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Big Windfalls Lose Gusto in Unclaimed Property Case

Courts: Berkshire Hathaway transferred stock to state, which used funds to balance budget, small investors claim.

May 04, 1997|MICHAEL G. WAGNER | TIMES STAFF WRITER

Left nearly destitute by her late husband's medical bills, Annis Bolivar was cleaning houses in Bakersfield for $15 apiece when she got the good news.

Fifty-two shares of stock that had stopped paying dividends long ago, and that the 66-year-old woman believed worthless, were, in fact, worth a small fortune--about $125,000.

No one had notified her when the company, whose stock she acquired in 1968, was merged in 1983 into one of the most spectacularly successful companies in Wall Street history--Berkshire Hathaway Inc.

Nor was she contacted before the company's new owners, headed by legendary billionaire investor Warren Buffett, transferred the Berkshire Hathaway stock she'd been awarded in the merger to California's unclaimed property fund--the state's repository for inactive bank accounts, unclaimed utility deposits, and the like.

The case of Bolivar, a retired school secretary, is far from unique. The 1983 merger between the Blue Chip Stamp Co. and Buffett's holding company had given about 500 California shareholders tiny stakes in a company whose stock fetched $38,000 a share last week.

Together, their holdings--at today's prices--are worth more than $30 million.

But here's the rub. The state, which sought the authority to sell the stock in the darkest days of the early 1990s recession, when it ran so short of cash that it issued IOUs instead of checks, sold off more than half of the Berkshire Hathaway stock in 1995 for an average of $31,177.77 a share--more than $6,000 per share less than today's price.

Bolivar's four shares contributed $124,711.08 to keeping California's government afloat that year. The shares of Alice and Masaru Morita, who once operated a small food market in Gardena but are longtime residents of Huntington Beach, were cashed out for $436,488.78.

So even though the value of the Moritas' shares has since risen nearly $100,000, that's all they were entitled to receive when their son, Allan Morita of Fountain Valley, made a claim to the state on their behalf.

"This is highway robbery," said Lt. Gov. Gray Davis who, as state controller from 1987 to 1995, vigorously fought efforts by the governor and the Legislature to use money from the unclaimed property fund to help balance the state's budget. "It's not the state's money. They have no right to rip off honest citizens."

But the legal responsibility for notifying shareholders in the first place was Berkshire Hathaway's, Davis said.

He's not the only one who thinks that way. A class-action lawsuit was filed on behalf of these overlooked stockholders in Los Angeles Superior Court this past week. The damage suit, prepared by the San Diego firm of Milberg Weiss Bershad Hynes & Lerach, alleges that Berkshire Hathaway failed in its duty to its stockholders by giving away their stock without proper notice, and demands, at least, the higher price their shares would fetch today--21% more than the 1995 liquidation price.

*

The shareholders filing suit are for the most part retired small-business owners--operators of grocery stores and service stations in Orange County, the Burbank area and South-Central Los Angeles. They include two Holocaust survivors, and the 82-year-old widow of a service station operator who returned to her hometown in Oklahoma after her husband's death.

William Palmer, a Sacramento attorney who found some of the stockholders at the addresses on company records, said he finds the case "just outrageous."

"Even though they held these people's addresses in their hands, they gave away their stock," Palmer said.

"An entire class of little shareholders [was deprived] of the right to own and benefit from arguably the hottest stock of the century," Palmer said.

Reached at Berkshire's Omaha, Neb., headquarters, Debbie Bosanek, an assistant to Warren Buffett, said "there isn't anybody available who can comment" on the case.

Palmer said that Berkshire Hathaway's attorneys are taking the position that this is just another group of small stockholders, some of whom fall through the cracks in every merger.

Because of the storied success of Buffett's company, most of the stockholders contacted by Palmer received substantial sums from the unclaimed property fund, even after paying 30% to cover legal expenses as well as the maximum 10% fee that the heir-finders who assisted Palmer can charge in California.

Bolivar, for example, netted $85,000 from her $125,000, and promptly paid off the remaining $40,000 in bills from treating her husband's liver cancer. "Without this money, I wouldn't have had an extra cent for anything the rest of my life," she said.

Others, like the Moritas, dealt directly with the state after Palmer contacted them, and obtained the liquidated value of their shares.

How so many small investors with such valuable assets fell between the cracks raises questions about the diligence of Berkshire Hathaway, and the banks that served as the transfer agents on the merger--the Bank of Boston and Bank of America.

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