The Stock Market Is Patently Unfair

Because of the lack of disclosure, taxpayers with dividend-paying stocks in their margin accounts have to wait until after the tax year is over to see if they have a "surprise" waiting for them on their form 1099.

One Share = One Vote

The Internal Revenue Service doesn't play games. When a company pays a dividend on a share of stock, only one shareholder gets the benefit of the 15% special tax rate. Even if it's lent out to multiple short sellers who sell to multiple buyers, only one shareholder gets the special tax rate. So brokers carefully track shares of stock for tax purposes.

When it comes to voting, however, brokers do a lousy job of tracking shares.

They literally trample on the right of shareholders to vote their stock. When your shares are lent to a short seller, you are supposed to lose your voting right -- it is supposed to follow the shares.

Amazingly, your broker has the gumption to send you voting proxy materials even when your shares have been lent. In what amounts to a full-blown charade, your broker allows you to vote shares that you think you have, but really don't have.

The net result of this nonsense is predictable enough: Overvoting is a rampant problem. A trade organization (made up of stock transfer agents) recently reviewed shareholder votes for over 300 companies and found evidence of overvoting in every single case.

Some brokers have procedures in place to summarily reduce the vote totals that they report so that they don't report excess votes. Rather than report 150,000 votes when the brokerage has only 100,000 shares, for example, the broker simply trims the vote. So, as a shareholder, your vote may actually be worth only a half or three-quarters of a vote, or whatever fraction that the broker deems fair and equitable.

The voting issue is a mess that needs to be cleaned up. The right to vote should be tied to share ownership, with enforcement of a "one share, one vote" rule. If the brokers can figure out who gets the special 15% dividend tax rate, then they can figure out who has the right to vote.