The Securities Exchange Act of 1934 (Exchange Act) authorizes the
Securities & Exchange Commission (SEC) to suspend trading in any
stock for 10 business days without prior notice. Consequently, when a
suspension is ordered, trading freezes – which is good news for
potential investors but can be quite devastating to company’s
shareholders. Those fortunate enough not to own shares of the suspended
company are protected against the folly of improvident investments
during the 10 day period. It affords them an extended period to gather
information about the company and reassess any investment plans. On the
other hand, the company’s existing shareholders may be far less
fortunate. During the trading suspension they cannot sell their shares.
In effect they become sacrificial lambs to the SEC’s greater agenda –
protecting the general public. These shareholders can only wait and
hope that trading will resume. And that when it does, the value of
their holdings will not sink like a lead weight.
History indicates that those existing shareholders are likely to be disappointed.
The Exchange Act allows the SEC to suspend trading of a security when it believes it necessary to protect the public interest. This happens most frequently when the SEC is concerned that public disclosures by a company may be either inaccurate or inadequate. After the ten days have passed the suspension is over – but that does not mean that the company is out of the woods. The SEC may continue to investigate until it determines whether investors have been defrauded. The public will not know whether such an investigation is continuing unless the SEC announces that it has filed an enforcement action.
Investors also should not assume that the end of a suspension signals an automatic and immediate resumption of trading. Over the Counter stocks – like those that trade on the OTC Bulletin Board or Pink Sheets - do not automatically resume trading once the suspension is lifted. Instead, brokers must first review information about the company and be satisfied that all financial data about the company is current and accurate in light of the questions raised by the SEC. Only then may they publish a quote for the company’s stock. So, even if the company files regular reports with the SEC and would otherwise qualify for listing on the OTC Bulletin Board, brokers may not begin to trade until these additional criteria are met.
Since February 2000, the SEC has issued 10 day suspensions to the following 12 companies:
When trading has resumed for the formerly suspended stocks the picture is far from rosy. Virtually all of the companies now trade for pennies per share – compared with pre-suspension prices that were generally considerably higher.
Why have companies found it so difficult to thrive upon their return from the purgatory of suspension? Broker-dealers, confronted with SEC concerns about the accuracy of company disclosures, are often reluctant to jump back onboard. Understandably, brokers may be reticent to accept that company’s representations at face value. At the very least, those brokers will conduct extensive due diligence before agreeing to make a market in the shares. Even then, with the possibility of further SEC action looming on the horizon, those brokers may decline to re-enter the fray.
In the end, 10 days can last a lifetime.
About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.
History indicates that those existing shareholders are likely to be disappointed.
The Exchange Act allows the SEC to suspend trading of a security when it believes it necessary to protect the public interest. This happens most frequently when the SEC is concerned that public disclosures by a company may be either inaccurate or inadequate. After the ten days have passed the suspension is over – but that does not mean that the company is out of the woods. The SEC may continue to investigate until it determines whether investors have been defrauded. The public will not know whether such an investigation is continuing unless the SEC announces that it has filed an enforcement action.
Investors also should not assume that the end of a suspension signals an automatic and immediate resumption of trading. Over the Counter stocks – like those that trade on the OTC Bulletin Board or Pink Sheets - do not automatically resume trading once the suspension is lifted. Instead, brokers must first review information about the company and be satisfied that all financial data about the company is current and accurate in light of the questions raised by the SEC. Only then may they publish a quote for the company’s stock. So, even if the company files regular reports with the SEC and would otherwise qualify for listing on the OTC Bulletin Board, brokers may not begin to trade until these additional criteria are met.
Since February 2000, the SEC has issued 10 day suspensions to the following 12 companies:
Lifekeepers International, Inc;All of those suspensions have now ended, but those companies are still feeling the effects. As best we can determine, five of those issuers (Enterprises Solutions, Inc.; U.N. Dollar Corporation; Lifekeepers International, Inc.; American Healthcare; and Net Tel International, Inc) are not presently trading on either the OTC Bulletin Board or the Pink Sheets. Six others (Wellness Universe; Asthma Disease Management; WAMEX Holdings; E-Pawn; Save the World Air; and Ives Health Company) now trade on the Pink Sheets – although at least three, Wellness Universe, WAMEX and Save The World Air, traded on the OTC Bulletin Board prior to their suspensions. Only one of the companies, eConnect, has resumed trading on the OTC Bulletin Board. The most recent suspension involved Ives Health Company. On March 2, 2001, the day before trading stopped, shares of Ives closed at 25 cents on the OTC Bulletin Board. When trading resumed on March 19th – on the Pink Sheets this time – the stock was selling at around 4 cents.
Wellness Universe, Inc.;
eConnect;
U.N. Dollars Corporation;
Enterprises Solutions, Inc.;
Asthma Disease Management, Inc.;
WAMEX Holdings, Inc.;
E-Pawn.com, Inc.;
American Healthcare, Inc.;
Save the World Air, Inc.;
Net Tel International, Inc.; and
Ives Health Company, Inc.
When trading has resumed for the formerly suspended stocks the picture is far from rosy. Virtually all of the companies now trade for pennies per share – compared with pre-suspension prices that were generally considerably higher.
Why have companies found it so difficult to thrive upon their return from the purgatory of suspension? Broker-dealers, confronted with SEC concerns about the accuracy of company disclosures, are often reluctant to jump back onboard. Understandably, brokers may be reticent to accept that company’s representations at face value. At the very least, those brokers will conduct extensive due diligence before agreeing to make a market in the shares. Even then, with the possibility of further SEC action looming on the horizon, those brokers may decline to re-enter the fray.
In the end, 10 days can last a lifetime.
About Hartley Bernstein: Hartley Bernstein is a corporate and securities attorney and civil litigator with a specialty in business transactions and civil litigation.
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