There are literally thousands of penny stocks that are publicly traded.
It isn’t uncommon for some of those stocks to get abandoned by their control people for a variety of different reasons.
When a publicly traded company gets abandoned it doesn’t just stop publicly trading.
The abandoned shell will continue to trade until the day that the SEC files an administrative order to revoke the Issuers registration (for SEC filers) or until FINRA deletes the symbol (for non-SEC filers).
That can often mean years of trading as nothing but a zombie ticker.
As abandoned shells, the public Issuers will fall behind with their business license at the state level (since nobody is around to pay the annual fees due to the Secretary of State).
When two years pass without an entity paying its business taxes at the state level, the entity becomes revoked.
This opens the door for control of the public Issuer to be taken over by an interested party (a shareholder or debt holder for example) through a custodianship petition.
The interested party can file a petition with the local court requesting that the court approve a motion to let the interested party (or an individual of their choosing) take over control of the abandoned shell “in the best interest of the shareholders“.
The only real concerns the court will have is that there is no objections to the motion and that the custodian has a clean background.
The petitioner has to prove to the court that they have made a legitimate effort to contact the former control people and they have to convince the court that the custodian is a respectable choice with a clean background that will act in the best interest of the existing shareholders.
That usually isn’t hard to do so most custodianship petitions will be granted by the court.
The only exception is usually when the old control people do show back up to object or if the petitioner voluntarily dismisses the petition (this may happen if the SEC suspends the Issuer during the proceedings or initiates an administrative order to revoke trading in the Issuer during the proceedings).
Stocks that end up being taken over through custodianship petitions can offer several profit opportunities for penny stock traders for a number of reasons:
1. The share prices have often fallen on light volume to relatively low prices (for the share structure of the stock) due to years of inactivity putting some of the stocks in extremely good price ranges and setting them up with the potential for large gains if interest builds for the stock.
2. Most have seen very little trading activity for many years so much of the float is owned by non-active traders that may not even realize the stock has become active again …. this means the retail/active float is often even smaller than the true float.
3. Custodianship stocks are automatically considered reverse merger candidates. As reverse merger plays that allows for the type of speculation that can create big message board/social media pumps
Not all custodianship stocks will turn into good custodianship plays. So which are the best?
• Stocks that are in lower price ranges (typical under $.01/share or in the low pennies) with relatively good share structures for the price have the biggest potential to turn into big plays so they usually draw the most interest.
• Interest can also depend on who the custodian is for the shell. Some custodians are more popular than others. The custodians that were involved in big movers in the past tend to get more attention when they do new custodianships.
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