An investing trap I almost fell for: Mini Tenders
Updated: Jul 3, 2020
I normally don’t write a post based on emotions, but something happened this week that made me so angry, that I just had to write about it. The topic of today’s post might be familiar to investors who have been doing this for a long time, but I am willing to bet it would catch new investors off-guard. This week, I almost fell for into an investing trap, almost a scam in my opinion. This is the world of “Mini-Tenders”.
So earlier this week, I got an offer from my broker for a tender. It was an offer to buy my AT&T shares for $36 per share. I quickly checked the stock price, I knew that AT&T had not been that price for some time now. And sure enough, the market price for AT&T was only $29 the day before. I had bought the shares at a much lower price and selling it at $36 would be a great deal, and after all, I could just buy them back at $29 if wanted them back I thought. So, I called up my broker and told them to accept the tender offer. This was a huge mistake because I had made my decision based on the offer summary and had not read the fine print.
It was later that day, when I was discussing this issue with some friends who mentioned “It must be Ponos again”. That was a weird statement. Who was Ponos? Its certainly not a name that sounds credible if I am being honest. I quickly took out the offer letter again and read the full offer with all the fine print. I cannot publish the full letter here but I will summarise the main points:
The offer is made by Ponos Industries LLC which is registered in the Caribbean Islands (The company is in no way related to AT&T and the offer is an unsolicited one)
The price offered is $36 but later in the letter it is also specified that the shares must exceed $36 on the last day of the offer expiry, which is 3rd July (This itself is a huge red flag. It means that Ponos is just fishing for prices. If the prices do not give them a profit, they will get your shares at the market price which is against the entire point of selling it directly to them)
Ponos also has the right to extend the offer. (This clause seems like an innocent one, but the implication is that once you have committed to the tender, and Ponos extends it, then your payment is delayed. And Ponos can do it indefinitely.)
Looking at these conditions, only a madman would accept such a stupid offer (or someone who clearly did not read the fine print...). There is literally nothing to gain for the investor and all the clauses are stacked towards Ponos. What makes me more angry is the deceptive way this is marketed to us. It is presented as a tender offer, almost as if it were a buy back. Luckily, my broker was able to reverse my decision and my stocks are safe now.
So when I Googled this offer, it does not immediately pop up that it is essentially a scam. How can they do this I thought, surely its illegal? So it turns out that in a “Mini-Tender” the tenderer can offer to buy less than five percent of a company’s stock and therefore get around the stringent rules set by the US Securities and Exchange Comission (SEC). The SEC has realised this and has an entire page “warning” investors about the traps of mini tenders. You can read more about it here.
The SEC notes that
“Mini-tender" offers – tender offers for less than five percent of a company's stock – have been increasingly used to catch investors off guard. Many investors who hear about mini-tender offers surrender their securities without investigating the offer, assuming that the price offered includes the premium usually present in larger, traditional tender offers. But they later learn that they cannot withdraw from the offer and may end up selling their securities at below-market prices.”
The SEC’s statement alone is enough to convince me that this is a scam disguised as a genuine offer and I am hoping that they will amend the rules to protect investors soon. However, till then I hope this blog post helps investors out in some way or another.
Upon digging deeper, AT&T are not the only victims of this scam by Ponos. In the last 2 years, Verizon, Oracle, GE and Boeing investors have gotten similar unsolicited offers and many have fallen prey to Ponos’ schemes. I have linked the warning letters from these companies below.
With the market so volatile, its good to be cynical about “too good to be true” offers. So as always, stay Cynical!
Read the warnings directly from the companies affected here:
Disclaimer: This post should not be interpreted as investment advice as I am not a professional financial consultant. The objective of this blog is to share my experiences with others and receive feedback. I will provide links to my information sources to the best of my abilities, but the reader is responsible for their own due diligence