SEC halts trading in 379 shell companies
15 May 2012
The US Securities and Exchange Commission (SEC) halted trading in 379 shell companies over concerns that fraudsters might hijack stocks to dupe investors.
According to the SEC's statement, the trading suspensions, the most by the commission in a single day, follow on the work of an agency task force, that clearly identified dormant microcap stocks across 32 states and at least six countries.
Microcap shares have long been used by fraudsters for pump-and-dump schemes to dupe investors.
Shell companies are coming under intense security of regulators on complaints that issuers, many from China, were using them to enter US markets through so-called reverse mergers. In reverse mergers, closely held firms buy shells that let them sell shares on exchanges to escape the scrutiny that comes with a public offering.
Share prices of several reverse-merger companies have plummeted amid allegations that their financial statements were inaccurate.
"Empty shell companies are to stock manipulators and pump- and-dump schemers what guns are to bank robbers -- the tools by which they ply their illegal trade," SEC enforcement director Robert Khuzami said in the agency's statement.
In pump-and-dump schemes, perpetrators buy stock in a thinly traded company and tout its value through false and misleading statements, garnering illicit profits after dumping their shares into the market after pumping the prices higher.
(Also see: Ex-Franklin bosses accused of misleading investors in SEC complaint)