November 8, 2019
The SECs proposed changes to 17 CFR 240,15c2-11 as currently written will financially impact small shareholders of honest, but non-reporting over-the counter securities. This rule does not sufficiently distinguish between legitimate and shady stocks. In my experience, it doesnt take more than a couple seconds to tell the difference between the two. The dubious companies have share prices of a penny or two, no profits, no physical offices, and no meaningful assets, whereas the real companies trade not in pennies, but in dollars, have existed for twenty or more years and own real assets. Yet, the proposed regulation treats both types of companies the same.
The result is that non-registered public companies like Boston Sand and Gravel (OTC:BSND) at $600/share or Pendrell Corporation (OTC:PCOA) at $150,000/share will now be treated the same as the bad acting pump and dump scammers. As a result, honest investors will no longer get quotes for valuable shares or be able to trade them digitally once the good companies are treated the same as shady ones. Imagine if EBAY and its competitors no longer took bids for your collectibles and you could no longer sell them on the internet. Your collectible prices would tank and thats the same risk we owners of over the counter stocks will bear if we lose our quotes too. Fair markets provide for better pricing by providing more buyers for sellers and more sellers for buyers, but without price quotations, existing shareholders wont get any digital bids from sellers at all.
While some non-registered public companies do currently pay to register their shares, many companies with only a small number of shareholders chose not to pay to do so now and are unlikely to pay to do so in the future. For these later companies, small shareholders will lose their ability to trade digitally and have little choice but to sell their shares in paper form to the controlling shareholders who could, if they so chose, exploit this rule change to buy shares on the cheap from investors who no longer have a market to sell their shares in.
I encourage the SEC to find cheaper and easier solutions for allowing shares of legitimate companies to continue to trade. Why not let these companies simply post their financials on their own web site annually or be grandfathered in? Better yet, why not just apply these rules to companies issuing new shares? A quick observation will reveal that 99% of the companies that issue new shares at a one penny price point are frauds, so why not simply prohibit the issuance of new shares at prices below one dollar per share? This would target the fraudsters selling new pump and dump offerings without impacting those of us who own legitimate companies.
I appreciate that the agency is trying to cleanup fraud in the market, but more caution is needed not to harm shareholders of legitimate companies in the process.
Sincerely,
Doug Mohn