Tuesday, October 8, 2019

SEC Wants to Stop Trading in Dark Stocks

A year ago I wrote a post SEC Considers Blocking Dark Stocks about the SEC's idea, “If a company is a dark company and listed in the OTC market and hasn’t put out financials for six months, maybe it shouldn’t be quoted or offered to retail investors,” and unfortunately it seems to be moving forward.

They now have a rule change proposal "Publication or Submission of Quotations Without Specified Information" which they are accepting comments on for a limited time.

All dark stock investors should be concerned.  Please contact them.



All SEC rule proposals can be found here.  The specific proposal I'm talking about is here.  You can see all comments here including mine here.  Some other excellent comments are here, here, and here.

**update Oct 11
The SEC put out a press release here on Sept 25 about this rule proposal and it's a great place to start learning what the proposal is all about.  Much easier to read than their 228 page monster...
**

The SEC is trying to protect shareholders from fraud but they are misguided and not considering the fallout.  Their intent is only allow trading of stocks that are current in their published information.  Maybe they think this will push companies to publish more information but I have my doubts.  I think all it's going to do is kill the market.  The way they plan to do it is force broker dealers to verify information before quoting a stock.  Prices will drop and I'd bet more brokerages stop allowing dark stock trades.  It would certainly make trading more difficult.

The crazy thing to me is the SEC allows these companies to go dark.  And now they want to punish the shareholders even more.  Ridiculous.

Let them know how you feel.  The only way to stop this from taking effect is tell the SEC what you think.  If enough people disagree I hope they will change the proposal.

Send them an email to "rule-comments@sec.gov" with "File Number S7-14-19" in the subject line.  They are accepting comments for 60 days after publication in the Federal Register.  I don't know when that is but the proposal was posted on the SEC website on Sept 25, 2019.

**update Oct 12
In my original post I said it'd be fine to copy all or parts of my letter but please do not.  That doesn't work well.  The SEC has flagged all of those posts and lumped them into one spam comment here.  Please send in your own words.
**
--Dan
disclosure: long ADDC, AGTT, IOMT, EKCS

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File Number S7-14-19
1 message

Dan Schum <nonamestocksdan@gmail.com>Sun, Oct 6, 2019 at 10:17 PM
To: rule-comments@sec.gov

Dear SEC,

I urge you to rethink your rule change S7-14-19 to do with blocking quotes for OTC companies not current in their information.  This would have disastrous consequences for many legitimate companies and their shareholders.  I understand you are trying to provide more transparency but this would be throwing out the baby with the bathwater.  

If you follow through with this you will be do serious damage to many of the shareholders you are supposed to protect.  Stock prices of dark OTC stocks will drop into the toilet.  Many individual investors, myself included, focus on these types of stocks because they are one of the only places you can have an edge over the large funds.  

There are many real companies in the OTC space that do no provide any information to the SEC or to OTCmarkets.  Some post reports only on their website (IOMT), some post updates on their website (AGTT), some mail out reports to shareholders (ADDC).  Some deliver reports only when asked (SIMA).  Some mail quarterly news updates to those who ask (EKCS).  The list goes on.  

These companies enjoy operating in the shadows.  They are not going to change their ways because you stop quotes on the stock.  They'll welcome the low price to just buy themself.  You will be hurting shareholders.  

These are all small companies that legally de-registered from the SEC using your rule 12g.  How can you allow a company to de-register then turn around and punish them?  On the one hand your rule 12g explains that it's perfectly OK for a company to stop communicating with shareholders and now with this new proposal you are going in the complete opposite direction.

You should instead focus your attention on two things:
  1. Change your ridiculous "shareholders of record" definition which is so often exploited by companies to disappear.  There could be thousands of beneficial shareholders but you will consider them to be only 1 if held in street name.  You allow fraud all the time with this rule.  If you really want to protect shareholders start by counting us all!  You can read my prior SEC comment on this subject here: https://www.sec.gov/comments/s7-06-16/s70616-12.htm
  2. Give companies a cheaper way to stay SEC reporting.  So many companies de-register from the SEC due to the costs.  I have heard estimates ranging from a few hundred thousand dollars to over a million.  It's no wonder a tiny company wants to de-register.  Some of these companies have only a few employees and many have market caps less than a few million dollars.  You should offer a low standard of reporting.  Something like the OTCmarkets limited information tier that only requires an annual report.  It would be easier for companies to say current while allowing them so save money.  
Please reconsider the rule.  



Dan Schum

46 comments:

  1. Dan, thanks for the info. Extremely concerning. Have they given any consideration to the harm it will do to existing shareholder or discuss it at all in the proposal? If it does substantial harm to existing shareholder of dark stocks, I foresee tons of litigation coming their way.

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    1. I read some of it but not the whole thing. I don't see them considering us at all

      Delete
    2. Unfortunately, Dan is probably right. I will be commenting on the proposal as well, on the off chance someone in Washington listens.

      Delete
  2. How would it be traded if the prices are not quoted? Seems like a pretty bad situation. If the financials are submitted, does it have to be to OTC markets or the brokerages? I'm assuming those financials have to be audited? If so, does OTC markets or the brokerages have to make sure of the quality of the auditors as well?

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    1. I don't know how things would trade. That is my main concern.

      They aren't clear on what information they want and it really just doesn't make any sense because the SEC is who allowed the companies to de-register and stop communicating in the first place. You'd think they want audited financials posted with the SEC since they are the SEC but they already allowed the companies to stop posting financials.

      you bring up a good point. The SEC is passing off responsibility to the broker-dealers providing the quotes. The whole thing stinks. The SEC is horrible

      Delete
    2. You say in your letter: "They are not going to change their ways because you stop quotes on the stock. They'll welcome the low price to just buy themself."

      If they aren't quoted at all, I don't see how the 2nd sentence makes sense. They won't trade at all, right? So how would you be hurt (if there's no quotation at all)?

      2nd, couldn't you still purchase these kind of securities directly from another shareholder via a purchase agreement?

      Delete
    3. I don't know exactly what will happens if this goes through. My guess is more brokerages will block out trading in these securities. I also think likely shares will still be able to be traded but it will be less efficient than it is now. Some funds that focus on these sorts of things will stop because it'll be too risky and illiquid.

      Perhaps an individual purchase agreement would work but that's not what I want. I wouldn't be able to do that ever. I wouldn't be able to find the shareholders. I own stocks rather than something illiquid like real estate because it's easier to get in and out.

      My fear is we end up with trading like what Don Whitaker mentioned in his comment to the SEC here: https://www.sec.gov/comments/s7-14-19/s71419-192687.htm

      "I use the following example of my personal experience as I was the assistant head trader at Dean Witter, Los Angeles in 1961 as an example what would happen without the current quote system. A person wanting to buy or sell an unlisted security had to rely on whatever quotation their broker gave the client. I remember vividly trying to execute orders for clients for thinly traded securities that were only quoted in the Pink Sheets. Those brokers interested in a particular stock would advertise their names in this publication and a trader like myself would have to make a telephone call to a broker to get a quotation. Many times the quotation in an inactive stock was only one sided like “ 3 Bid only without showing a offering price”. Other times a quote from another broker would be “NO bid, 8 offered”. There might be a person willing to pay 6 for the stock and another person willing to sell at 6 but there was no way for the two parties to find each other. So the end result might theoretically be that one client would get 3 for his stock while another was paying as much as 8 to another broker. This was ludicrous of course but I personally saw situations where the public could be severely taken advantaged of and it was perfectly legal in inactive securities without quotations widely circulated like they are now electronically. Many brokers thrived on these huge spreads and even the sharpest estate attorney was at the mercy of the market place when instructed to liquidate an estate which was very common."

      Delete
  3. Just found out the SEC put out a press release about this rule proposal a couple weeks ago. Good overview of the 228 page proposal for anyone wanting a faster read through...

    https://www.sec.gov/news/press-release/2019-189

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  4. Thanks for putting this out Dan! This is clearly backwards. The SEC doesn't realize that companies are doing this on purpose, either so they can take the company out at a cheap price or to hide how much they are compensating themselves.

    I will comment shortly.

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  5. Thanks Dan! Will send my comment over.

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  6. I've sent my letter in but it's not showing up yet. The more I think about this rule the worse it appears. Companies are constantly moving between the current, limited and no information tiers on the OTC. Are brokers and market makers supposed to just keep taking off and adding companies as they change tiers. What happens when investors buy a current pink sheet and then it goes dark, this will cause chaos on the OTC markets.

    If this rule goes through I am completely screwed.

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  7. A better solution probably would be if SEC imposed fines on the companies. Or the management could also be directly and personally penalized. These fines could rise if a company is not cooperative.

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  8. Thanks, David!

    We need all the publicity we can get. Twitter, Facebook, newspapers, anything. It's time to mobilize the army!

    Yeah, basically everything dark will become worthless, management teams will have carte blanche to do anything they want, and no one will be able to hold them responsible.

    At least the rule wouldn't force us to liquidate our existing holdings.

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  9. I just posted the following

    Hi,
    I think the idea behind this new rule starts with the correct premise, all shareholders should have access to the financial reports of the companies they invest in.  As someone with over 10 years of experience investing in dark companies I think it is ridiculous that I need to sign an NDA to see the financial statements of a company that I am a part owner of.
    While the idea is good, I think the proposed execution is backwards.  In my opinion (and experience), a company chooses to go dark for a few reasons.  The best reason is that the company wants to reduce operating costs.  For a small company, reporting costs can be a substantial drag on the business.  My suggestion would be to look for ways to lower this costs for smaller companies, I like other investors would be fine with yearly financial statements.  
    However, there are many bad reasons that a company may choose to go dark. Management or the board, which is often a large holder of shares in such companies, can view going dark as a future opportunity to take the company private at a much lower valuation.  In these circumstances, management purposefully denies shareholders financial information.  Shareholders become disenfranchised after years of no information and give up.  This leads to a depressed share price, which then gives insiders the opportunity to offer a lowball takeout price that has a much higher probability of being accepted.  In other instances, management likes being dark as they can conceal the level of compensation they may be receiving, which may be egregious.  Finally, a company may choose to be dark to hide mistakes and avoid having to face the consequences.
    The companies that choose to go dark for bad reasons are the ones that investors need to be protected from, and I agree that posting financial information would be the best way to protect investors (sunlight being the best disinfectant).  However, as proposed the onus of getting financials would fall on the brokers, this seems wrong.  The onus should fall on management, the board, and the company, to provide investors the information they have the legal right to have.  If the rule went ahead as proposed the share price of these companies, which is arguably too low already by intention, would tank.  This would be exactly what the management teams would want!  Now they can really take advantage of shareholders by paying themselves whatever they liked, with no hope of any oversight, or they could look to take the company private at an egregiously low price. Many shareholders would be forced to accept this low offer as they can't afford to go through the expensive appraisal process (a long and painful process that I have been through).
    My suggestion would be to link executive compensation to the availability of financial information for shareholders.  If shareholders don't have access to timely, possibly defined as one year old or less, financial information that the SEC deems necessary (financials could simply be posted to the companies website) then the CEO cannot pay themselves any amount over $50k (or some low amount).  I bet the SEC would have almost 100% compliance with any financial reporting requirements if a simple adjustment like this was made.
    Thanks and please reach out if you have any questions.  I am happy to provide any additional information or comments that I can on this important matter.
    Tim Bergin

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    1. "If the rule went ahead as proposed the share price of these companies, which is arguably too low already by intention, would tank"

      How would the stocks tank if they are no longer traded at all? There would be no stock price to look at.

      " they could look to take the company private at an egregiously low price. Many shareholders would be forced to accept this low offer as they can't afford to go through the expensive appraisal process"

      As far as low ball bids, you can't force a buyout other people's stock without disclosing relevant financial information. Who would agree to give up their shares for pennies on the dollar in a vacuum? Nobody would - so no "lowball buyout" offer (assuming relevant financial info were note concurrently given to shareholders) would ever receive the votes required for approval under applicable state laws. The only realistic way a dark company 'smanagement can abuse its own shareholders in this manner would be by buying up the stock on the cheap via the open market--which is exactly what the SEC is trying to prevent. (Yes, they can also give themselves huge compensation, but managements already do this routinely at public companies, if you haven't noticed - there's no difference wrt this problem whether the stock trades or not).

      Delete
    2. there are buyouts all the time in the dark space without a shareholder vote. Happens because one or two people own more than 50% so when they agree to it then the deal is done.

      And many people give up their shares for pennies on the dollar in a vacuum. That's how I bought SIMA for $0.20 a few years ago (now at $10). Imagine you are a shareholder then you hear nothing from the company for years. YOu don't even know if they exist anymore. people sell out and move on

      Delete
    3. "there are buyouts all the time in the dark space without a shareholder vote"

      All the time? Really? I believe that under the various state corporation laws you cannot buy out other shareholders without a vote UNLESS the group doing the buyout owns an extremely high percentage of the outstanding stock (for example, 80% or 90%). I would love to see examples to the contrary if you are aware of any.

      "And many people give up their shares for pennies on the dollar in a vacuum. That's how I bought SIMA for $0.20 a few years ago"

      You seem to be arguing against yourself here. The only reason you got SIMA so cheap was b/c the SEC allowed the stock to keep trading despite no public info being available. That's EXACTLY the scenario the SEC is trying to address and prevent in the future. FWIW this seems totally reasonable to me - in other words, if a company wants it's stock to trade publicly, they have to make available publicly updated financial info. Isn't this what you are asking for wrt to the companies you already own that don't do so (e.g., HAUP)? [And just for the record I said people don't give up their shares for pennies on the dollar IN A BUYOUT SCENARIO if they don't have updated financial info - I wasn't referring to open market trading]

      BTW, if companies like HAUP and SIMA start providing their updated financials, liquidity in their stocks should improve dramatically, which is a good thing whether you want to buy more or sell.

      Delete
    4. CLSI sold itself just a few months ago without any vote and without even telling shareholders. The majority owners own 40 something percent and with one other shareholder they get over 50% so between the two of them they just did it.

      I'm not arguing against myself. Just because I buy cheap does not mean it's fair the seller got screwed. Yes I buy stocks on the cheap in some cases because the sellers have no idea what they own.

      Delete
    5. Not sure what you are referring to re CLSI - they are publicly filing right now. Are you saying you were forced to sell your shares of this company without a vote? https://www.sec.gov/cgi-bin/browse-edgar?company=Clancy+Systems&owner=exclude&action=getcompany

      "Yes I buy stocks on the cheap in some cases because the sellers have no idea what they own"

      If for some reason you are able to obtain the financials from the company but the seller isn't, then that should not be allowed IMHO.

      Delete
    6. The ticker CLSI used to belong to Clancy Systems. http://www.clancysystems.com. They de-registered from the SEC years ago and continued to post financials to http://clancyinfo.com. I think probably no one knew about their financials because it was trading so low. Clancy Systems in the spring voted amongst themselves to sell the ticker to someone and in exchange they kept the operating business. So now the ticker CLSI is a shell and no longer tied to Clancy Systems. The filings you see recently are from the new owners of the CLSI ticker.

      What I am saying is just that Clancy agreed to this without a shareholder vote and without even mentioning it to shareholders. They put out zero communication. No one forced me to do anything.

      Currently the SEC allows companies to de-register and then they are no longer required to file reports publicly. That is how we end up with this weird situation where some companies provide reports in odd ways or not at all.

      I think something at the heart of this issue is the way the SEC allows companies to de-register. I think that process should be modified because there are a lot more companies out there which could de-register than most poeple realize.

      Please read this article that appeared a few years ago in the Wall Street Journal explaining the de-registering situation.

      https://jasonzweig.com/shareholders-are-disappearing-before-our-eyes/

      Delete
  10. ...FWIW I have zero problem with, for example, you or anyone else buying SIMA at $0.05/share even though any reasonable analysis shows it's worth $2/share, SO LONG AS THE RELEVANT FINANCIAL INFO IS AVAILABLE to both you and the seller. If it is, and the seller is too lazy to do the analysis (or too stupid), and sells to you at $0.05/share, so be it. I do have a problem with this scenario if there is no way for the seller to obtain the info. At least an updated balance sheet, income statement and statement of cash flow should be available. If this isn't the case and the stock still trades publicly, then we are right back in the 1920s where insiders (or those connected to, or buddies with, insiders) have all of the necessary financial info and can fleece non-insiders at will.

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    1. I think all tradeable companies should have to provide current financials. I don't understand what you are arguing about.

      The problem is this proposal from the SEC will not result in companies providing financials. Maybe some will but many will not because they just don't care.

      ADDC for example thinks it's a competitive advantage that they don't put out financials to the public so all they do is mail a hard copy of the annual to current shareholders as required by state law. They don't care at all about the stock price.

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    2. The SEC allows companies to de-register and go dark. They have a messed up definition of "shareholders of record" which allows companies with way more than 300 beneficial shareholders to de-register. Now with this proposal they want to kill the market for the companies after allowing them to legally de-register. It makes no sense. They say it's OK to de-register on the one hand then in the other they say if you don't provide latest financials no one is allowed to quote it. They first punish shareholders by not counting them all and allowing these companies to de-register and then they propose punishing shareholders again by stopping trading.

      This SEC proposal is not properly incentivized. Punish the board and officers, not the shareholders.

      Delete
    3. "I think all tradeable companies should have to provide current financials"

      That's what the SEC is trying to fix with the new rules - dark companies don't have to do this right now. So you are saying you agree with the rule then?

      "The problem is this proposal from the SEC will not result in companies providing financials"

      I disagree - companies that want to have their stocks trade will man up and provide financials. For those that don't, so what? There are thousands of publicly traded companies you can choose from (including 100s of microcaps). The idea that it's somehow in the public interest (or investors' interest) to have all these dark companies publicly trading is strange to me. I agree with the SEC on this one.

      "they propose punishing shareholders again by stopping trading"

      Again, I disagree. If you buy stock in a dark company, you are taking a huge risk. If the stock no longer trades OTC (per the new SEC rule), how are you really punished? (A) Most of these stocks are extremely illiquid anyway (they barely trade at all) and (B) if you want to sell, you can still do it via a stock sale agreement with a buyer.

      BTW, you also haven't responded on the HAUP point. The new rule would force them to do exactly what your HAUP posts are crying out for - for them to provide their financials. Isn't this what you want?

      Delete
    4. BTW, on the ADDC point, they are deluded if they think they are somehow protected by mailing the annual report only to shareholders. All a competitor has to do is have somebody buy 10 shares of ADDC stock and they will then get a copy of the annual report, won't they? If ADDC is instead picking and choosing which shareholders get the report (some do and others don't), then I don't believe the stock should be publicly traded.

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    5. I know the SEC thinks this new rule will help. I disagree with them. I don't think it will get the dark companies to provide current financials.

      "For those that don't, so what?"
      "Again, I disagree. If you buy stock in a dark company, you are taking a huge risk."
      There are people who bought shares in these companies before they de-registered. Those people did not choose to buy a dark stock as I might. When a stock de-registered and they go quiet the price can drop down to nothing. That is how shareholders are punished.

      "(A) Most of these stocks are extremely illiquid anyway (they barely trade at all) and (B) if you want to sell, you can still do it via a stock sale agreement with a buyer." I don't know what to say. Yes they are illiquid. A stock sale agreement is a ridiculous suggestion because I would have to know all the shareholders then call them or something and agree on a price.

      I would love for HAUP to provide financials. I've been trying to get them for over a year now. I don't think this SEC rule will influence HAUP's management at all.

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    6. yes I agree ADDC are deluded. I have talked to them about it and this is their stance so that's what they do. There is no changing their minds and they own the majority of shares so that's that.

      ADDC mails an annual report to all shareholders as required by state law.

      Delete
    7. "There are people who bought shares in these companies before they de-registered. Those people did not choose to buy a dark stock as I might. When a stock de-registered and they go quiet the price can drop down to nothing. That is how shareholders are punished."

      The answer to this problem is fixing the 300-holder rule. Allowing a dark stock to continue trading doesn't fix anything (as indeed you state, the stock will likely "drop down to nothing" if it continues trading). The proposed rule actually prevents these investors from being hurt, b/c the stock will immediately cease trading and they won't feel pressured to sell out at $0.02/share. Are you better off b/c the stock continues to be quoted at $0.02/share (or $0.01/share or $0.001/share, etc)? Why would you be?

      "A stock sale agreement is a ridiculous suggestion because I would have to know all the shareholders then call them or something and agree on a price."

      You don't have to sell to existing holders. You can sell to anybody. Again, with most of these dark stocks you can't sell on the open market anyway b/c they barely trade at all. It could literally take months or years of waiting before you can finally sell out (on the open market). So how much are you really losing if the new rule gets passed and you have to negotiate a 3-page sale agreement with somebody?

      Re HAUP, you bought an already dark stock. Management doesn't care about you, as they have made clear. They don't provide you with any info and likely never will. You knew all of this prior to buying (I assume) and thought you could pressure them into providing financial info. That's all well and good and I wish you the best of luck with HAUP. But how does the SEC's proposed rule hurt you in this case? I don't see that it does at all.

      Thanks for the the debate, we will most likely have to agree to disagree on this issue. I think you have a great blog BTW.

      Delete
    8. I hate debating. Really drains me and I'm not built for it. But it's good for me to expand

      The proposed rule would not prevent investors from being hurt if trading stops. If trading stops their investment is gone.

      I agree the real fix is the 300 shareholder rule. I've commented to the SEC before. The SEC even formed an "SEC Advisory Committee on Smaller Public Companies" that recommended they fix it but they didn't listen to their own committee.

      In the HAUP case I think the new SEC rule would drop the price even more. I also think it will cause more and more brokerages to stop allowing trading in dark stocks.

      "Again, with most of these dark stocks you can't sell on the open market anyway b/c they barely trade at all." This is just not true at all. I trade dark stocks. I own dark stocks. I sell dark stocks.

      Delete
    9. FWIW, I just looked up HAUP's last year's worth of trading. A grand total of $86,717 worth of this security was traded over that time period (1.286MM shares at an average price of 6.7 cents per share). So even if you bought 1/3rd of all shares traded over the past year (which would extremely hard to do and very time consuming - basically you would have to put in a new limit order every day, depending on where the stock closed the prior day), you could only put $28.9K worth of your capital into the stock. It just doesn't seem that important that a stock like this should be trading. If they ever start producing financials and posting them publicly, then it would be a different story (and the volume in the stock would probably be 5X to 10X what it currently is).

      Delete
    10. I have almost my entire net worth in stocks like this. Many other retail investors similarly have large sums of their own money in stocks like this. There are funds managing clients money tied up in stocks like this. I guess my money is not that important. My kids' college education is not that important. My retirement is not that important.

      It seems $30k means nothing to you. Congratulations on that.

      Delete
  11. Many non-current OTC-listed companies can easily afford the minimal annual cost to meet OTC's lowest tier of Pink-Current Information. I am contacting dark companies I own shares of and encouraging them (in light of this proposed SEC rule change) to move up to at least the lowest current tier on OTC.

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  12. One final note. Regarding HEMA, in your 2nd blog post on this stock you said "HEMA posted their 2014 annual report and 2015 first half results on Sept 21, 2015." So they were apparently in compliance with what the new SEC rule will require by 9/21/15, which means market makers could have resumed OTC trading in HEMA on or around that date (if I understand the new rule correctly). So if you were following HEMA at the time you still could have bought a lot of the stock at $0.30 to $0.50 per share, as it traded around that level from the end of Sept 2015 to the end of March 2016 (it also traded well below $1 for the ensuing year). So it doesn't even seem as though the new rule would have hurt you (prevented you from buying) in that situation.

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    1. You are assuming the broker dealers around the country will be able to keep up with these companies constantly going in and out of "current" as they are late and come back and get late again. You are also assuming the SEC would have accepted HEMAs report posting (OTCmarkets would not accept HEMAs reports as valid yet somehow you assume the SEC will). You are also assuming I had liquidity during these times when you think HEMA might be in compliance. You are also assuming there were shares available at the specific time in question. You are also assuming my brokerage would allow me to buy a dark stock like HEMA.

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  13. In my original post I said it'd be fine to copy all or parts of my letter but please do not. That doesn't work well. The SEC has flagged all of those posts and lumped them into one spam comment. Please send in your own words.

    https://www.sec.gov/comments/s7-14-19/s71419-typea.htm

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    1. Thanks Dan, that's good to know. My designs on a giant spam SEC Comment Machine have been foiled. I guess it's time for plan B...

      Delete
    2. Plan B has been deployed:

      https://whitechipstocks.blogspot.com/2019/10/vernebeltland.html

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    3. Awesome, Braxton. Thanks for doing that. You have a new follower

      Delete
  14. Thanks Dan, comment submitted. Any thoughts on how you will handle your holdings between now and then? At this time, most of mine are fully reporting, but they may be swept up in this with the brokerages if this were to pass. There is no way I could liquidate the couple larger holdings I have in stocks that wouldn't qualify under this rule, so I guess I will hold out on those and see how it goes. I will certainly do whatever I can to fight this, but I am not real optimistic overall.

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    1. I don't plan to do anything. I hold out hope the SEC will do the right thing and so I'm going to wait and see

      Delete
  15. This is probably another regulatory capture. Trump tends to put in people who do good for corporate interests.

    This is great for all those non reporting companies as they can squeeze out smaller shareholders at probably a cheap price.

    If shares not trading anymore, they can buy them for very cheap.

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    1. I think if shares do not trade anymore, the value of a stock is strongly related to the dividend yield. (Unfortunatly, most of the stocks covered here by Dan do not pay any dividends).

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  16. I did a video interview on this with Robert Kraft of stocknewsnow.com. You can see it here: https://www.youtube.com/watch?v=d2dzVETwKFk

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    1. It's also on the Planet MicroCap Podcast here: https://planetmicrocap.podbean.com/e/ep-102-sec-wants-to-stop-trading-in-dark-stocks-with-dan-schum-nonamestockscom/

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  17. Sklarquist, I think everybody agrees that what the SEC is trying to accomplish is a good idea.  No one wants to see investors getting ripped off by scammers.  There are a lot of OTC 'pump and dump' schemes, but the way the SEC is attempting to do it will NOT solve the problem and it actually creates a new one.  

    Think about it, scammers require a stock that trades, so they will follow the letter of the law and post their vaporware financials.  They are well aware that another breathless press release will get the unsophisticated mo-mo crowd excited.  Many of the folks in this space couldn't care less about a company's financials as long as the stock is 'showing some action". So the crooks will post their financials and penny stocks will continue to soar and crash.

    The unintended consequence for profitable companies who do not post their financials is not allowing broker-dealers to quote their stock price.  So while hundreds of scammers will now post their financials, many other legitimate insider-owned companies will welcome the idea of not having to post updated financials any longer because they don't care if their stock trades. 




    "The proposed rule actually prevents these investors from being hurt, b/c the stock will immediately cease trading and they won't feel pressured to sell out at $0.02/share."


    Would your portfolio take a mark-to-market hit if your stocks stopped trading?  There are deep value investors in the OTC space and while we certainly don't need an actively traded stock, we also don't want public trading to completely shut down. 




    "The only reason you got SIMA so cheap was b/c the SEC allowed the stock to keep trading despite no public info being available. That's EXACTLY the scenario the SEC is trying to address and prevent in the future. FWIW this seems totally reasonable to me - in other words, if a company wants it's stock to trade publicly, they have to make available publicly updated financial info."


    The SEC wants publicly traded companies to provide current financials, that's obviously something that investors also want.  But the SEC's 'carrot and stick' approach falls far from the mark. Many companies (including SIMA) would love to not be bothered by pesky minority shareholders.   Unlike past years, this year they are requiring an onerous NDA to be signed in order to get the 2018 AR.   If this SEC rule passes, they would love to not provide current financials if it resulted in a stock price that was no longer quoted.  



    "If companies like HAUP and SIMA start providing their updated financials, liquidity in their stocks should improve dramatically, which is a good thing whether you want to buy more or sell."


    The opposite is also true.  If the companies refuse to post updated financials, then liquidity dries up completely.   Both these companies would like nothing better. 





    "I have zero problem with, for example, you or anyone else buying SIMA at $0.05/share even though any reasonable analysis shows it's worth $2/share, SO LONG AS THE RELEVANT FINANCIAL INFO IS AVAILABLE to both you and the seller."


    With the exception of HAUP, which I'm now suing and will win since they have no leg to stand on, I've never been refused the financials of any company I owned.   So all shareholders can get the financials, but they often make us jump through hoops to get them.  If this SEC rule proposal passes, that will no longer be the case. 

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  18. "Companies that want to have their stocks trade will man up and provide financials. For those that don't, so what? There are thousands of publicly traded companies you can choose from (including 100s of microcaps). The idea that it's somehow in the public interest (or investors' interest) to have all these dark companies publicly trading is strange to me. I agree with the SEC on this one."


    I actually believe most of the scammers will comply, but I also believe many of the family-owned businesses won't and then will purposefully NOT provide updated financials, as many couldn't care less about their stock price. You go where the bargains are and there are some real gems in this space. They are generally very illiquid, but with patience you can build a significant position. For years, SIMA traded below its net cash levels. At its low, SIMA was trading at 10 cents a share with $5/share in net cash and a good business. Pretty sure you won't find similar bargains elsewhere.





    "HAUP, you bought an already dark stock. Management doesn't care about you, as they have made clear. They don't provide you with any info and likely never will. You knew all of this prior to buying (I assume) and thought you could pressure them into providing financial info. That's all well and good and I wish you the best of luck with HAUP. But how does the SEC's proposed rule hurt you in this case? I don't see that it does at all. BTW, you also haven't responded on the HAUP point. The new rule would force them to do exactly what your HAUP posts are crying out for - for them to provide their financials. Isn't this what you want?"



    I'm afraid you have it backwards. The 'stick' the SEC is using is no public quotes for companies that don't file updated financials. That doesn't force HAUP to file their financials, in fact, HAUP would treat the penalty as a 'carrot' because that is exactly what they want. You should not be rewarded for actions that deserve a penalty. The SEC should get together with all the various state agencies and hammer out some rules that require updated financials. If they do not comply, then penalize the companies, management, and insiders, NOT the outside shareholders.

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