DD Support Board and Research Team

[janice shell]

The SEC's concerns about reverse merger stocks have apparently been under discussion by them and FINRA for awhile. They were briefly addressed at a roundtable on combating retail investor fraud held in September 2018:

https://www.sec.gov/spotlight/equity-market-structure-roundtables/retail-fraud-round-roundtable-092618-transcript.pdf

The document is searchable; look for "reverse merger".

Does this mean any shells not Pink current or SEC reporting are getting sent to the grey sheets?

That seems to be under consideration. But more specifically, the point being made is that when a reverse merger takes place, the business of the surviving entity is almost always completely unrelated to the business of the dormant shell it acquires. The regulators feel it would make sense to require it to find a sponsoring MM to submit a new Form 211 to FINRA. The new 211 would contain information relevant to the new company.

So yes, that could mean that at some point--while FINRA was processing the new 211--the stock would be kicked to the Greys. So far, though, there isn't any new proposed rule, and we won't know exactly how it would work till there is one. It seems possible they could find a way to require the new 211 to be submitted in conjunction with the completion of the merger transaction, without necessitating a trip to the Greys.

Reverse mergers often take place without any notification to the regulators. The dormant shell is reinstated in the state where's it's domiciled, a new list of officers is filed, and the transfer agent is informed of the change of control. If the shell is a delinquent SEC registrant, the new owner will probably terminate registration by filing a Form 15. The company may begin to make disclosure at OTC Markets, but OTC Markets isn't a regulator.

The merger will, then, only come to a regulator's attention when it applies to FINRA for a name and ticker change. That leaves a lot to be desired. If a new Form 211 is required, fairly extensive disclosure will have to be made immediately.

That seems to me to be a good idea. Would it make life harder for the shell vendors? Maybe, though not as hard as Operation Shell Expel did at its peak. It might at least make reverse mergers seem less attractive to owners of private companies who want to go public, because it would add an additional step to the process.

But that wouldn't, in my view, be a bad thing. Reverse mergers are not a good way to go public.