Tag Archives: Caveat Emptor Stocks

Defunct OTC Companies That Continue to Trade

What is a Defunct OTC Company?

Sometimes when a public company is no longer operating or in business, its stock can continue to trade on the OTC Markets even when its filings are delinquent. These OTC companies are shown as a Stop Sign on OTCMarkets.com, and they are often labeled as “Defunct” or “Dark.”

Why Does a Defunct Public Company’s Stock Continue Trading?

The common stock of Defunct public companies or Stop Signs can continue to trade as long as there are shares in its public float.  These shares may have been previously registered under an S-1 Registration Statement when the company’ s SEC filings were current, or they may have been deposited by long-time Shareholders using Rule 144 or Section 4(a)(1) as an exemption to registration.

When Does a Defunct OTC Company’s Stock Cease Trading?

The free trading stock in the OTC Company’s public float will continue to trade unless those shares are deregistered by the SEC, trading is suspended or halted, or the registration of the Defunct public company’s stock is revoked by the SEC.

When Does the SEC Halt or Suspend Trading in a Defunct Public Company?

Unless there is evidence of wrongdoing, the SEC generally does not like to prohibit trading of stock in a Defunct OTC public company because doing so would harm those Shareholders who are holding stock in Defunct Stop Signs and those willing buyers and sellers who want to trade the stock despite the risks involved.

SEC Will Suspend Trading if There is Manipulation or False and Misleading Information

The SEC will halt or suspend trading in the stock of a Defunct public company when either

  1. The Defunct OTC company’s stock price appears to be manipulated; or
  2. When the SEC believes that the OTC company’s public information posted in filings or press releases is false or misleading.

When a trading suspension occurs, OTCMarkets.com will label the stock with a Caveat Emptor or skull and cross bones symbol, indicating that there is a public interest concern and that investors should take special care.

When Does the SEC Deregister a Defunct Company’s Stock?

The SEC may also revoke the registration of a Defunct public company’s stock. Under Section 12(j) of the Securities Exchange Act of 1934, the SEC is authorized to revoke the registration of a security if the public company fails to comply with the federal securities laws.

The deregistration of a public company’s stock will also result in the Caveat Emptor label and skull and crossbones at OTCMarkets.com, and then the Company’s trading symbol or ticker will not be searchable at all.  The SEC prohibits broker-dealers from executing trades in stocks when a Defunct public company’s registration is revoked pursuant to Section 12(j).

Securities Attorney for Shareholders of Defunct Public Companies

Shareholders owning stock in OTC Markets Stop Signs, which are delinquent in their filings or marked Defunct can contact OTC securities lawyer Matt Stout for a no cost review of their certificate and supporting documents to see if Rule 144 or Section 4(a)(1) can be used to clear restricted stock.

Securities Lawyer to Bring Defunct Companies Current

Management of delinquent SEC filers marked as Stop Signs or Caveat Emptor often work with Matt Stout to bring their companies current under the Exchange Act, or file Form 15 with the SEC in order to begin reporting as a current Pink Sheet on OTCMarkets.com.

OTC Bulletin Board and OTC Markets Securities lawyer Matt Stout can be reached at (410) 429-7076 or mstout@otclawyers.com.


What Does Caveat Emptor or Skull & Crossbones Mean on OTC Markets?

caveat-emptor The Caveat Emptor or “Buyer Beware” warning on OTC Markets means that there is  a public interest concern involving the Issuer, its Management or Securities.

Although the skull and crossbones implies that there is something possibly toxic about the stock, and looks scary, it really functions to alert the Issuer to provide documentation requested by a regulatory authority like the SEC in order to clear up what might just be a misunderstanding.

Caveat Emptor is Inevitable When Issuers Ignore SEC Inquires

In many cases, the existing Management or prospective Buyers of Caveat Emptor pubic vehicles will discover that the source of the skull and crossbones is a matter easily explained when a securities lawyer takes the time to follow the process.

Another way of looking at a Caveat Emptor is that the skull and crossbones is the inevitable result when an Issuer ignores an SEC inquiry, even if there is nothing whatsoever wrong.

Issuers Should Respect the Process and Hire Counsel to Respond

The difference between having a skull and crossbones for a few days or forever comes down to whether an Issuer respects the process enough to respond properly.  Hoping it will go away doesn’t work.  Management hiding their heads in the sand won’t remove it.

It is not the goal of the SEC, OTC Markets or any other organization to blacklist companies for life; those with good management and transparent numbers, that take the time and demonstrate good faith by cooperating fully are often rewarded quickly.  There is nothing to lose by responding and Shareholders have a lot to gain if the stock can start trading again.

Even if there was a legitimate public interest concern which caused the Caveat Emptor warning, once the Issuer takes affirmative steps to address past problems, it can distance itself from bad actors or past mistakes.   This process is all about disclosure, and more transparency is always better for both Management and Shareholders.

Pink Current Issuers who suddenly find themselves saddled with the Caveat Emptor badge should pick up the telephone and hire experienced securities counsel, who can coordinate the process of providing the regulatory authority with the information they need.

When is the Caveat Emptor Warning Removed By OTC Markets?

OTC Markets quoted companies may have the Caveat Emptor warning removed by providing their investors with detailed disclosures following the Alternative Reporting Standard.  This is accomplished by using either the OTC Markets Disclosure & News Service or, if the Issuer is an OTCQB, by becoming current again in their SEC filings.  Even after filings are brought current, OTC Markets may continue to mark an Issuer as Caveat Emptor if it believes there might still be a public interest concern.  For this reason, Issuers should specifically address any public interest concerns in their disclosures rather than trying to pretend it didn’t happen.

Experienced Securities Counsel for Caveat Emptor Vehicles

OTC Markets Issuers facing a Caveat Emptor situation should contact experienced securities legal counsel to discuss what is required to remove the skull and crossbones.  There are many reasons why the Caveat Emptor warning can be added to an Issuer’s trading symbol and the proper actions in response depend on why the Issuer was flagged.

Caveat Emptor May Create An Opportunity for Buyers of Public Vehicles

When existing Management of a Caveat Emptor vehicle gives up in frustration or chooses not to respond properly to an SEC inquiry, this can create an opportunity for a group with the money and patience to deal properly with any lingering public interest concerns.  Due diligence is essential in evaluating the difficulty of removing the Caveat Emptor warning, and this should be factored in when looking at a skull and crossbones vehicle that is for sale.

Management or Shareholders of OTC Markets skull and crossbones public vehicles can contact securities attorney Matt Stout at (410) 429-7076 for further information.

How Does A Trading Halt Affect the OTC Issuer’s Stock?

Who Can Place a Trading Suspension or Trading Halt on an OTC Security?

Only the SEC or FINRA can suspend or halt trading in a public company’s stock quoted on the OTCQX, OTCQB or OTC Pink Sheet marketplaces.  OTC Markets does not suspend trading or stop publishing quotations for any Issuer on its own accord.

A trading suspension or halt has nothing to do with whether or not an Issuer has continued to subscribe to the OTC Markets Disclosure and News Service, to OTCIQ, or even if the Issuer’s filings are not current on OTC Markets.  Pink Sheet Stop Signs can, in theory, remain Pink No Information forever without having trading in their stock suspended or halted.

What happens if the SEC or FINRA Issues a Trading Halt in an OTC Markets stock?

When trading in an OTC stock is suspended by the SEC or halted by FINRA, OTC Markets Group removes all quotes from its inter-dealer quotation system and displays a “Halted/Suspended” message.

How Long Do Trading Suspensions Last?

SEC suspensions for OTC Markets OTCQX, OTCQB and OTC Pink Sheets last Ten (10) business days.

Once the suspension has ended, market makers may re-enter their bid and ask quotes if a new Form 211 is filed with FINRA that includes the Issuer’s current financial information.

Without the new 15c2-11, the trading symbol will remain a Caveat Emptor or skull and cross bones.

What Can Caveat Emptor Issuers Do About SEC Suspensions or FINRA Trading Halts?

Management or Shareholders of OTC Markets Caveat Emptor or skull and cross bones Issuers can contact Matt Stout, securities lawyer, with questions on the process of addressing SEC trading suspensions or FINRA trading halts, and to discuss the 15c2-11 process at (410) 429-7076 or mstout@otclawyers.com


What is the Difference Between a Stop Sign and Caveat Emptor on OTCMarkets?

A Stop Sign Usually Means an Issuer is Simply Behind in its Quarterly and Annual Filings

Stop Sign       When a Pink Sheet Issuer falls behind on the filing of its OTCMarkets  financials and disclosures, it can be marked a stop sign (Pink No Information) on OTCMarkets.com.  This also happens when a former OTCQB, or bulletin board Issuer ceases to fulfill its SEC reporting obligations.  The bottom line here is that a Stop Sign is not in itself a “bad sign.”

Securities Attorneys Can Help Bring OTCMarkets Filings Current

If the only reason for the Stop Sign is that the Issuer is behind in its filing, and if those filings can be made current, then this presents an opportunity for new management.  A securities attorney can call the helpful staff at OTCMarkets.com to review the history of the Issuer and find out if there is another other substantive issue that caused the Stop Sign.  If not, then the matter is simple enough:  the Issuer needs to subscribe to OTCMarkets’ Disclosure and News Service, and bring its filings current.  The costs involved are easily quantifiable by securities lawyers like Matheau J. W. Stout, and it always makes sense to find out, even if an Issuer is not ready today to begin posting past due filings.

Issuers Marked Caveat Emptor Are Not Always Guilty of Wrongdoing

caveat-emptor       In contrast, Caveat Emptor (Skull and Crossbones) stocks are believed to have some negative element in their past history, which is significant enough for OTCMarkets.com to warn all prospective investors:  Buyer Beware.  In some cases, past management or promoters associated with the Issuer have become entangled in SEC problems unrelated to the Company, or are the subject of state inquiries.  Sometimes there were actual violations of securities law that are connected to the Issuer itself, and sometimes there is simply a misunderstanding that can be fixed by presenting evidence to the regulatory authorities involved.

Undocumented Press Releases and Violations of State Blue Sky Laws are the Reasons Why Many OTCMarkets Issuers are Marked Caveat Emptor

On many occasions, these inquiries stem from press releases that were deemed questionable by officials, and in others someone has inadvertently run afoul of state Blue Sky laws which govern the process of registering sales of stock in private placements.   In all cases, there is a process by which management can provide documentation and other evidence to clear the persons involved, and thus the Issuer, from any wrongdoing.   Sometimes the management and shareholders of an Issuer marked with the Skull and Crossbones decides its not worth the time and costs involved in “cleaning up” their vehicle.

Issuers Marked Caveat Emptor May Be Able to Clear Themselves of Any Wrongdoing with a Securities Lawyer’s Help

It makes sense for controlling shareholders to hire a qualified securities law firm, like the Law Office of Matheau J. W. Stout, Esq. to perform some due diligence into the matter, so that the costs and time frame can be quantified.  In many cases, it is easier to remove this stigma than shareholders of Caveat Emptor stocks might think, and it is nearly always worth a look.

More information regarding the differences between a Stop Sign and Skull and Crossbones Stock Can Be found on OTCMarkets.com here.