Good little article on the OTC BB.
A move to clean up the OTC Bulletin Board by requiring the small companies quoted there to
disclose basic financial information has left the companies scrambling to comply, and
investors in a bind.
The first phase of the plan, which is being implemented by the National Association of
Securities Dealers over the next year, begins July 1. Companies that fail to comply will be
dopped from the OTC Bulletin Board, and the NASD says that so far, two-thirds of the 94
companies facing the first deadline don't meet the eligibility requirements. By the time the
plan is fully implemented, half the 6,700 OTC Bulletin Board companies could be booted.
(The NASD also operates the Nasdaq Stock Market.)
A place on the OTC Bulletin Board is important because the service -- along with its updated
stock quotes readily available on the Internet -- has helped many otherwise unknown
companies attract legions of shareholders and achieve heavy trading volume. Without the
OTC Bulletin Board, price quotes would be harder to find,and volume -- and potentially stock
prices -- could drop dramatically.
Many OTC Bulletin Board companies find themselves in a difficult position: trying to calm
investors worried over the new eligibility rules, while at the same time facing what regulators
say is an insurmountable challenge to file the paperwork and win approval before July 1.
Many investors didn't know American Benefits Group was facing eligibility trouble until some
postings on an Internet message board noted that an "E" had been appended to the
company's stock symbol -- a designation used by the NASD to identify companies that are
within 30 days of being dropped.
The company, which was once involved in viatical settlements but now says it operates an
Internet shopping mall and several mining operations in Madagascar, issued a press release
June 4 assuring investors that it was "committed to file the documents on June 11" and
maiintain its place on the OTC Bulletin Board. (Viatical settlements let terminally ill individuals
collect a portion of their life-insurance benefits before they die.)
But as of Friday, the Deerfield Beach, Fla., company still hadn't filed with the U.S. Securities
and Exchange Commission. "Actually, we said the soonest we could do it was June 11,"
Jerry G. Mikolajczyk, American's chief executive, said in an interview. "At this time we won't
be able to comment on the exact date. Our official stance is no comment on everything."
But even if American Benefits Group had mailed the filings when promised, it still
would have been dropped from the OTC Bulletin Board. That's because the SEC
gets a 60-day comment period before the filings go into effect, and a company's
eligibility could be delayed significantly if the SEC has questions about the filing --
facts that some OTC companies failed to mention when they assured investors they
would meet the deadlines.
"It's not realistic to think that in 30 days or even 60 days these companies could get the
nessary filings together," says Adena Friedman, director of trading and market services for
Nasdaq. "If these companies didn't start working on this several months ago, there's no way
they're going to make it."
Ms. Friedman admits that investors could have difficulty unloading stock in companies that
are dropped from the OTC Bulletin Board. "We've been telling people this was happening
since January, and I think the companies bear the responsibility here for what happens
in the trading of their stock," she says.
Many of the companies that become ineligible will likely move to the Pink Sheets, a daily
publication of quotations distributed by National Quotation Bureau Inc., New York. NQB plans
to launch an online, real-time version of the Pink Sheets in mid-July, but those quotes will be
accessible only on a subscription basis to brokers and market makers, and won't be directly
vailable to investors.
Companies are being phased into the new rules alphabetically by ticker symbol. Only 94
securities are up for review for July 1 (65 of those are currently scheduled to drop off), but in
later months as many as 700 securities will be reviewed at once. The new rules require
companies to file a Form 10 with the SEC that contains audited financial information, and to
file quarterly financial statements. The Internet has helped turn the OTC Bulletin Board into a
popular playground for investors looking for big returns. Lured by cheap prices -- many
shares
trade for less than $1 -- and volatility that can send a company soaring 500% in a single day,
investors have flocked to the service, where average daily volume has tripled since 1995
(volume on the larger Nasdaq doubled over the same period).
But because many of the most popular OTC Bulletin Board stocks don't report to the SEC,
investors have been left to get information on such securities from often dubious sources,
including paid stock promoters.
And the OTC Bulletin Board has also proved to be fertile ground for investment scams --
almost all of the Internet stock-fraud cases brought by the SEC have involved companies
quoted on the OTC Bulletin Board.
"These are companies you never would have heard of before the Internet, and in many cases
that would have been a good thing," says William McDonald, director of enforcement the
California Department of Corporations, the state securities regulator. "I hope the public
understands that these delisted securities create a road map that we're going to use
to find fraudulent companies."
To be sure, SEC filings can be burdensome for small companies. Access Power, a
Jacksonville, Fla., provider of telephone service over the Internet, is among the companies
that were certified "eligible" in this first round. The company began filing with the SEC before
the new rule went into effect and estimates it spent about $20,000 to complete its filings --
and that was with minimal use of outside accountants and lawyers. "It probably took us four or
five months to get things together at first, including about four weeks just to get the financials
audited," says Glenn Smith, Access Power's chief executive.
The company now has one full-time employee -- out of its staff of 10 --who does nothing but
deal with SEC filings. "It's a strain, yes," says Mr. Smith. "But if you're a public
company, you owe this to your investors, period. |
