April 28, 2004
In response to comment by Robert Stevens
Robert Stevens said:
...the proposed rule will do little more than increase the costs involved in legitimate reverse takeover RTO transactions.
This is not true. There are many shell companies using the S-8 vehicle to dump shares into the market. The commission does well to prevent this.
It is commonplace and practical to compensate employees and consultants in stock, and many small companies do not have the liquid resources to pay these individuals in cash.
While this may be true, it is also common for shell corporations which have no operations to compensate unidentified consultants for unspecified services, and for those shares to quickly flow into the market.
Regarding the requirement for increased disclosure prior to Reverse Take-Over transactions, Stevens said:
Making it next to impossible to engage in this type of transaction ... will not address the fraud items the Commission is truly concerned with.
If the costs of the disclosures required by the SEC are too high for small businesses, then perhaps some abbreviated form of disclosure could be devised. But making it cheaper for small business to access public markets should not be the commisions primary concern, ahead of ensuring that investors have access to the information needed to make informed investment decisions.
Stevens also commnts:
An RTO can, in many cases, resurrect the public value for shares in earlier offerings.
This is not the case in the vast majority of such transactions. That is, the shareholders in the shell company are typically left with only a tiny fraction of the value they originally invested. Conversely, stock pumping operations frequently tout these shares as a tremendous opportunity, prior to the publication of the exact terms of the take-over.
In summary, I disagree with every point in Stevens comment, and whole-heartedly support the commisions proposed rule changes.