WASHINGTON—The Securities and Exchange Commission halted trading in 17 microcap stocks it said had been hyped by Internet promoters despite a lack of current and accurate information about the companies.
The SEC said stock-touting websites, Twitter users and often-anonymous individuals posting to message boards have swayed the investing decisions of the public, which often doesn't have adequate information about the securities.
Companies don't necessarily have to file periodic reports with the SEC for their shares to trade, particularly in the over-the-counter markets, where the stocks subject to Tuesday's order were traded. But rules require that publicly disseminated information about the companies be accurate.
As an example, the SEC said several stock-promoting websites promoted Kore Nutrition Inc. as a "winner" following the company's announcement on Sept. 1 and 8, 2010 of new distribution agreements to market its energy drinks and the release of a company-funded research report that pegged the stock at $10.50. But the company's Sept. 30, 2010, quarterly report didn't mention the distribution agreements.
In another example, the SEC said one of the companies, Calypso Wireless Inc., hasn't filed periodic reports to the SEC since February 2008. The company's shares rose to an intraday high of 17 cents on Sept. 24, the same day a stock-promoting website allegedly encouraged investors to continue buying the stock. The stock traded at four cents on Sept. 21.
Calypso didn't immediately return a request for comment; Kore couldn't be reached for comment.
"They may be called penny stocks, but victims of microcap fraud can suffer devastating losses," said Robert Khuzami, director of the SEC's division of enforcement.
He said the SEC's new effort to crackdown on microcap fraud is targeting transfer agents, attorneys, auditors, broker-dealers and other "gatekeepers" in the market, and not just stock promoters.
Including Calypso Wireless and Kore Nutrition, the 17 companies suspended are American Pacific Rim Commerce Group, Anywhere MD Inc., Cascadia Investments Inc., CytoGenix Inc., Emerging Healthcare Solutions Inc., Evolution Solar Corp., Global Resource Corp., Go Solar USA Inc., Laidlaw Energy Group Inc., Mind Technologies Inc., Montvale Technologies Inc., MSGI Security Solutions Inc., Prime Star Group Inc., Solar Park Initiatives Inc. and U.S. Oil & Gas Corp.
Trading in the stocks will be frozen through Friday, June 17. After they resume trading, brokers and other financial intermediaries will have a heightened obligation to ensure the publicly available information about the companies' operations and financial condition is accurate.
Write to Jessica Holzer at jessica.holzer@dowjones.com and Melodie Warner at melodie.warner@dowjones.com
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