5

I bought 4 shares of Tesla on 3 separate occasions (between October 2019 and September 2020) and recently became aware that my brokerage account lists 12 shares rather than 4. So, my cost basis is $1500 and the value is $8000 rather than $3200.

Putting ethical decisions aside, what happens if or when my large multinational broker performs an audit and discovers their error? Can they simply take back the shares at their present value and thus deplete the value of my account? Or can I negotiate the correction as if I had leveraged the 8 erroneous shares?

In other words, if the extra 8 shares were worth $2800 when the error was committed, will I owe them that or their current $6400 value?

Normally, I would assume the latter; but my father was in a slightly similar situation in the eighties when the same firm mistakenly credited his account with an extra few thousand dollars. His broker suggested they put it into this new risky stock called "Microsoft" until the correction, thus allowing him to keep any profits and not be liable for any losses. A short time later the error was discovered and he had to sell the shares and reimburse only the mistakenly credited amount. (Of course, when he told me this in 2010, he was very sorry he hadn't kept the shares!)

So, I'm wondering if I can negotiate a similar type of settlement.

(Note: Total newbie at investing here. Apologies for any lack of terminology to make this more concise.)

10
  • 2
    Does this answer your question? Is it too late to leverage Apple Tesla upcoming stock split? – gaefan Feb 13 at 12:53
  • 4
    Welcome new user, this is just called a "stock split". It's like when you change a $20 note for four $5s. Unrelated to that, the stock price of Tesla has indeed soared. (Whether or not they happened to have a stock split, you would still have the wonderful 8000.) – Fattie Feb 13 at 13:21
  • 4
    Nanoman’s answer explains it well, but the first impression on reading your question was something like “3 lots of 4 shares each always makes 12 shares”. :) – Lawrence Feb 13 at 13:37
  • 1
    You never had 4 $800s. You appear to have bought 2 shares pre-split for far less than the $2200/share that TSLA was trading at when it split. Those two shares increased in value over time. The day before the split, you had 2 shares worth ~$4400. The day after the split, you had 10 shares that were still worth ~$4400; each individual share was just worth less. Then you bought 2 more shares after the split. – chepner Feb 13 at 14:11
  • 4
    @KingCreole What Lawrence means is that "I bought 4 shares of Tesla on 3 separate occasions" is ambiguous -- (A) 4 shares on each of the 3 occasions, or (B) 4 shares total over the 3 occasions? It so happens that (A) would naturally give 12 shares (and would make it hard to understand why you thought there was an error at all), but your further context clearly indicated (B). – nanoman Feb 13 at 22:15
22

There is almost certainly no mistake. Tesla's stock split 5-for-1 in August 2020. I suspect that you bought 2 shares before the split (which became 10 post-split shares) and 2 shares after the split, for a total of 12 post-split shares. Congratulations on your rightfully large profit.

Note that if the stock had not split, you would theoretically now own 2.4 shares (because your recent purchases would be for 0.4 shares instead of 2 shares), and each share would be worth 5 times the actual current price, so you would still have the same profit.

5
  • 1
    Seriously? That can happen? I got a lot to learn. Tesla was my first toe in the water and now I wish I hadn't been so timid then. Thanks a bunch, nanoman! Now I can sleep easy knowing the Schwab cops won't come kicking in my door. – King Creole Feb 13 at 10:18
  • 13
    @KingCreole A stock split doesn't affect the value of your investment. One share pre-split is worth just as much as 5 shares post-split. The value has gone up because the stock price is up ten-fold since October 2019. – chepner Feb 13 at 14:00
  • 1
    While it's true you would have made more had you both more shares in October 2019, the value of your increased investment today wouldn't be a result of the stock split, just of the increase in price leading up to the split. Had no split occurred, your investment would still be worth the same. – chepner Feb 13 at 14:13
  • 11
    @King Creole There is two types of reactions. First is "this went well, I should have invested more" and the other is "this went bad, maybe I should have been more careful". Nobody can tell in advance whether a stock will perform well – Manziel Feb 13 at 15:05
  • 2
    @Manziel And those who can tell in advance are not permitted to disclose that information lest they run afoul of insider trading laws. – forest Feb 14 at 4:28
3

Apart from the explanation, if there had been an error on Schwab's side: It is very, very, very, very extremely unlikely that they would have put shares into your account that you didn't pay for, or that they took your money without buying the shares, so it is very, very, very, very extremely unlikely that anyone owes anybody money. And if you owed them money, it is also very unlikely that they would force you to pay, since it was their mistake and it would hurt their reputation if they made customers pay for the company's mistakes.

It is much more possibly that someone commits the wrong order. Say your wanted to buy 13 shares, and for some reason they buy 31 shares and charge you for 31 shares. That might go undetected for a while if you had enough money in your account. In your particular case it seems you wouldn't complain about that mistake, if the shares had dropped by half you might have a fight on your hand, and I suspect Schwab would have covered themselves legally if you took too long to complain.

2
  • Yes, before looking more closely at the details to compose this question, I'd assumed someone's keyboard got stuck and an 11 was entered instead of a 1 (assuming human data-entry). But even if someone had misremembered a 10 rather than 1 between eyes and fingers, it doesn't add up. Either they saw a 1 and entered a 9 or a 2 and entered a 10. 5-for-1 makes perfect sense. – King Creole Feb 13 at 12:53
  • 2
    You should be able to see the split in your brokerage account's transaction history as well; no need to conjecture over what happened. – chepner Feb 13 at 16:17

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.