Published: Tuesday, August 17, 1999
Bulletin Board faces standards
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JANE BRYANT QUINN COLUMNIST
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The National Association of Securities Dealers (NASD) is cleaning out its garbage pit,
otherwise known as the OTC Bulletin Board. That's where prices are quoted for stocks
that aren't listed on the various stock exchanges.
For the first time, Bulletin Board stocks will have to live up to respectable
financial-reporting standards. If they don't, they'll be thrown off.
About 6,700 companies trade on the board, which the NASD started in 1990. Many of
them are legitimate. But the Board is also a playground for stock manipulators and
crooks.
Until recently, the NASD didn't pay much attention. The Bulletin Board quoted the price of
any stock, of any quality, that a broker wanted to sell. The company didn't have to file
regular financial reports. No one checked to see whether it was a real business or an
empty shell.
As a result, phony stock promotions flourished. Bulletin Board stocks have been the
favorites of cheating Internet rumor sites and high-pressure telephone crooks.
The NASD found itself under fire for tolerating such a mess, especially now that so many
new investors are influenced by the Web. Board volume more than tripled in the past year,
says Adena Friedman, director of trading and market services. This year, the board is
averaging 350 million shares a day.
So finally, some minimum standards are looming into view, which should clear out the
worst of the companies. Since January, all stocks that come to the Bulletin Board for the
first time have been required to file audited financial reports with the Securities and
Exchange Commission, a banking regulator or an insurance regulator. Last month, this
reporting rule was extended to all the stocks traded there.
The NASD is checking these older stocks in alphabetical order. In the first group of 93
stocks, only 29 were filing the proper reports. Another 13 hurried to do so. The remaining
51 don't report, so their prices no longer show on the board. In the second group of 177
stocks, 121 were thrown off.
Think about it: That's 172 so-called public companies that won't disclose to their investors
their actual financial status and business prospects. They may send you short, self-serving
statements, but they recoil at the level of truth required in filings to regulators.
The NASD's cleanup squad expects to finish by next June; about 3,000 stocks may get
the boot.
Anyone holding a stock that's quoted on the board should ask the company whether it's
complying (or will comply) with the NASD's new rules. If the answer is no, ask yourself why
you're investing.
You might check on the companies that have been kicked off the board so far. You'll find
their names and ticker symbols at www.otcbb.com. All is not lost for speculators
dedicated to mystery stocks. Starting last week, a new electronic garbage pit opened for
business: the Pink Sheets Electronic Quotation Service.
In print form, the Pink Sheets has been published since 1913, by the National Quotation
Bureau (NQB). It's a daily list of some 6,000 stocks not traded on any exchange.
Any company can be quoted on the Pink Sheets; no continuing financial disclosures are
required. ''We're the flea market of securities,'' NQB chairman Cromwell Coulson told my
associate, Dori Perrucci. He expects to pick up 2,000 to 3,000 stocks the Bulletin Board
boots off.
Initially, electronic quotes are available only to brokers. But eventually, they'll be on the
Internet for everyone to see. Innocents will move seamlessly from the Bulletin Board to the
Pink Sheets, led by the same crooked stock manipulators who conned them before.
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Write to personal finance columnist Jane Bryant Quinn at the Washington Post Writers
Group, 1150 N.W. 15th St., Washington, D.C. 20071-9200. She answers questions only in
her column. |
