U.S. securities regulators have suspended trading is almost 400 dormant micro-cap companies in a bid to avert possible fraud using these sorts of shell companies.
The U.S. Securities and Exchange Commission Monday announced that it has suspended trading in the securities of 379 companies, which is the highest number of suspensions in a single day by the SEC, to ensure they can’t be hijacked by fraudsters for reverse merger, or pump-and-dump, schemes.
The SEC says that the mass trading suspension, in an initiative known as Operation Shell-Expel, comes as it ramps up its crackdown against fraud involving microcap shell companies that are dormant and delinquent in their public disclosures. Its Microcap Fraud Working Group scrutinized microcap stocks to identify clearly-dormant shell companies in 32 states and six foreign countries that it says were ripe for potential fraud.
“Empty shell companies are to stock manipulators and pump-and-dump schemers what guns are to bank robbers — the tools by which they ply their illegal trade,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “This massive trading suspension unmasks these empty shell companies and deprives unscrupulous scam artists of the opportunity to profit at the expense of unsuspecting retail investors.”
“This mass trading suspension is an effective and novel way for the SEC to neutralize potential threats to investors,” added Chris Ehrman, co-national coordinator of the SEC’s Microcap Fraud Working Group.
The SEC’s previously largest trading suspension was an order in September 2005 that involved 39 companies.