No. The costs of the fraudulent activity on the Pink Sheets by non-reporting companies is substantial. Add into the fact that, regardless of their claims, non-reporting companies almost without exception do not provide any economic benefits whatsoever. The vast majority of them have no employees, no revenues, and no real business at all. They are nothing more than share mills who illegally enrich the insiders. Additionally, their illegal proceeds are often moved offshore to hide from the regulatory and/or tax authorities. Other industrialized countries have figured it out and no longer allow non-reporting companies to trade, as the economic costs of such a market outweigh the cost of regulation.
There is no question Pink OTC does nothing to police these companies. They are a for-profit PR and trading company, not a regulator. I have reviewed quite a few of the self-reporting disclosure statements and unaudited financials made available by Pink Sheet companies, and the vast majority of them are non-GAAP compliant and offer incomplete disclosure (to put it politely). For instance, one company I follow claimed in their initial disclosure statement that as of May 31, they had only 10,000 free trading shares with the remainder restricted. This statement is clearly ridiculous, as the stock averaged over 1 million shares traded daily for months prior to that. Yet, OTC Pink upgraded the company to "current information" status. Clearly the facade of the Pink Sheet's tiers is doing nothing to deter fraud.
Yes, fraud occurs in other areas besides the Pink Sheets. However, fraud among fully-reporting companies is not only much less prevalent than on the Pink Sheets, it is also much easier to identify and, since the passage of Sarb-Ox, it is also much easier to prosecute. Most fraudsters operate in the Pink Sheets where they don't have to sign a Sarb-Ox certification which immediately increases not only the ability of the government to charge them with fraud, but also substantially increases the penalties.
As far as the claim the taxpayers would be on the hook for the increased costs of full reporting, it is not true. The SEC is completely self-supporting. The U.S. taxpayer does not pay 1 penny to the SEC budget. Instead, the SEC funds itself through what could be called user fees. Those include registration fees of newly issued stock, as well as fees on stock trading. In other words, those that directly benefit from the SEC actually pay for it. Currently, the SEC's fees actually bring in substantially more per year than Congress has budgeted for them. The SEC budget could increase by 50% without having to touch taxpayer funds. If anything, the individuals that are buying and selling stock are actually the ones being taken here – they pay far more in fees designed to provide for a regulated stock market than they actually receive in services.
You are right that government can not (and should not, IMO) protect the citizens from themselves. But, they can (and should, IMO) require private enterprise to provide the tools necessary for people to at least be able to make informed decisions and protect themselves. Even the lottery provides players with the odds of winning right on the ticket, as well as providing at least some economic benefits. Non-reporting Pink Sheet companies provide none of this information. Some even provide less than even that by providing clearly fraudulent disclosure and financial statements on Pink OTC.
You are right, there are always losers. But, right now, the Pink Sheets is creating a massive amount of losers, and the few winners are committing crimes in order to win. This unregulated market is a tremendous costs to society and is providing no economic benefit. It has to change.
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