November 11, 2019
Dear Sir/Madam:
I oppose S7-14-19 as written because I believe the scope to be too broad. I am definitely for curtailing fraud and "pump and dump" schemes, but this proposal, as written, would also hamper the value of legitimate companies' shares.
There are many thinly traded, OTC stocks of legitimate, profitable companies. These shares have grown in value over time and continue to be profitable for those who do their research and seek out value. I have many clients who own shares of such companies and they would suffer great loss in value if these shares stop trading and, therefore, decrease in value.
These types of shares trade rarely and, in some cases, almost not at all. However, they still hold their value and quite often pay dividends to shareholders. In some cases, the insiders and/or large shareholders of such companies would like nothing better than to see the minority shareholders get squeezed out by eliminating the market trading of these securities. If that happens, the only way for minority shareholders to sell shares would be to the majority holders and at whatever price they choose to offer to buy those shares. Without a bid/ask spread, the minority shareholders are left with very few options.
Furthermore, shares that have been increasing in value for many, many years may now become worthless in investors' accounts. If there is no market (OTC or otherwise) for these types of shares, their value will be shown as zero in their accounts. This could cause hundreds of millions or billions of dollars of devaluation of shares of profitable, legitimate companies. If there is even a notion that something like this may happen, a large wave of selling may occur that would crush the value of stock of a lot of these companies. That is just not right and cannot happen. The interests of these shareholders must be protected.
I believe no one should be defrauded when purchasing securities, but buyers should also beware when they are being pitched something that is "too good to be true". Perhaps you can propose a new change that limits the purchasing of these thinly-traded securities to accredited investors who, by definition, don't need protection. Those who currently hold these securities can be grandfathered in, but new purchases (after a certain date) can only be made by accredited investors. So, only the wealthy investors, who assumingly don't need special protection, could be involved in "pump and dump" schemes and/or thinly-traded securities, in general.
In my opinion, the fraudsters will find a way to take advantage of unsuspecting, misinformed investors no matter what rules are added or changed. However, if they only have access to accredited investors, they will have a much harder time defrauding buyers. A lot of accredited investors aren't looking for a get-rich-quick scheme proposed by these fraudsters. In my experience, pump and dump schemes are aimed at those looking to make a fast buck and are not accredited investors who have advisors to help them make informed investment decisions.
Thank you in advance for your time and consideration in reading this comment. I am heavily involved in this world and it will affect almost all the clients I work with. I would be happy to discuss things further with anyone from your office or be part of a panel of people if you invite a group to discuss the issues.
Sincerely,
Ron Lefton