OTC Bulletin Board Companies Will Exit DTC Electronic Share Transfer System, Even If Legal Action is Required
THURSDAY , JANUARY 30, 2003 09:02 AM
BLAINE, Wash., Jan 30, 2003 /PRNewswire via COMTEX/ -- The following is being issued Marcus Johnson, representing Investor Communications International, Inc.:
A newswire by Dow Jones Reporter Carol Remond issued Wednesday, January 29, 2003 suggests that the Depository Trust Company (DTC) is intending to reject or delay the settlement of trades by OTC Bulletin Board companies that choose to opt out of the global electronic clearing system managed by the DTC and the National Securities Clearing Corporation ("NSCC"). The group of companies have elected to opt out of the DTC system in order to combat Naked Short Selling.
Without naming a source at the DTC, Remond reiterates policy statements issued by the company, including what she calls a "warning" to participants who trade the shares of the companies that opt out of the system of "potential risks" because this matter has "not yet been resolved". In a continued pattern of elusive statements and innuendo, Remond fails to articulate what the "potential risks" may be or, more importantly, what liability the DTC/NSCC clearing system may have if they take punitive measures against shareholders.
If Remond is implying that the shareholders of the companies that exit the system may not receive delivery of their actual stock, or be refused the opportunity to buy or sell, she once again demonstrates that she is uninformed. What Remond suggests may happen in the future is, in fact, already happening daily to companies that abide by DTC/NSCC transfers due to the flaws in the transfer system. Shareholders of GeneMax Corp. (OTC Bulletin Board: GMXX) for example, have been suffering these ill effects for months, but only because the electronic transfer system has completely failed the company and allowed for the Naked Short Selling that is estimated at over 1 million shares.
Remond still refuses to acknowledge the true underlying and widely reported reason for the OTCBB companies' actions and instead distorts facts regarding the withdrawal process and refers to the OTCBB companies as attempting to thwart "short selling", instead of "naked short selling." -- a very different and legally compelling distinction.
Short Selling is legal and routinely takes place. A short sale is a transaction where stock is pledged against stock to be sold. The seller makes the sale anticipating that the share price will decline so that a purchase or "buy-in" can be made later at a price below the sale to create a profit from the difference between the sale and purchase.
Naked Short Selling is not legal, according to US SEC rules. Naked short selling takes place where shares sold are never borrowed, never delivered by the seller, but nevertheless the seller collects money for the stock not delivered within the three days prescribed by NASD guidelines. The three-day settlement system run by the National Securities Clearing Corporation ("NSCC") does not ensure that shares that are sold in a transaction are ever delivered.
As for exiting the DTC system, the OTC Bulletin Board companies are resolute and unequivocal. A spokesman for the group states, "Our legal research indicates that DTC's reliance upon UCC Article 8 (law governing share transfers) is misplaced and provides insufficient legal authority to prevent a public company from removing its securities from the DTC system. The companies are determined to take every appropriate action to ensure that the trades in their securities are accurate and authentic -- as provided by law, even if that means launching a class action against the DTC and NSCC."
The recent actions of DTC were precipitated by a growing group of OTC Bulletin Board companies that began exiting the system in 2002 in favor of Certificate Only holdings. They include GeneMax Corp., Ten Stix Inc. (OTC Bulletin Board: TNTI), Midas Trade (OTC Bulletin Board: MIDS), Hadro Resources (OTC Bulletin Board: HDRS), and Vega Atlantic Corporation (OTC Bulletin Board: VATL), among others. Other companies, including Intergold Corporation (OTC Bulletin Board: IGCO) have applied for or expressed their intent to withdraw from the DTC share transfer system. These companies are opting out of the DTC system to combat the Naked Short Selling abuses made possible by the electronic transfer system, which is fatally flawed.
In response to shortfalls of the system and focused attacks by misinformed or unscrupulous parties, an association has been formed by Investor Communications International (ICI) to bring the entire group of OTC Bulletin Board companies together, in a common cause with a common voice. The National Association Against Naked Short Selling was launched in January 2003 and has forwarded a registration and participation letter to all OTC BB companies. The group's mandate is to form a united front against these illegal and unethical abuses, provide information to the Federal Authorities at all levels and begin a national scale public relations campaign for awareness amongst the responsible and independent media and investment industry contacts. The goal is to ensure enforcement of the existing legislation that is intended to safeguard shareholders and the companies they invest in.
OTC Bulletin Board companies seeking to protect themselves against predatory trading and Naked Short Selling can take immediate action by registering with the National Association Against Naked Short Selling (www.nakedshortselling.com) at its website, sponsored by ICI. Companies can also find how to carry out the process of opting for Certificate Only trading by contacting ICI, toll free at 800-209-2260 or registering online at www.icihome.com.
