Shell Stocks; Reverse Mergers; Acquisitions; Zombies; Greys; & All "Other" Plays

[Potse]

SEC's approach to suspension/revocation needs improvement......

Unfortunately, the SEC pretty much has a "We can do whatever we want, whenever we want" approach to stocks that are not trading on the big boards. That kind of attitude poses a great deal of danger for many of the stocks we are interested in, and also furthers the SEC's ultimate goal of ending all (or at least severely curtailing the number of) reverse mergers in the US market.

Quite a few years ago I recall one of the SEC's "underlings" did an interview regarding all the controversy surrounding the Chinese stocks and the problems with the audits. That person made a statement which made it pretty clear that the SEC has a deep-seated dislike for the whole idea of reverse mergers. Basically the SEC wants to force any company that wants to go public to take on an underwriter and go through an "IPO process", regardless of whether you actually needed or wanted to have an underwriter involved with company. It wouldn't be easy for the SEC to actually implement this policy because it would receive severe backlash from lawyers, companies, etc, but if it did get implemented it would have a pretty negative impact on the reverse merger and direct registration markets.

The current approach the SEC takes toward suspension/revocation of delinquent or dark tickers really does a disservice to the average retail investor. There is simply too much inconsistency and not enough adequate public disclosure of its policy and actions. It needs an overhaul.

There really is no excuse why the SEC can not conduct its suspension/revocation process completely in the open. Every investor should be given the opportunity (in real time) to know when the SEC has contacted a potential suspension/revocation target, exactly what the SEC is requesting/demanding of the company, any exact timelines for response/punishment the SEC has made, and any response the SEC has received from the company.


By not making full disclosure of all of this, the SEC potentially allows insiders/friends/associates of the company an opportunity to make a buy/sell decision while the average retail investor sits there in the dark unaware of what is going on behind the scenes. For an organization that is supposedly looking out for the "little guy", this is an completely unacceptable way to handle the situation.



Many of the opinions/statements I made in the post below on another board still stand today.....

Filing delinquency...reply to private message.....

To the person who sent me a private message regarding VODG's SEC filing delinquency.....

Until VODG actually becomes current on its SEC filings, I think it is only prudent to be at least somewhat concerned about the potential for suspension/revocation of the stock. My guess is that VODG will be able to avoid the SEC taking action on the stock, but that is purely a guess on my part.

Over the last few years the SEC seems to have become increasingly erratic/inconsistent in its approach to handling filing delinquency situations, so anytime you have a stock fall into a delinquent status for an extended period of time (like VODG) it is wise to be somewhat cautious.

That inconsistency by the SEC has made it much more difficult for retail investors in shells and many active/operating small cap companies. There are a number of what I would consider to be extremely attractive shells or operating companies out there, but the SEC's "preemptive strike" policy it enacted a few years ago and its inconsistent/random enforcement of filing deliquencies increases the risk level in these investments.

A few years ago the SEC revoked a perfectly fine 15-12G shell, forcing the attorney who controlled the shell to liquidate the shell and distribute the cash to the shareholders. Meanwhile the SEC allows another shell to continue trading (even though it is now about 24 years delinquent on its SEC filings). I know of one shell a few years ago that was suspended/revoked even though the investment firm that controlled the shell was in fact getting the filings updated. So the firm lost all the money it spent on acquiring the shell, plus any money it spent on the filings. That is the type of inconsistency that has a lot of investors increasingly frustrated.

I think most investors would be served better if the SEC practiced what it preaches: full disclosure. I don't think it is too much to ask that the SEC provide the public with timely information on any contact/demands it has made with any companies it may be targetting for suspension/revocation. It would be incredibly helpful (and potentially very profitable) if you knew whether or not a specific delinquent company or shell was in any significant or imminent danger from the SEC. For example, the delinquent biotech/pharma VPRO had a monster move from its low in the last year or so for those investors who correctly guessed/gambled that the SEC would not suspend/revoke the stock in the near term.

Allowing the average investor an opportunity to make a better buy/sell decision before actually suspending/revoking the stock doesn't seem like an unreasonable request.

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