As noted below, yesterday the SEC suspended trading for 10 days in 379 shell companies which are non-reporting. All are presumably trading on the platforms of OTC Markets and it appears most did not respond to SEC inquiries for information and the like. These companies will not be able to trade again until they make current information, including financial statements, available. As a practical matter it makes many, if not most of these, worthless.
What do I think about this? I have mixed feelings. The bad part? Whenever the SEC takes action with a message that reverse mergers and shells are dangerous, risky and rife with fraud, it hurts all the legitimate players trying to use this technique properly and for good. The same thing happened when the seasoning requirements were imposed in November. In most cases I consider these actions to be overreactions, as I did with seasoning.
However, in this case, I understand more why the SEC acted. Where fraud does exist in the reverse merger world, much of it seems to be tied to the non-reporting shells that provide no information to investors. Pretty much every bad story I hear about a reverse merger gone bad starts (other than the Chinese deals, which are their own category) with promises made by a sponsor of a shell with no public information. And from their report it seems that in these cases the SEC did try to get information from the companies and gave them a chance.
So do I mourn the reduction in shell supply by probably 379 when the loss is in shells that are the least transparent and most likely to be involved in fraud? Not really. Do I wish there could be more support from the regulators for legitimate players trying to help small companies grow, go public and access capital? Yes I do.