets in a bankruptcy-court auction earlier this year,  released a statement Thursday reminding customers of Blockbuster’s “strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios.”

For some, the message came a little late. Investors pushed Blockbuster’s Class A shares up nearly 75% Wednesday on OTC Markets Group Inc.’s Pink Market, with more than 68 million shares changing hands. Even with the recent surge, average volume for the past three months is just over 5 million shares. All of this was a bit curious considering that anyone who knows anything realizes that Blockbuster’s stock—which got all the way up to 38 cents at its highest point Wednesday—is pretty much worthless.

After the stock lost nearly 40% of its value in the opening minutes of trading Thursday, the U.S. Securities and Exchange Commission halted trading until Oct. 13—a pause amid the confusion. Such a move is somewhat rare but not unheard of, and an SEC source said inaccurate information or “at least information causing investor confusion” precipitates such suspensions.

What fueled the surge? The answer involves several things: an energetic announcement from Dish last week about a new Blockbuster-branded service; an eyebrow-raising stock report from the Hong Kong-based Bedford Report; and perhaps some short-sellers covering their losses after the strong Wednesday surge. The SEC cited “third party press releases to investors,” most likely a reference to the research reports and other analyses written about the stock. The SEC wouldn’t comment specifically on Blockbuster.

Since Dish’s sale closed in April, a handful of confused investors have called Blockbuster spokesman Marc Lumpkin to ask for advice on buying the defunct Blockbuster stock. Lumpkin told Bankruptcy Beat that he clarified each time that the pink sheets-traded BLOAQ—in fact—has nothing to do with Blockbuster’s latest moves. (Publicly-traded companies that file for bankruptcy usual get a ‘Q’ added to their stock ticker symbol shortly after filing.)

“We’ve answered investors’ questions when they call us to let them know the stock in question belongs to an appointed trustee by the bankruptcy court, not Dish network,” Lumpkin said.

Blockbuster’s stock now belongs to the company’s bankruptcy estate, which has essentially become a pool of sale money leftover from Dish’s $320.6 million purchase. Once bankruptcy attorneys sort through all the claims from groups who say they’re owed money, they’ll put together a payout plan to try to compensate those creditors.

Dish’s purchase price isn’t expected to leave any money for shareholders, who are paid after creditors. Blockbuster even made that clear in its latest SEC filing.

Blockbuster said it continues to file reports “solely to comply with SEC rules.” It added that “nothing herein shall be construed to suggest or imply that the shares of our common and preferred stock have any value or that our stockholders will receive any value for their shares of common and preferred stock …since the amounts owed to creditors greatly exceed the amount of the asset sale proceeds.”

Actually, if investors would just look at the filings and see the “old” Blockbuster’s new legal name—BB Liquidating Inc.—maybe they’d start to get the hint.

—Eric Morath contributed to this report.

CORRECTION: An earlier version of this blog post said Dish Network Corp., not the liquidating estate, released the statement to customers Thursday.