Operation Clean Sweep

The Securities and Exchange Commission; Housekeepers Extraordinaire

Many years ago The S.E.C arbitrarily announced a new definition of “penny stock”. I was an underwriter in those days and the general opinion among Broker Dealers was slight confusion but overall acceptance. We were Over the Counter” brokers, primarily occupied with unlisted securities. “Penny Stocks” meant any shares that were priced up to $1 a share and many of the new companies we brought public were priced at $1 or less. The new S.E.C. interpretation edict classified all shares up to $3 as penny stocks…no reason given. It opened the door for us to raise the price of our offerings and issue fewer shares which in turn meant less dilution and fewer shares to contend with in the after-market. We barely got accustomed to the higher prices when the S.E.C. raised the ante and declared the new definition would include all shares up to $5 per share. We practically celebrated because it meant higher profits, less dilution and broader markets and distribution because member firms, those holding a seat on the NYSE or American, could participate in our underwritings’ initial distribution instead of in the after market. Most of them prohibited trading in companies whose shares were under $5 per share to avoid S.E.C. scrutiny or just due to house policy. Now the handcuffs were removed and we all prospered a bit more…quite a bit more.
 
Could the S.E.C. actually have a change of heart? Every OTC broker lived in fear of the day the S.E.C. would knock on their door
unannounced, demand to see their books and records and go on a witch hunt for any discrepancy with rules and regulations they could find and mete out justice practically on the spot; a fine, a suspension or a law suit to revoke their license. Occasionally a broker could get a clean bill of health but by then the damage was the disruption of business, legal and accounting fees and loss of income for the firm and its employees, except for back office staff which often earned overtime pay in the process. The government was no friend to the Over the Counter industry and the change in penny stock rules seemed uncharacteristic since it was beneficial to most of us…Then the wolf reverted to form with a business-chilling, “the better to eat you with” and the industry began to sing its “swan song”.
 
“Any Broker Dealer who recommends or sells penny stocks must have on file prior to any transaction a letter signed by the client stating that the client is aware of the extraordinary risk involved investing in penny stocks and is able and prepared to absorb the loss of 100% of his investment.” Not an exact quote, but essentially accurate. The Over the Counter industry which was the mainstay of entrepreneurial enterprise in America ceased to exist shortly thereafter; and the middle class began to shrink.
 
When NASDQ posted minimum requirements for listing one of the elements was the stock price had to be $3. per share. Other requirements had to do with the number of shareholders and trading volume. Without getting into the weeds over technicalities, this inane regulation created a new culture of corruption born of desperation. Companies paid for public relations firms to create buying to raise the price per share, albeit artificially. “Pump and dump” artists abounded and the S.E.C. had a field day tracking them down, enforcing the law and destroying countless aspiring companies, resulting in financial losses to more countless, hapless investors, who were definitely not prepared to accept 100% downside risk on their penny stock investments…The S.E.C., by draconian rule, decimated another generation of emerging companies.
 
The phenomenon of the 80’s, which is still going on to a limited degree, was misnomered “naked short selling” ; perhaps the most egregious assault on the small investor and small companies traded on the OTC market primarily, ever. Certain privileged individuals and companies could enter an order to sell shares of a target company “at market” even though they do not own or possess such shares they have legally purchased or borrowed or could legally dispose of. But sell they did and the market price of the target companies collapsed under the pressure of phantom share selling. No remedy had any effect, the S.E.C. and other authorities turned blind eye and deaf ear and hundreds, possibly thousands of companies disappeared from the face of the earth and small investors suffered the indignity of no recourse and losses up to 100%. This practice, contrary to government protest, is easily discouraged, disrupted and ended. The will does not exist. The motive to destroy entrepreneurship evidently still exists. My book, Treason Among Us: Secrets of the S.E.C., tells the story in detail. If you are interested in the naked short sales assault on entrepreneurship Brown Saddle Films produced a documentary on the topic called The Wall Street Conspiracy. An eye opener and a heart breaker.
 
And so it seems the dirty deed is not quite done. The surviving companies that continue to trade at fractions of pennies must be a thorn in the side to socialist-minded agencies because in a few months all companies trading for under one cent will be de-listed. If you are the hopeful owner of one or more companies that find themselves in this predicament, good luck. The pirates and ruthless thieves that still have short positions in any of these companies are about to benefit from yet another government handout to the undeserving and another blow to the wallets of the truly undeserving. Look for a spate of buying in some of these obscure companies and consider selling into the buying or hang on for what it’s worth and see where they pop up next if they don’t end up D.O.A.
 
Call it what you will, I see this constant government pressure on small equity investments as a sublime form of wealth confiscation. Unless Congress, with a Conservative president in office, is willing to educate themselves and do the difficult tasks needed to restore our once unique and immensely successful system of shared risk, a prolonged recovery and strong middle class will not materialise out of thin air. The agencies that have a long standing culture of selective enforcement and animus toward start up businesses cannot be reformed. They must be punished and replaced with an investor/entrepreneur friendly system.
 
Regretfully I must leave this here as the subject is far too complicated and sordid to explain in one letter. I will close by telling you that America could not have been transformed unless the S.E.C. and other agencies were not complicit and unless Capitalism was discredited and entrepreneurship curtailed drastically. Help is not on the way.
 
Start the restoration of America by demanding justice and fairness. Barak must leave or the process cannot possibly begin. Pray for the knowlege and tools to save this country. Praying for the Creator to save us is contrary to His gift of free will and self determination.
 
God bless America,
 
Guido
Guido Volante, Author “Treason Among Us: Secrets of the S.E.C.”
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