June 2, 2004
The additional disclosure requirements for companies that go public using reverse shell mergers are long overdue. The basis of U.S. securities regulation has long been that the government would require that all relevant information be disclosed to the investing public, and that the market would set the appropriate price for the security. This principle has lead to substantial improvements in the quality of investor information, and the stability of the markets. However, one group of publicly traded companies has been able to avoid full disclosure for a period of time, allowing the possibility of fraud, and the likelihood of insufficient investor information. This regulation is a big step towards fixing these problems.
The Commission has requested comments on the question of whether the proposed amendments to Form 8K would unduly increase costs for smaller public companies. The answer to this question is no. There are few disclosures that would be required under the new 8-K rules that would not have to eventually be disclosed by the merged shell eventually in a 10-Q or 10-K. This rule merely moves up the disclosure to a point in time closer to when the stock is first made available to the public investor. If the new combination is not ready to disclose its financial state to the public, it is not ready to sell its stock to the public. These new regulation throw light on a troubled area of our securities market, and legitimate companies should welcome these additional rules, as they will add an air of legitimacy to a process long considered disreputable.