I believe that all professionals associated with the public markets, and all individuals who invest in them should be familiar with this information. Please read this blog entry from OTC Markets and comment on your thoughts associated with it.
During conversations with compliance and risk departments over the past year, the topic of shell companies always comes up. For diligent compliance officers the reason for this focus is obvious, shell companies and more specifically trading with their affiliates are noted specifically in key notices and regulations, including:
- FINRA Regulatory Notice 09-05 – Unregistered Resales of Restricted Securities: Shell company status at the time of issuance is noted specifically as a red flag.
- Office of Compliance Inspections and Examinations (OCIE) Alert October 2014 – Broker Dealer Controls Regarding Customer Sales of Microcap Securities: The alert noted that companies with nominal assets and low operating revenue should be a consideration when considering whether to file a Suspicious Activity Report (SAR).
- Rule 144 – Specifically bars the use of the 144 safe harbor for securities issued by a shell company or former shell company[i].
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