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Gold/Mining/Energy : Golden Eagle Int. (MYNG) -- Ignore unavailable to you. Want to Upgrade?

To: James E Lynch who wrote (7308)	7/4/1998 10:46:00 AM
From: James E Lynch	Respond to of 34075

I. EXECUTIVE SUMMARY AND BACKGROUND A. Executive Summary Incidents involving fraud and manipulation of microcap securities that trade in the over-the-counter ("OTC") securities market appear to be rising.[4] This trend has been the subject of Congressional hearings,[5] state hearings[6] and numerous media reports.[7] These developments have caused the Commission to reexamine Exchange Act Rule 15c2-11, its rule governing the publication of quotations in the non-Nasdaq OTC market. As a result, the Commission is proposing comprehensive amendments to Rule 15c2-11 that address abuses involving microcap securities and more generally would enhance the integrity of quotations for securities in this market sector. The proposed amendments also would reorganize and simplify the Rule's provisions. Microcap securities[8] generally are characterized by low share prices and little or no analyst coverage. The issuers of microcap securities typically are thinly capitalized and often are not required to file periodic reports with the Commission. Securities of microcap companies usually are quoted on the OTC Bulletin Board ("Bulletin Board") operated by the National Association of Securities Dealers, Inc. ("NASD") or in the Pink Sheets published by the National Quotation Bureau ("NQB"), but they are not exclusive to these mediums.[9] The Commission recognizes, however, that not all securities traded in this market sector are tainted by fraud. Microcap fraud frequently involves issuers for which public information is limited, especially when issuers are not subject to reporting requirements.[10] Without information, it is difficult for investors, securities professionals, and others to evaluate the risks presented by microcap securities. Investors consequently can fall prey to persons who make false representations and unrealistic predictions about these securities. As part of their manipulative schemes, unscrupulous retail brokers, operating out of "boiler rooms," frequently use high pressure sales tactics to stimulate investors to buy these securities. These brokers often publicly disseminate false press releases or make false statements about issuers (including through the Internet) to promote sales. To further the manipulative scheme, retail broker-dealers often also act as market makers or, either on their own or through the issuers' promoters, induce other firms to act as market makers in the securities. Market makers' quotations are important to the success of microcap fraud schemes. By publishing quotations in the Bulletin Board, in the Pink Sheets, or in similar quotation mediums, broker-dealers give the market for the securities an aura of credibility. This can occur even if the market maker is not intentionally participating in improper activities, but is publishing quotes in response to escalating demand for the securities resulting from increasing retail sales. Trading volume for the security skyrockets and quotations and sales prices escalate (often at prices artificially set by the manipulators). Eventually, broker-dealers and promoters stop stimulating interest in the security and its price drops. Too often the result is the same: innocent investors lose money. To address this microcap fraud problem, the Commission is pursuing a strategy of investor education, focused broker-dealer inspections, increased enforcement, and regulatory initiatives.[11] The proposed amendments to Rule 15c2-11 would place greater information review and recording requirements, and thus greater accountability, on broker-dealers publishing quotations for securities in a quotation medium other than a national securities exchange or Nasdaq ("covered OTC securities"). These proposed amendments also would provide greater investor access to information about these securities. In particular, the proposed amendments would: