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Watch Out for the Skull and Crossbones
New Pink Sheets Labels Flag the Worst Over-the-Counter Bets

By Nell Henderson
Washington Post Staff Writer
Sunday, July 29, 2007; F01

Riding the stock of Vision Airships during the past few months would have made any investor airsick.

The company, which described itself as a blimp business in the making, was trading at less than a penny in April when it suddenly shot to $3, only to crash like the Hindenburg to near zero this month.

The climb was fueled by hyperbolic press releases -- "We are on the road to explosive growth" -- and spam e-mail touting the stock. The subsequent flameout was best described by the Securities and Exchange Commission in an order issued Monday. The SEC said it had halted trading in the stock due to questions about the company's assertions regarding its acquisition of blimps, its funding for expansion and its potential revenue.

The turbulence of Vision Airships' shares highlights the sometimes dangerous world of over-the-counter stock investing. It's because of stocks like Vision Airships that companies quoted by an OTC service called Pink Sheets will start carrying warning labels this week.

Over-the-counter stocks are those not listed on the regulated stock exchanges and markets. Many of the companies are too small, thinly traded or financially troubled to be listed on exchanges and markets where issuers must meet minimum size and financial requirements.

Internet-based Pink Sheets publishes price quotes for about 8,000 over-the-counter securities. It does not require issuers to register with or report audited financial results to the SEC or other regulatory authority; some do, and some don't.

These securities "can be among the most risky investments," the SEC says in a note to investors on its Web site. "That's why you should take extra care to thoroughly research any company quoted exclusively in the Pink Sheets."

The warning labels, said Cromwell Coulson, chief executive of Pink Sheets, will help investors distinguish between dodgy and decent securities. For example, a black skull-and-crossbones icon would appear alongside securities promoted by spam or "other questionable action," said Coulson. The symbol will mean, "bad people are involved," he said. "Pirates. You should be careful."

Pink Sheets also displays price quotes for the securities of solid companies with real operations and earnings, including big-name multinational corporations.

Some issuers of stocks on Pink Sheets could list on U.S. exchanges but choose not to because of the cost of meeting the reporting requirements.

Many companies, such as Volkswagen, Heineken, Nestle and Nintendo, are listed on foreign exchanges and sell their American depositary receipts through Pink Sheets.

Several issuers, such as auto parts maker Delphi, have been delisted from an exchange because they are bankrupt or are going through some other financial distress.

The value of securities traded through Pink Sheets has ballooned in recent years, to $113 billion last year from $29 billion in 2000, the private company said. The number of shares traded topped 1 trillion last year, up from 22 billion in 2000.

So how to tell the promising from the poisonous?

In addition to the skull and crossbones, Pink Sheets will display symbols categorizing each security in terms of the extent and timeliness of the issuer's public financial reporting -- while not evaluating or endorsing the quality of those reports.

A pink check mark will appear next to those securities whose issuers currently and fully disclose their financial results. For example, about 3,000 Pink Sheets securities are also traded through the OTC Bulletin Board, which is owned by NASD and requires issuers to report their financial results to the SEC or another regulator.

A triangular "yield" symbol means the issuer has disclosed a limited amount of financial information in the past six months. A stop sign will mean the issuer has provided no information in six months.

Pink Sheets has also created a Web site,, for what it considers its top tier of stocks or American depository receipts whose issuers have audited financial statements. So far, most are companies listed on foreign stock exchanges, like Wal-Mart de Mexico S.A.B de C.V.

"Hopefully, what we're doing is making more information available so the market can be more efficient," Coulson said.

Coulson also hopes the system will boost his business by helping market his higher-end offerings -- securities that might sell better if not tainted by association with some of the bad apples in the Pink Sheets barrel.

The stinkers include "shell companies, just in the business of issuing press releases and shares," and stocks being promoted through spam, Coulson said. "There's a fair amount of companies that are highly speculative and questionable."

And the new symbols, he added, are "not going to make bad companies go away."

So why does Pink Sheets display such quotes?

Because it is paid to.

The broker-dealers that sell the securities pay Pink Sheets to display their bid and ask prices. The broker-dealers must be registered with the SEC and members of NASD, formerly known as the National Association of Securities Dealers. But Pink Sheets itself is not a regulator, exchange or market.

When Coulson and other investors bought the company in 1997, it was known as the National Quotation Bureau, which published quotes on pink paper along with the broker-dealers' telephone numbers. The broker-dealers called one another to trade. "It used to be a phone book," Coulson said.

Over five years, Coulson's group renamed the service and moved it online, so investors could see real-time, firm price quotes, and trade electronically.

Pink Sheets helps many investors find undervalued securities or distressed companies that may recover.

"You potentially can identify companies that are attractive investments," said Robert E. Robotti, president of Robotti & Co., a financial firm that is both a broker-dealer and investor in Pink Sheets securities. But he added, "You need to know what you're looking at and assess what you think that business might be worth."

For investors who trade Pink Sheets securities, the new categorization system is an improvement, said Joseph P. Borg, president of the North American Securities Administrators Association. "More disclosure is better."

But Barbara Roper, director of investor protection for the Consumer Federation of America, said individual investors should steer clear of the risks. "For average retail investors, the entire category of Pink Sheets stocks should carry a skull-and-crossbones label," she said.

Coulson said he got the idea for the disclosure categories from eBay, which classifies its "PowerSellers" by their positive buyer feedback and high sales volume. But, he added, "there's a lot of stuff for sale on eBay that you'd never buy." pf.html

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