OTC LISTED STOCKS UNDER ATTACK

Under the thesis that small companies create jobs, which is good for our economy, Congress passed the JOBS Act which ushered in new rules to make it easier for small private companies to raise capital.

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Simultaneously, likely unintentionally, the financial industry appears to be making it more difficult for existing small public companies, especially “over the counter” or OTC-listed companies, to attract investor interest and new funding.

The regulator’s attack on OTC-listed stocks is likely the unintended side effect of the SEC’s drive to address problem public companies.  The regulator’s campaign is well described in an article by “Legal & Compliance”.

I hear from many professionals which historically dealt with OTC-listed stocks that the regulatory and industry pressures are forcing them to avoid OTC stocks.

This trend results in a negative cycle triggering less liquidity, lower stock prices and further difficulty attracting investors and new funding.

This downward spiral for OTC stocks is unfortunate.  Despite the occasional bad company, I believe the majority of OTC-listed are legitimate.  They make products, hire workers and work to get larger and onto a more prestigious trading market.

An example of tarring all OTC stocks for the problems of a few appeared in a Bloomberg article.  You’d think Bloomberg would know better when it ran an article about one questionable OTC company, an extreme example I believe, but added this paragraph casting suspicion on OTC listed stocks.

Excerpt :

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How an obscure search engine with no reported financials since 2013 was able to become a multi-billion-dollar company is an all-too-familiar tale in the murky, largely unregulated OTC market. Filled with penny stocks that don’t meet listing requirements of the New York Stock Exchange or the Nasdaq Stock Market, it’s long been a place ripe for exploitation by fraudsters, who manipulate shares of shell companies to make illegal profits through “pump-and-dump” schemes.

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Perhaps with greater awareness of this issue, we’ll see a more balanced approach to OTC stocks.  For the good of our economy, we hope this happens sooner rather than later.

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