posted
I am preparing to send letters to my Senators and Congressman requesting that they introduce legislation that will provide for stricter regulation or the Pink Sheets market. I am tired of the secrecy in the companies I own stock in and the strings of broken promises. I am also tired of this whole naked short trading issue (does it exist or not?) and want to be able to have access to the records needed to prove or disprove it once and for all.
I've drafted a letter, inserted below, and would invite comments on it. I've tired to make it polite and to the point and would be interested to hear any comments, suggested changes, omissions, or errors in fact regarding this letter. I would also hope that once I can come up with a final draft that others might follow suit and send a copy to their representatives.
So without further adieu, here it is:
Dear Senator _______,
I have an issue I would like you to consider taking action on. In short, I would like to see stricter regulation of companies listed for public trading on what is known as the "Pink Sheets".
I have been trading in "Pink Sheets" stocks for a number of years now and there is a distinct lack of information publicly available for most of these companies. Companies trading on the "Pink Sheets" are not required to file with the SEC periodic financial documents. In fact, I have run into more than a few that don't even seem to keep proper books. Many of those I have dealt with will put out press releases making claims as to what they are doing, and what their intentions are, only later to find the claims were inflated or even deceiving. One company I owned had been making promises for months of three separate deals that would culminate in stock dividends to shareholders. All three deals were called off within a matter of days of each other and the company president resigned. Nothing further has been heard from this company since. Another company I currently own has announced the completion of an audit and a promise to make it public. It has missed numerous self imposed deadlines to make the audit public and to date has still not released it. The market price of the stock continues to plummet as the company authorizes more shares and presumably dumps them on the market.
The intention of the "Pink Sheet" market, as I understand it, was a forum for small start up companies to raise capital with limited reporting requirements, thereby being able to put more money into the core business rather than government required paperwork. Unfortunately, it appears that this environment also provides a place for less than reputable individuals to defraud investors out of there money. I have seldom been a proponent for government regulation, quite the opposite in fact. But this is clearly a place where more is needed.
As such, I would like to suggest that legislation be enacted that would accomplish the following:
1. All companies must report quarterly to the SEC their stock structure as of the end of the quarter. This would include the number of authorized shares, the number of outstanding shares and the number of restricted shares, and when those restrictions can be lifted such that they become freely traded shares. The stock structure of many "Pink Sheet" stocks is closely held by the company. Unfortunately this allows these companies to dump stock on the market thereby diluting current investors investment in the company. This dilution can be a very substantial percentage of the current outstanding shares. A cycle of dumping and reverse splits and is often a tactic used by scammers. 2. All companies, regardless of size, should be required to file some sort of financial statement. This will not only give indication that books are indeed being kept, but also provides an avenue for prosecution should the accounting subsequently prove to be false. 3. There needs to be more transparency within the securities agencies involved with stock transfers, and in market makers activities. It is a commonly held belief among many of those who trade in "Pink Sheet" stocks that the market makers often manipulate stock prices rather than allowing a fair market to reign. It is also commonly believed that a technique known as naked short selling is commonly used to ruin companies and enrich market makers. This is a technique whereby a market maker will sell stock they do not own, which is legal by today's regulations as long as the "short" is covered within, I believe, 10 days. It's believed that the market makers then manipulate things in such a was that they avoid the 10 day window and in fact never cover the short. This dilution drives the stock price down to a point that a company can no longer raise capital through stock sales and eventually goes bankrupt. The market maker now no longer needs to cover the "short" and reaps 100% profit on the shares sold. Now, whether this indeed occurs cannot be proved as the necessary records to prove or disprove will not be released by the agencies that govern electronic trading. 4. Press releases are another area that needs to be looked into. Companies issue press releases making all sorts of claims as to future intentions of the company. They do this knowing they can hide behind the "forward-looking statements" clause that accompanies every press release. Quite often these future intentions never materialize which, as we know, often happens in the business world. The problem is, again in the opinion of many investors, that many these claims are overly optimistic and amount "pumping" the stock in an attempt to push the price up more than at true reflection of corporate intent. Unfortunately, I don't have an idea of a regulation that would quell this practice.
I'm sorry for the lengthy letter. But this is an issue that is very important to not only myself but many investors. Every year thousands, if not millions, of investors put money into the "Pink Sheets" markets with faith that this market is government regulated to protect them from fraudulent companies. As I have learned more over the years I have come to realize that this market is not as safe a place to invest as I once thought. It's one thing to risk ones money on legitimate companies that may fail because of valid market reasons, but it's quite another to loose money to companies and the people behind them that are perpetuating fraud. This not only hurts the investing public, but also legitimate companies who are trying raise capital.
I sincerely hope you will give this matter careful consideration and sponsor or co-sponsor legislation that will address the problems of this market.
-------------------- The opinions expressed here by myself and others should be taken for what they are: opinions. Beware, many express opinion as fact. Do your own research from reputable sources and never invest more than you can afford to loose. ~,-,-< GatorMan Posts: 752 | From: Springville, Utah | Registered: Jan 2004
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posted
Just don't buy pinks... save yourself the anguish. Working under the reasonable assumption that ALL pinks are scams will save you money and stress. But good luck with the letter, I would love to see something done.
-------------------- Spend Word For Word With Me And I Shall Make Your Wit Bankrupt. Posts: 1326 | From: Here | Registered: Oct 2005
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posted
Overall, I think it's a good idea. However, if these companies were more transparent and less secretive, they would not be on the pinks. I think that's the whole reason for even having pinks. I don't think I've ever heard a professional say it's a great idea to 'invest' in pinks. Just us gamblers.
-------------------- I have taken a vow of poverty, so if you want to irritate me, send money. Posts: 1032 | From: DFW | Registered: Oct 2005
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posted
quite frankly, the whole pinksheet market should be eliminated. decent letter, though i don't think there is any 10 day window to cover shorts. anyone can be short indefinitely, unless they get bought in/margin called. i would address the letter to the SEC too. also included the company names/symbols of your examples. you might even email it to the SEC and see what kind of response you get. they seem to be pretty good with replying to complaints.
Posts: 1045 | From: novato,ca,usa | Registered: Aug 2003
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quote:Originally posted by metal1: quite frankly, the whole pinksheet market should be eliminated. decent letter, though i don't think there is any 10 day window to cover shorts. anyone can be short indefinitely, unless they get bought in/margin called. i would address the letter to the SEC too. also included the company names/symbols of your examples. you might even email it to the SEC and see what kind of response you get. they seem to be pretty good with replying to complaints.
My understanding is that the market makers are allowd naked short sells for maket liquidity but must cover within 10 days.
-------------------- The opinions expressed here by myself and others should be taken for what they are: opinions. Beware, many express opinion as fact. Do your own research from reputable sources and never invest more than you can afford to loose. ~,-,-< GatorMan Posts: 752 | From: Springville, Utah | Registered: Jan 2004
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quote:Originally posted by RiescoDiQui: MM's can short to provide liquidity they do not Naked short stocks.
I seem to recall somewhere on one of these boards a reference to an SEC regulations that does allow them to naked short. I'll verify that and cite the rule if found. But naked short selling does exist due to loopholes in the regulations and those loopholes need to be closed. http://www.investopedia.com/terms/n/nakedshorting.asp
-------------------- The opinions expressed here by myself and others should be taken for what they are: opinions. Beware, many express opinion as fact. Do your own research from reputable sources and never invest more than you can afford to loose. ~,-,-< GatorMan Posts: 752 | From: Springville, Utah | Registered: Jan 2004
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posted
legally they can short naked if necessary to make a market...then there's language about how the shorts must be settled yada yada...the problem is the "13-day" rule that lets brokers move em around and start the clock over...
posted
Haven't seen the actual regulation yet, but this reference states that
"In the United States, the Securities and Exchange Commission enacted Regulation SHO to prohibit Naked Short Selling. However, Regulation SHO makes an exception for market makers engaged in "bona fide market making"."
-------------------- The opinions expressed here by myself and others should be taken for what they are: opinions. Beware, many express opinion as fact. Do your own research from reputable sources and never invest more than you can afford to loose. ~,-,-< GatorMan Posts: 752 | From: Springville, Utah | Registered: Jan 2004
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-------------------- The opinions expressed here by myself and others should be taken for what they are: opinions. Beware, many express opinion as fact. Do your own research from reputable sources and never invest more than you can afford to loose. ~,-,-< GatorMan Posts: 752 | From: Springville, Utah | Registered: Jan 2004
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