SEC Increasingly Using Trading Suspensions To Combat Fraud
Dow Jones Paul Beckett
Washington (Dow Jones)--The Securities and Exchange Commission is imposing an increasing number of temporary trading suspensions in stocks that SEC officials suspect are being manipulated or when information about stocks inaccurate.
SEC officials said the mechanism, which allows them to halt trading in a stock for 10 business days, is an effective preventive measure and a useful weapon in their campaign against fraud in the market for small, thinly traded-or microcap-stocks.
Not only can suspensions be imposed quickly, but the standard of evidence is lower than other emergency measures, such as a court ordered temporary restraining order, SEC officials said.
In the first four months of the fiscal year beginning Oct. 1, 1997, the agency ordered eight trading suspensions, compared with 12 in the entire fiscal year ending Sept. 30, 1997, 8 in fiscal '96, 4 in fiscal '95, and one in fiscal year 1994.
We've decided that this is an effective way to deal with situations where it looks to us like a stock is being manipulated - the price is running up, there appears no reason for it, and the information in the marketplace doesn't seem to be reliable," said Thomas Newkirk, associate director in an interview.
A suspension, which must be approved by commission vote, is used primarily for two reasons:to prevent those who may be manipulating the stock from selling it and to alert the market that information distributed about the issuer may be wrong.
Although a trading suspension also prevents investors from selling their shares, "it's usually the case that what's really going on is that the market manipulators have a huge inventory of shares they are waiting to unload on the wary public," Newkirk.
In its most recent action, the SEC suspended trading in Struthers Industries, Inc. (SIIS) of Los Angeles after questions arose regarding, among other things, the accuracy of the value of certain broadcast licenses in which Struthers claimed an ownership interest. The SEC first suspended the shares Jan. 9, and then again Jan. 26. The
second suspension was imposed after further questions arose concerning
company statements about its relationship with its prior auditors and its negotiations with SEC staff.
"By suspending trading in the stock, you notify investors that there may be misleading or inaccurate information in the market about the company and that there may be more information that investors need to know," said Elizabeth Gray, assistant director in the enforcement division.
Whentrading resumes after suspension, the SEC also has the opportunity to reinforce duties on brokers who quote stocks listed on the OTC Bulletin Board or the "pink sheets". Under SEC rules, the first broker to quote such a stock-either when it is listed initially or when trading resumes after a suspension - must research financial data about the issuer and have a reasonable basis for believing it's accurate.
At a commission meeting Feb. 10, the SEC will consider beefing up those duties to require all brokers quoting an issue to do their own research and to update that information daily. |
