WSJ article on shells...
Basically, they want to prevent companies from delaying reporting information. So, the SEC is requesting shell purchasers to file audited financial statements with the SEC within 15 days of using this method to claim reporting status.
If the company is a legitimate company (which is what we want), they will be able to provide audited financials.
THIS IS POSITIVE FOR SHELL COMPANIES IMHO.
April 13, 2000
Shell Companies on OTC Market
Attract Attention of Regulators
By JOHN R. EMSHWILLER
Staff Reporter of THE WALL STREET JOURNAL
Cleaning up the market for very-small stocks has once again proved as
frustrating as weeding dandelions.
Recent moves by some companies on the scandal-scarred OTC Bulletin
Board, where some of the tiniest non-Nasdaq stocks are listed, have
drawn a sharp reaction from the Securities and Exchange Commission.
Dozens of small companies -- including some with possible connections to
stock swindlers -- have found a way to perhaps get around the new rules
that are designed to delist from the Bulletin Board any that don't make
enough financial disclosures. How? The companies are simply buying up
dormant shell companies that technically meet the new reporting status.
Presto: The clever companies can argue they are in compliance with the
rules, and thus can stay on the Bulletin Board. One regulator calls it a
"loophole" in federal securities laws to get around the new listing
requirements.
"We are very concerned," says Richard K. Wulff, chief of the SEC's office
of small business. He and other SEC officials say they fear that some
companies are using their shell purchases as a way to put off reporting vital
corporate information for months -- thus frustrating the very aim of the
Bulletin Board reforms. Mr. Wulff said such reporting gaps would be
"outrageous."
The Bulletin Board is operated by the National Association of Securities
Dealers, but is separate from the NASD's Nasdaq Stock Market, which
has higher requirements. Most of the 6,000 stocks on the Bulletin Board
aren't of a questionable nature, of course. But there have been problems
with many of the stocks there, and officials estimate that by June they will
weed out about half the companies there for failing to meet the new
reporting-status requirements.
The issue comes as Bulletin Board companies have drawn the interest of
online traders, which has produced huge volume and volatility in many
stocks and helped set the stage for some major stock frauds, according to
law-enforcement officials.
The shell boomlet caught regulators by surprise, says Lisa Roberts, the
NASD's director of Nasdaq listing qualifications. She estimates that
several dozen Bulletin Board companies have already taken this route.
Earlier this month, the SEC sent the NASD a letter about what it called this
"back door" registration procedure. The SEC said shell purchasers would
have to file audited financial statements with the commission within 15 days
of using this method to claim reporting status.
There is a reason, clearly, that regulators want small companies to disclose
more about themselves.
Take the case of FindEx.com Inc., which last month bought a shell
company called Reagan Holdings Inc. FindEx.com is an Omaha, Neb.,
online supplier of business and financial and religious information. In
announcing the Reagan purchase, FindEx.com said that buying the shell
gave it "fully reporting" status that it didn't have before.
But investors might have been better served if FindEx.com had reported
more about itself. Investors started digging into FindEx.com in May of last
year after the company's stock price soared (it is currently at about $6).
Internet stocktraders found on a news-release service a FindEx release
dated May 17, 1999, announcing a new president and chief executive, Joe
Szczepaniak.
A contact phone number for Mr. Szczepaniak led not to Nebraska but to
the Florida offices of Lionel Reifler and Yanni Koutsoubos.
Mr. Reifler, according to SEC records, has three SEC civil injunctive
actions against him enjoining him from future violations of securities laws,
and a 1989 stock-fraud conviction. In a 1999 phone interview, Mr. Reifler
strongly denied having any connection to FindEx.
Mr. Koutsoubos, in a phone interview last year, said he worked for a firm
that owned FindEx shares. He acknowledged having been sued by the
SEC but couldn't recall the details. SEC records show that the only case
involving a Koutsoubos in the past 20-plus years ended with the person,
identified as Ioannis Koutsoubos, being enjoined in the early 1990s from
future violations of securities laws in connection with an alleged illegal
stock-sale scheme. A federal court in San Antonio in a civil-lawsuit
judgment concluded that a Yanni Koutsoubos also goes by the first name
Ioannis, but Mr. Koutsoubos in the interview denied being Ioannis.
Also during a phone interview last year, FindEx's Mr. Szczepaniak said he
knew Mr. Koutsoubos and had met Mr. Reifler but that he didn't think
either had a role at the company. As for their phone number in the release,
Mr. Szczepaniak said he met that day with his FindEx predecessor at Mr.
Koutsoubos's office. He added that he didn't know why the meeting was
held there and said that Mr. Koutsoubos didn't attend. Messrs.
Szczepaniak, Koutsoubos and Reifler didn't return phone calls seeking
comment for this article.
The new shell games at Bulletin Board firms started after the SEC and the
NASD began moving to toughen the requirements for being listed on the
Bulletin Board. Last year, regulators began requiring that all companies
wishing to retain their listing would have to become "reporting" firms. This
meant the companies would have to begin filing periodic financial
statements and other reports with the SEC or other appropriate agencies
-- a practice long required of companies on Nasdaq and on the New York
Stock Exchange. NASD officials set staggered deadlines under which each
of the Bulletin Board companies would have to be fully reporting.
NASD officials say hundreds of companies have already been removed.
(Companies that are dropped are still publicly traded, usually in the
so-called Pink Sheets, but investors could have a harder time getting
stock-price quotations.)
Many of the dropped companies haven't been able to get their initial
registration statement, which includes detailed financial information, cleared
quickly enough by the SEC because of agency questions about the
accuracy or adequacy of the filing.
PayForView.com Corp.'s choice of the shell route was a matter of "purely
timing," says Marc Pitcher, president of New York Internet distributor of
entertainment events. "We were approaching zero hour of being dropped
to the Pink Sheets," says Mr. Pitcher, adding that his firm plans to
promptly and regularly file with the SEC all necessary financial information.
This new source of demand has "made it more of a seller's market for
shells," says Louis Taubman, a New York lawyer and part of a group that
recently created and sold three shells to Bulletin Board companies.
Write to John R. Emshwiller at john.emshwiller@wsj.com |
