U.S. securities regulators continued kicking dormant shell companies out the market Monday, suspending trading in 61 microcaps in the second-largest mass trading suspension in its history.
It suspended trading in the securities of 61 empty shell companies that are delinquent in their public filings and seemingly no longer in business based on the analysis of the SEC’s Microcap Fraud Working Group.
The SEC notes that since microcap companies are thinly-traded, once they become dormant they can be hijacked by fraudsters who falsely hype the stock to portray it as a thriving company and coerce investors into “pump-and-dump” schemes. By suspending trading in these companies, the firms must provide updated financial information to prove they’re still operational, which the SEC says essentially renders them useless to scam artists as they are no longer flying under the radar.
“Stock manipulators crave empty shell companies that they can use to conduct pump-and-dump schemes and line their pockets with illicit trading profits by taking advantage of unsuspecting investors,” said Andrew Ceresney, co-director of the SEC’s division of enforcement. “We will aggressively suspend trading in such empty shells to take away a tool of their trade and help rid our markets of fraud.”
The SEC’s crackdown against the manipulation of microcap shell companies, known as Operation Shell Expel, began with the SEC suspending 379 companies in a single day last year.
“Once a company ceases its filings and investors no longer have current information about it, there is no good reason for that empty shell to remain exposed in our public markets,” said Christopher Ehrman, co-national coordinator of the SEC’s Microcap Fraud Working Group. “In this initiative, we are committed to identifying unacceptable risks in the marketplace and removing them to safeguard investors.”