This might have something to do with it...
Mark
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Message 13156184
Shell Shock Going Public Gets Tough
By Rebecca Ramsay
The sound of slamming doors can be heard around the nation as the SEC and Nasdaq launch a new initiative to regulate companies wanting to go public. Small companies could save thousands of dollars and months of waiting on legal paperwork by merging with a shell company, a process that was not exactly legal, but not exactly enforced. Today, that process has come to a screeching halt thanks to a letter from the SEC's Richard Wulff in January.
A letter stating that small private companies wishing to go public through a reverse merger into a blank check, or shell company, could be denied. Some companies may already have paperwork on hold by Nasdaq without knowing why.
A blank check company is basically an idea on paper for a company with no assets, no income, no business plan and no products. But what it does have is permission to trade on the open market, amassing a solid shareholder base and free trading stock - an asset worth more than gold to these small private companies, which need fast cash infusion to get off the ground.
Protecting the Public
According to SEC officials, too many incidences of shell fraud were hurting investors, who lost the liquidity in their investments. Both the SEC and the investors were unable to differentiate between real operating companies and fake shell companies. Subsequently, these small companies must now fully register all shares with the SEC, a process that can delay a company's trading status for up to a year.
On Nov. 1, 1999, Ken Worm, of Nasdaq's Small Business Division, asked for guidance on this matter in a letter to the SEC's Richard Wulff. In a reply letter dated Jan. 21, 2000, that has just now surfaced, Wulff's letter has enraged the promoters, public relations firms, lawyers, small-cap companies and OTC BB community.
Because of the severe manipulation of the already trading companies, known as shells, the SEC is now actively enforcing its stance against the issuance of freely tradable shares that have not been registered with the SEC.
Instead of preventing scam artists from misuing shells to sell shares of nonexistent companies, the government has stopped the blank check shell filings altogether.
Ultimately, this enforcement by the SEC could clog the
pipeline to shareholder funding, which forces the small company to file an IPO - a process many entrepreneurs cannot afford. If the financial fuel of small companies is no longer flowing into the market, the consequences could be far reaching.
Unfortunately, many of the people who were hired to perform the reverse mergers for these formerly private companies, never informed the companies about the potential dangers of the shares not becoming fully registered.
Many of these small companies expecting to receive cash from investors for those tradable shares, to reward their investors, are now being rejected and may need to find alternative means of funding.
Distress Calls
How do companies now trading on Nasdaq, know if they can continue trading? How do investors know if their shares will be frozen indefinitely?
Small start-up companies created 3.1 million payroll jobs in 1998 alone. Without adequate funding, proper business operations never get off the ground. Take away or reduce the amount of small business contributions to the American economy and there could be serious repercussions. There were 500 blank check filings in 1999 and 300 in 1998. Some of those filings were from companies now worth millions of dollars.
But why now, early in the 21st Century, almost 70 years after the Securities Act, is the SEC deciding to take action? It could be connected with the latest surge in dot coms. Thousands of small companies, many born from the latest Internet craze, have acquired publicly tradable shares in three to five weeks time, allowing their ground floor investors to reimburse themselves almost immediately.
Others think it could all be due to an article that appeared in the Wall Street Journal last October about one man's ability to take 101 companies public and make millions doing it. "If anybody was so stupid as to be interviewed by Wall Street Journal for taking 100 companies public, they deserve to be locked up and put away," one securities lawyer said. "Reversing into a shell that's not fully registered is as illegal as robbing a bank."
Other securities lawyers argue that the Securities Act allowed this transaction as long as the reverse mergers were properly structured.
Will lawyers continue to fight this case for the hundreds of small companies that will be affected? Could this mess go to the Supreme Court? Are investors in danger of losing all of their money? To find out more, read the complete, in-depth story, found only in the upcoming June issue of Financial Sentinel. If you don't currently receive the Financial Sentinel, click here to subscribe - www.worldmicrocap.com .
Taking a company public is expensive. Here are some cost estimates on the various phases of "going public." (These estimates are only approximations and are subject to change constantly. Rates vary between lawyers.)
S4 = $75,000 to $125,000
6 to 8 month wait for free trading shares
10 SB = $10,000 to $35,000
Fully reporting, publicly traded company with no free trading shares
SB 2 = $25,000 to $50,000
6 to 8 month wait for free trading shares
S&P Manual Exemption = $5,000
(Required of all companies.)
Or
Cost of a traded shell = $150,000 to $350,000, plus 5% to 10% of all shares 3 to 5 week wait (prior to the SEC letter with free trading shares)
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