SEC Trading Suspensions Made Simple
This article from Hamilton & Associates Law Group (securities attorneys) brings a measure of clarity to the subject of SEC trading suspensions.
SEC Trading Suspensions
October 14, 2013 by securities-lawyer-101
The Securities Exchange Act of 1934 authorizes the Securities and Exchange Commission (the “SEC”) to issue a trading suspension for up to ten business days. The SEC will order a trading suspension if it determines it is necessary to protect investors. For other securities that are traded in the over-the-counter market, broker-dealers are prohibited from publishing quotes for the security until the company has provided adequate public information. Under most circumstances, the issuer must locate a sponsoring market maker to file a new Form 211 with the Financial Industry Regulatory Authority (“FINRA”).
The reality is an SEC trading suspension is the kiss of death for investors and the issuer.
Suspensions may be ordered by the Commission if it has questions about a company’s financial information or its assets or operations. The Commission may suspend trading in the company’s securities if public information about the company is inaccurate or inadequate or is not current.
SEC trading suspensions are commonly issued during penny stock promotions involving illegal investor relations activity.
SEC may issue a trading suspensions if there is:
a) a lack of current, accurate, or adequate information about an issuer;
b) concern about the accuracy of publicly available information, in press releases and public filings and reports; or
c) suspicious trading activity, including trading by insiders, potential market manipulation, and problems with clearing and settlement of transactions in the issuer’s securities.
Suspended stocks fall into two categories.
Category 1: Pertaining to delinquent SEC-Filers
The first is comprised of delinquent filers: stock of fully-reporting issuers who have neglected to keep up with their obligation to file annual and interim financial reports with the SEC. In connection with the suspension, those companies will be subjected to an administrative proceeding in which the SEC seeks to revoke the issuer’s registration. Once that happens, the issuer has a simple choice: it can catch up with its delinquent filings quickly, or have its ticker–and its existence as a public company–eliminated. Most companies in this situation do not object to revocation, despite the brief hopes of investors.
Category 2: Pertaining to SEC-Filers and Non SEC-Filers
The second category consists of issuers suspected of securities fraud. The SEC may follow the suspension with a further investigation that can result in a civil lawsuit down the road. Additionally, these types of trading suspensions are often followed by criminal charges.
A list of issuers whose stock is currently suspended, or which have been subject to an SEC suspension, may be found at the link: www.sec.gov/litigation/suspensions.shtml
Post Trading Suspension Trading
When an SEC trading suspension ends, a broker-dealer may not solicit investors to buy or sell the previously-suspended security until certain requirements are met, including the submission of a Form 211 with the Financial Industry Regulatory Authority (“FINRA”) by a market maker.
The market maker must represent that the issuer has satisfied all applicable requirements, including those of Rule 15c2-11. No broker-dealer may solicit or recommend that an investor buy shares in a stock that has been subject to a trading suspension unless and until FINRA has approved a Form 211 relating to the stock. Neither may any broker-dealer publish quotes for the stock.
If there are continuing regulatory concerns about the issuer, its disclosures, or other factors such as a pending regulatory investigation, a Form 211 application may not be approved. In the absence of a no-action letter from the SEC, market makers are unlikely to sponsor a formerly suspended company.
Rule 15c2-11 requires broker-dealers to review and maintain certain documents and information about the issuer, including the corporation’s organization, operations, control affiliates, the nature of the securities outstanding and being traded, the issuer’s most recent balance sheet, and its profit and loss and retained earnings statements.
When a stock is suspended and after four sessions without published quotations, it will be demoted to the Grey Market. Once the suspension ends, limited or “unsolicited” trading can occur in these Grey Market stocks. Investors may trade, but at their own risk.
Typically, a brand new Grey stock loses 60% to 80% of its value the first day out; within a few weeks, volume declines dramatically.
Investors should be extremely cautious in considering an investment in a stock following a trading suspension. At a minimum, investors should ensure that a broker-dealer has submitted a Form 211 that has been approved so that they have current and reliable information about an issuer before investing.
Hamilton & Associates Law Group
www.securitieslawyer101
info@securitieslawyer101.com
This article from Hamilton & Associates Law Group (securities attorneys) brings a measure of clarity to the subject of SEC trading suspensions.
SEC Trading Suspensions
October 14, 2013 by securities-lawyer-101
The Securities Exchange Act of 1934 authorizes the Securities and Exchange Commission (the “SEC”) to issue a trading suspension for up to ten business days. The SEC will order a trading suspension if it determines it is necessary to protect investors. For other securities that are traded in the over-the-counter market, broker-dealers are prohibited from publishing quotes for the security until the company has provided adequate public information. Under most circumstances, the issuer must locate a sponsoring market maker to file a new Form 211 with the Financial Industry Regulatory Authority (“FINRA”).
The reality is an SEC trading suspension is the kiss of death for investors and the issuer.
Suspensions may be ordered by the Commission if it has questions about a company’s financial information or its assets or operations. The Commission may suspend trading in the company’s securities if public information about the company is inaccurate or inadequate or is not current.
SEC trading suspensions are commonly issued during penny stock promotions involving illegal investor relations activity.
SEC may issue a trading suspensions if there is:
a) a lack of current, accurate, or adequate information about an issuer;
b) concern about the accuracy of publicly available information, in press releases and public filings and reports; or
c) suspicious trading activity, including trading by insiders, potential market manipulation, and problems with clearing and settlement of transactions in the issuer’s securities.
Suspended stocks fall into two categories.
Category 1: Pertaining to delinquent SEC-Filers
The first is comprised of delinquent filers: stock of fully-reporting issuers who have neglected to keep up with their obligation to file annual and interim financial reports with the SEC. In connection with the suspension, those companies will be subjected to an administrative proceeding in which the SEC seeks to revoke the issuer’s registration. Once that happens, the issuer has a simple choice: it can catch up with its delinquent filings quickly, or have its ticker–and its existence as a public company–eliminated. Most companies in this situation do not object to revocation, despite the brief hopes of investors.
Category 2: Pertaining to SEC-Filers and Non SEC-Filers
The second category consists of issuers suspected of securities fraud. The SEC may follow the suspension with a further investigation that can result in a civil lawsuit down the road. Additionally, these types of trading suspensions are often followed by criminal charges.
A list of issuers whose stock is currently suspended, or which have been subject to an SEC suspension, may be found at the link: www.sec.gov/litigation/suspensions.shtml
Post Trading Suspension Trading
When an SEC trading suspension ends, a broker-dealer may not solicit investors to buy or sell the previously-suspended security until certain requirements are met, including the submission of a Form 211 with the Financial Industry Regulatory Authority (“FINRA”) by a market maker.
The market maker must represent that the issuer has satisfied all applicable requirements, including those of Rule 15c2-11. No broker-dealer may solicit or recommend that an investor buy shares in a stock that has been subject to a trading suspension unless and until FINRA has approved a Form 211 relating to the stock. Neither may any broker-dealer publish quotes for the stock.
If there are continuing regulatory concerns about the issuer, its disclosures, or other factors such as a pending regulatory investigation, a Form 211 application may not be approved. In the absence of a no-action letter from the SEC, market makers are unlikely to sponsor a formerly suspended company.
Rule 15c2-11 requires broker-dealers to review and maintain certain documents and information about the issuer, including the corporation’s organization, operations, control affiliates, the nature of the securities outstanding and being traded, the issuer’s most recent balance sheet, and its profit and loss and retained earnings statements.
When a stock is suspended and after four sessions without published quotations, it will be demoted to the Grey Market. Once the suspension ends, limited or “unsolicited” trading can occur in these Grey Market stocks. Investors may trade, but at their own risk.
Typically, a brand new Grey stock loses 60% to 80% of its value the first day out; within a few weeks, volume declines dramatically.
Investors should be extremely cautious in considering an investment in a stock following a trading suspension. At a minimum, investors should ensure that a broker-dealer has submitted a Form 211 that has been approved so that they have current and reliable information about an issuer before investing.
Hamilton & Associates Law Group
www.securitieslawyer101
info@securitieslawyer101.com
