Well first off FB is not a “development stage business” nor should it ever be compared to an OTC Security. It was about sharing ownership and paying those who had already built it. Whether you agree with or not the fact remains they sold ownership in an existing business that is well established. In contrast, unlike selling a story based upon no actual business in existence. Very stark contrast, for the simple purpose to launder money from one source to another while violating Federal and State regulatory laws in the process.
So we can stop with the FB references, they are not applicable to the issues in the OTC. Simply put, the idea of committing fraud with the express intent of defrauding large groups of naïve and inexperienced investors. It is one thing to try and a develop a business and fail, but entirely different to not even try at all and just sell shares and a story as most often do.
Sure a lot of this due to the inability to locate real finance to back these up. But on the flip side most do not try to find real finance to share in the risk of creating a business, because most are criminals or have poor credit histories. It is just much simpler to wait for the phone call from someone wanting to hand cash over and expecting ridiculous rates of return for such a short term loan. Really this is where the OTC marketplace diverges from exchange traded securities. Non reporting and it gets worse, but no one is “sharing” the risk of failure as required by regulation. Simply put everything is typically piled onto shareholder equity giving 100% of the risk to the shareholders and none of it on the business or financiers.
FB maybe an example of screwed up IPO, but common shareholders are not the only ones being affected by its consistent drop nor are they shouldering 100% of the burden either. There are actual institutional investors involved also white knuckling it every single day since the IPO sharing that risk. The management whether he is aware of it or not is also sharing that risk, simply put just because it is all good now doesn’t mean two years from now he is going to be in the same position.
An OTC security fails and the only ones holding the bag, and really holding the bag here, are the shareholders.
More regulations can certainly help in the OTC but they are not the simple answer, better enforcement and education could result in a better marketplace. Transparancy from TAs in the form of immediate share structure changes and attorney opinion letters certainly would remove a lot of the "conspiracy". There is certainly a lot of room for improvement in the OTC.
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