Promoters Will Be Seeing Pink
News and Commentary
May 21 2006
stockpatrol.com
Regulators take notice. The Pink Sheets have been leading the charge to restore credibility to the microcap securities market. Some observers may find it ironic; the Pink Sheets are home to more than 5,000 companies, many of which provide virtually no information to public investors. That could be changing. The Pink Sheets have adopted a series of initiatives aimed at increasing and improving the amount of information available to investors. As a result of those efforts, NASD’s short interest reporting rules have been extended to over-the-counter companies effective July 3, 2006. And, to further enhance corporate disclosure, the Pink Sheets have initiated a premium listing service, the OTCQX, for those Pink Sheet companies that elect to provide regular financial information. See The Pink Sheets - A New Sheriff in Town. For the first time, investors will have an opportunity to easily distinguish Pink Sheet companies that are willing to transparently share material information from those that continue to hide in the shadows.
Now, the Pink Sheets have taken another bold step - this time targeting shady stock promoters who routinely tout obscure over-the-counter (OTC) companies, many of which are traded on the Pink Sheets. These promoters circulate faxes and emails praising tiny companies and hawking shares, while failing to disclose risks – including the possibility that investors will suffer dramatic losses. As Pink Sheets recognize, “there is hardly a household in America that has not been inundated with spam emails making fantastic claims about easy profits to be made by any purchaser of some obscure stock.” These shills are not selfless securities saints; as a rule they receive shares or cash to push a stock. All too often, these promoters do not reveal their true identity, their relationship with the Company they are touting, or the full extent of their compensation.
Cromwell Coulson, President and CEO of Pink Sheets LLC, wants to see this change. He and the Pink Sheets are asking the Securities and Exchange Commission to adopt a rule that would require full disclosure of the identity, compensation and relationships of all participants (i.e., issuers, sponsors, third party promoters, etc.) directly or indirectly engaged in the promotion of stocks in the OTC market. The proposed rule also targets the flood of unsolicited spam emails and faxes promoting OTC securities to individual investors.
"We are requesting that the Commission take immediate action to expose securities promoters, spammers and their financiers whose actions are particularly detrimental to the livelihood of smaller public companies and to the confidence and financial well being of investors in OTC securities," said Cromwell Coulson, President and CEO of Pink Sheets, LLC. "Effective disclosure and enhanced transparency in the marketplace will facilitate a healthier trading environment that will benefit both issuers and investors in the OTC marketplace."
Pink Sheets hopes to accomplish this goal through four straightforward steps:
• Promotional materials must identify promoters, their sponsors, and the amount of consideration paid for the promotion;
• Adequate public information about the issuer must be available at the time the promotion takes place;
• Stocks held by promoters and their sponsors at the time of a promotion must be restricted and may not be sold without proper registration or an established registration exemption.
• Stock promoters must provide issuers with complete copies of all promotional materials and must inform transfer agents and broker-dealers that shares held by promoters and their sponsors are restricted.;
These simple requirements will enhance transparency and help investors to recognize fraudulent stock promotions that are tied to “pump and dump” schemes. In Coulson’s words, “Any company that does not have current information available has no business promoting its securities, since investors cannot make reasonable investment decisions in an information vacuum. By cutting off the ability of promoters, sponsors and affiliated parties to dump these stocks into the market, the rule will render fraudulent promotions unprofitable and set the stage for legitimate small company issuers to deliver information to the marketplace."
Pink Sheets are urging investors to submit comments to the SEC in support of this proposal – and we join them in that request. We ask all StockPatrol.com readers to contact the SEC with your support.
Meanwhile, Pink Sheets will not simply be waiting for the SEC to act. Although Pink Sheet companies are not required to publish public information, Pink Sheets believes that issuers should make public information readily available during any period that a company is the subject of a promotional campaign. To reinforce that concept, Pink Sheets plans to block public access to quotes whenever it receives a complaint about an unsolicited spam promotion. Pink Sheets does not intend to resume publishing quotes until it is satisfied that adequate current public information has been posted on the Pink Sheets or filed with the SEC.
Promoters must be seeing pink.
IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com
All content © 2005 StockPatrol.com. All rights reserved. |
