SEC and FINRA Issue Warnings to Investors Regarding Dormant Shell Companies' Scams
SEC and FINRA issued an Investor Alert to warn investors that certain penny stocks being promoted aggressively as investment opportunities may in fact be the stocks of dormant shell companies with little to no business operations.
The investor alert offers five tips to help investors avoid scams involving dormant shell companies:
- Research whether the company was dormant and then brought back to life. You can search for the company name or trading symbol in the SEC's EDGAR database to see when the company may have last filed periodic reports.
- Know where the stock trades. Most pump-and-dump schemes involve stocks that do not trade on the NASDAQ Stock Market, the New York Stock Exchange or other registered national securities exchanges.
- Be wary of frequent changes to a company's name or business focus. Name changes and manipulation often go hand in hand.
- Check for mammoth reverse splits. A dormant shell company might carry out a 1-for-20,000 or even 1-for-50,000 reverse split.
- Know that "Q" is for caution. A stock symbol with a fifth letter "Q" at the end denotes that the company has filed for bankruptcy.
See: Investor Alert.