SEC Suspends 225 Dormant Shell Companies to Prevent Pump-and-Dump Scams

The Securities and Exchange Commission said that as part of Operation Shell-Expel, its initiative to fight microcap fraud, it is suspending trading in 255 dormant shell companies that it says are “ripe for abuse in the over-the-counter market.” The regulator’s Office of Market Intelligence in its Enforcement Division has been looking through penny stocks and finding inactive companies.

Already, several hundred dormant shell companies have been suspended to protect them from fraudsters and from pump-and-dump scams, which is common with microcap companies. Schemers will use misleading and false statements to talk up a company’s thinly traded microcap stock. They will then buy the stock at a low figure to inflate the price to make it appear as if there is market activity. The next step involves getting rid of the stock by selling at that higher price and making huge profits.

These latest suspensions involve companies in two foreign countries and 26 US states. If a stock gets suspended from trading, relisting is not possible unless the company gives current financial data to show that it is still in business. Because many dormant shell companies are unlikely to do this, the shells become worthless to fraudsters.

Pump-and-Dump Schemes
Last year, the Financial Industry Regulatory Authority issued an investor alert warning against not only pump-and-dump scams but also emails about them. The McAfee Threats Report reportedly found that there was a huge rise in email involving these financial schemes-with investors reportedly also possibly at risk of being targeted via Twitter, Facebook, chat rooms, and social media.

A lot of times, pump-and-dump scammers will pretend they have “inside” information about an upcoming development or a system to pick stocks that are “infallible.” However, when they eventually “dump” their shares and cease to promote the stocks, investors end up holding stocks with no value and/or lose their money.

Contact our pump-and-dump securities fraud lawyers so we can help you explore your legal options.

SEC SUSPENDS TRADING IN THE SECURITIES OF TWO HUNDRED FIFTY-FIVE COMPANIES QUOTED ON OTC LINK, SEC.gov, February 3, 2014 (PDF)

FINRA, SEC Warn Investors: Don’t Trade on Pump-And-Dump Stock Emails, FINRA, June 12, 2013

More Blog Posts:
FINRA Accuses John Carris Investments of Pump-and-Dump Scam, Stockbroker Fraud Blog, September 13, 2013

Trading in Securities of 379 Microcap Companies Suspended in SEC’s Fraud Crackdown, Stockbroker Fraud Blog, May 14, 2012

NY AG’s ARS Lawsuit Against Charles Schwab & Co. is Revived by Appeals Court, Institutional Investor Securities Blog, August 29, 2013