With the SEC actions lately many are wondering what is actually safe to play in OTC.
There are a few elements at work making the OTC rather unstable this year.
One is the SEC and its new rules. Another is a surge of interest in OTC stocks accompanied by a surge in scams being orchestrated.
The SEC's new rules are an attempt to clean up the OTC and eliminate "zombie" tickers. These are dead companies whose stock still trades in the open market. These are ripe for scammers to attempt to use to run stock selling schemes. The SEC's new rules will help them make these unavailable to scammers. Legit companies have until September to update filings with OTC and/or SEC to avoid being suspended from retail trading. If suspended the ticker symbol can no longer be quoted by Market Makers in a public market.(actually eliminating the ticker from existence comes later)
Recent suspensions over the past few weeks are not entirely related to the new rules. They are the result of either long term investigations and/or the recent spike in trading interest and subsequent spike in fraud attempts. The GME narrative may be to blame for both. regardless it is important to understand what the SEC is targeting and stay away from it.
Social Media hype is your first red flag. All OTC stocks get hyped in social media but, some have very orchestrated pumping going on. This what the SEC is targeting along with the stocks OTC status. If it is horribly delinquent and obviously a long dead company then any sudden rise in volume/price must be tied to social media and gets the SECs attention.
A third element is your biggest red flag. Is the hype coming from someone supposedly in control of the company. Hype generated by organized groups on social platforms is bad enough but, some of the most successful scams usually stem from a CEO making social media statements to get the ball rolling. They usually have a few others involved who keep it going on twitter, ihub, facebook, reddit....
The important thing is to recognize that despite there being a CEO, the company is still delinquent, dead and producing nothing.
Sticking to companies who behave is the best way to avoid getting your investment suspended. Real companies publish PRs(which cost money), they don't just tweet.
I would say they stay current but, OTC/SEC filings cost money. So not all active companies who were struggling stayed current. Now they will have to though or get suspended.
Real companies are active at the SOS where they are incorporated. If your seeing a lot of hype over a company with no valid SOS registration, walk away.
There will always be social media discourse about companies. Remember though, you are buying stock convinced it will rise in value from someone who is equally convinced it will lose value. learn to recognize the difference between your average person expressing their interest a stock and someone attempting to desperately build a customer base he can unload his shares on.
Custodianships...this may be a dying breed of investment. The pool of stocks available will be much smaller by end of year.
How safe are they at the moment though. They are not immune to SEC actions stemming from the tickers previous history. We have no evidence the SEC takes the award of custodianship into account when suspending. Usually because the suspension process was decided long before the court case. ideally the custodians will start getting current to avoid issues while in their possession.
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