In December 1999, I filled out all the paperwork at my brokerage/custodian #3 to recharacterize my January 1998 conversion of a traditional IRA to a Roth IRA. The only assets in the account were and still are restricted (not publicly traded) shares of a private placement stock. I had opened the Roth Conversion IRA in Jan 1998 at brokerage #2 which was later bought out (acquired) by the large nationwide discount brokerage #3 in the spring of 1999.
When my Jan 2000 statement didn't show the recharacterization, I called brokerage #3 and was assured they were working on it and the final paperwork would show a December 1999 recharacterization. But after many calls to brokerage #3 complaining about why they were taking so long to complete the recharacterization and after a variety of earlier excuses or reassurances that it would happen soon, brokerage #3 now says that it is their company policy to not hold restricted securities in their accounts so they will not complete the recharacterization.
About 4 weeks ago, they mailed me (I did not request this) the share certificates asking for a "legal opinion" by counsel. I hope this didn't start a clock ticking on an IRA distribution. I've told them that the shares are still restricted.
I have already filed my 1040X and received a refund for the taxes that I had paid on 25% of the conversion value in 1998.
I don't want to pay taxes on non-existent profits... I converted in Jan 1998 because the stock was supposed to have an imminent IPO and a dramatic rise in value. By Dec 1999, it was clear that it was more likely to be worth less than I paid for it. The price I had paid for the private placement stock in 1996 is also what my initial custodian #1 had reported in a 1099R as the Roth conversion value in Jan 1998 when I transferred the account to a Roth conversion at brokerage #2. What a mess! What can I do now?
When I recently began talking about going to the IRS or SEC to complain, brokerage #3 said their compliance dept. could send me a letter explaining their position/the problem. Will that allow me to deposit the certificates in a new traditional IRA with a new custodian?...there still will be no record of the Dec 99 requested recharacterization!

You did not indicate the amount of funds involved. If you are talking about significant assets, you better talk to your accountant and find an attorney. In my view, your custodian did not live up to their fiduciary duties and will be liable for any damages you incur. The acquisition problem is understandable but not a valid excuse for their failure to act and keep you informed.

If this involves a small amount of money, then you might be able to solve the problem with either just your accountant or directly with the IRS. I hope you gave all instructions in writing and have the documentation.

Understand that part of the risk of transactions involving private placement stock is yours since you selected this illiquid investment for your account. One of the reasons custodians do not want to hold these assets is that they have no mechanism for establishing a price.

If they sent you the certificate, you are indeed now on the clock. Act immediately. Find local professional advice this week, and get started finding a new home for the account. It will take multiple calls, talk directly with the compliance dpt or IRA dpt of any brokerage as the counter staff are not likely to know the firms rules regarding this type of stock.

[This message has been edited by John G (edited 05-01-2000).]