By Chelsea Cody
Since my search for the online IOU market began last week, the number of Craigslist ads for California registered warrants has grown. The number of IOU sellers however, has not. At least that is the consensus among earnest online buyers.
Craigslist advertiser Dan Goldsmith hasn’t received any response from buyers. But he was contacted by NBC and the Wall Street Journal about his ad for IOUs.
“People are taking California warrants very seriously and someone is going to make a pretty penny off these things if they can find a seller in a desperate enough situation,” said Goldsmith. “I’ve seen offers as low as 69 cents on the dollar up to 99 cents.”
Co-creator of the online IOU trading site, BuyMyIOU.com, Jason Boze has received just two legitimate but hesitant calls from sellers since the website’s creation a week ago.
“We’ve gotten more of a response from news agencies and investors than we have from people looking to sell,” said Boze. “But the market for this won’t start until next week because of the banks.”
He has a point.
California banks said they would stop accepting warrants last Friday and people will be unable to easily redeem the full value of their IOUs, forcing some to seek lesser reimbursement elsewhere.
As a result, the potential for a secondary online market is great. That is, of course, if legislators don’t force regulation. Regulation would depend on whether or not the IOUs are viewed as securities and whether or not they fall under federal securities law.
The Municipal Securities Rulemaking Board, as well as the Security and Exchange Commission that oversees the MSRB favor viewing the IOUs as securities.
On the other hand, the State Controller’s Office, which distributes the IOUs, views them not as securities but as a form of payment.
If the IOUs were to be viewed as securities it would mean that anyone acting as a go-between for sellers and buyers would have to register with regulators.
Until the securities debate is decided, California Treasurer Bill Lockyer’s office won’t redeem IOUs sold from one party to another without an accompanying signed and notarized bill of sale.
From the State Treasurer’s Office:
PLEASE NOTE: The State Treasurer’s Office will not redeem such registered warrants (purchased from another individual) without a notarized Bill of Sale signed by the payee whose name appears on the registered warrant. This requirement to present a notarized bill of sale to redeem a registered warrant does NOT apply to banks, credit unions, investment banks, other financial institutions, brokerage firms or broker-dealers.
Whether or not the online CA IOU market will become more than media hype is, as of now, difficult to determine.
The coming weeks and the next several months will decide the livelihood of the online market for registered warrants and the state of California. Unfortunately, the two appear to have mutually exclusive interests.