The Securities and Exchange Commission (SEC) today announced to suspend the trading of 61 microcap companies as all of them lay dormant in the over-the-counter market. It is the second largest suspension in the history of SEC. The agency is conducting its “Operation Shell Expel” initiative to stop the manipulation of empty shell companies that are ripe for fraud.
The SEC said that all of the 61 companies have been delinquent in their public filings and are no longer in business, based on the analysis conducted by the agency’s Microcap Fraud Working Group. Microcap stocks are thinly-traded. So, when they become dormant, they are highly vulnerable to being hijacked by fraudsters who create a false hype around the stock posing it as a thriving company. Thus attracting unsuspecting investors into their “pump and dump schemes.” Suspension became effective today, and will continue till 11:59 p.m. on June 14.
The latest Robinhood Investors Conference is in the books, and some hedge funds made an appearance at the conference. In a panel on hedge funds moderated by Maverick Capital's Lee Ainslie, Ricky Sandler of Eminence Capital, Gaurav Kapadia of XN and Glen Kacher of Light Street discussed their own hedge funds and various aspects of Read More
Some of the companies include Austin Farms Inc (OTCMKTS:AUFR), Egghead.Com Inc (OTCMKTS:EGHDQ), Fidelity First Financial Corp, Futurebiotics and Isomet Corporation (OTCMKTS:IOMT). You can find the full list here.
SEC Uses Enhanced Intelligence Technology
The SEC used the enhanced intelligence technology to conduct the latest review of microcap companies in the Enforcement Division’s Office of Market Intelligence. These 61 dormant companies were identified in 17 states and one foreign country. The SEC said all the suspended companies are obligated to submit updated financial information to demonstrate that they are still operational.
The SEC’s Division of Enforcement co-director Andrew J. Ceresney said that fraudsters crave for empty shell stocks that they can use to run their pump-and-dump schemes and profit from illicit trading while causing heavy losses to unsuspecting investors. Perpetrators advertise thinly-traded stocks through misleading statements about the company. They purchase shares of the empty shell companies at low prices, pump the stock prices higher by creating a buzz and drawing investor interest, then they dump it in the market for significant profit.
Last year, the Operation Shell Expel initiative of SEC had found 379 empty shell companies. Trading of all of those stocks was suspended by SEC within a single day. SEC’s Microcap Fraud Working Group co-ordinator Christopher Ehrman said that when a firm ceases its filings and investors don’t have current information about it, there is no reason for that stock to remain in the market.