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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Shell Company Rules: Opening Statements before the SEC Open Meeting


Chairman William H. Donaldson

U.S. Securities and Exchange Commission

Washington, D.C.
June 29, 2005

The next item on our agenda is a recommendation from the Division of Corporation Finance that we adopt final rules regarding shell companies. Specifically, the Division recommends 3 primary actions regarding shell companies:

  • prohibit the use of Form S-8 by most shell companies;
  • revise Form 8-K to require a shell company to include additional information when it reports it is no longer a shell company; and
  • require foreign private issuers that are shell companies to report shell company transactions on Form 20-F.

The amendments are intended to protect investors by deterring fraud and abuse in the securities markets by the use of shell companies. The amendments address two ways shell companies are used to commit fraud and manipulate the markets.

One involves the inappropriate use of Form S-8 registration statements by shell companies to circumvent Securities Act requirements.

The second involves using shell companies to effect "reverse mergers" and deprive the trading market of information that would otherwise be required by the Exchange Act.

I believe it is important to note that, while we continue to see abuse with some transactions involving shell companies, we recognize that companies and their professional advisors often use shell companies for many legitimate corporate structuring purposes. The rules we are considering today do not prohibit or limit those transactions. Rather, these rules provide a much-needed, disclosure-based approach to abuses involving shell companies.


Modified: 06/29/2005