Oct. 17, 2018
Dear SEC, I am writing you to express my deep concerns over one specific proposal (quoted below) by Brett Redfearn discussed in recent equity market structure round tables. "If a company is a dark company and listed in the OTC market and hasn’t put out financials for six months, maybe it shouldn’t be quoted or offered to retail investors,” Redfearn said Monday at the Securities Industry and Financial Markets Association’s annual meeting in Washington." https://www.bloomberg.com/news/articles/2018-10-01/sec-spots-a-way-to-starve-the-most-suspicious-penny-stocks While I admire the effort to protect retail investors and clean up some of the hidden areas of the markets, I need to communicate how grave and harmful this would be to my family's finances (along with legitimate businesses and retail investors in general). Although I believe the intentions of this proposal are genuinely ambivalent, taking these wide-sweeping actions would do more harm than good. Most academics refer to this as the "cobra effect." Please consider the following: 1. Many retail investors, such as myself, have huge portions of their entire net worth (and retirement) invested in some of these exact companies that would be restricted. Suspending quotes or blocking out these stocks would cause my family enormous and irrecoverable financial harm (both current and future). The companies that I'm invested in have been around for decades (some for over 100 years). They're very small and illiquid stocks (making it both impracticable and disadvantageous) to register on an exchange and comply with such timely financial reporting. This does not mean that they are not wonderful, legitimate, mostly family owned, businesses that uphold their fiduciary duties to the highest degree. Many times, I’ve found their sense of responsibility to shareholders far exceeds that of large, exchange traded corporation. I can name numerous examples or case studies of both small companies with great corporate governance and shareholder friendly policies (that have been more than 6 months late sending an annual report) and large, exchange traded companies that have committed fraud or complete negligence. 2. This is the exact area of the market where retail investors have the most opportunity to prosper, since there is the least competition. 3. There are many alternative, more efficient, and less harmful ways to accomplish this same objective. I always aim to be part of the solution and would be more than happy to discuss with Brett or anyone at the SEC. I have several proposals that would both protect the general investing public and protect these businesses. A few examples include- providing lower tier (more affordable) reporting standards, putting an end to the existing SEC rule that allows companies to de-register and stop all shareholder communication (which would align with existing state laws). I can be reached at 919-491-7077 or via email. 4. Many executives at these companies receive compensation in the form of stock. Most of the executives at these small companies are making very modest salaries. This is one method of compensation which aligns them with shareholders. Suspending quotes and/or blocking retail investors would unnaturally depress the price of these shares and cause these individuals harm. I urge you to consider the family’s, like mine, that would be adversely impacted by your changes (in addition to all the legitimate businesses that would be swept up in your idea). Do not suspend quotes or block out stocks just because they have not filed a report in 6 months. Best, Retail Investor- Lucas Elliott