SEC Suspends 14 Companies To Prevent Corporate Hijackings
On October 31, 2013, the Securities and Exchange Commission suspended trading in 14 zombie companies’ shares, due to their failure to file required SEC filings and reports. The SEC filed two Orders of Trading Suspensions, with each against seven issuers. The first order of trading suspension was filed against Heritage Worldwide, Impala Mineral Exploration Corp., Klondike Star Mineral Corp., MIV Therapeutics, Most Home Corp., Moventis Capital, and OrganiTECH USA. The second order of trading suspension was filed against Acies Corp., Immtech Pharmaceuticals, MRU Holdings, MSTI Holdings, Nestor, New Generation Holdings, and Nuevo Financial Center. When the SEC seeks to revoke registration, usually it first suspends the companies it has targeted.
The issuers now reside on the Grey Market, the graveyard of over-the-counter securities.
The SEC correctly concludes these dormant public shells have been abandoned by their owners or are financially distressed, and so are ripe for attacks from corporate hijackers.
Corporate hijackings have been around over a decade but over the past few years, the SEC has been systematically eliminating dormant public shell companies from active public trading, or, if they can, removing them from the market altogether.
In July of this year, the SEC issued its ”Enforcement Initiatives to Combat Financial Reporting and Microcap Fraud and Enhance Risk Analysis.” The SEC release identified financial reporting, microcap fraud and enhancing risk analysis as the SEC’s new enforcement initiatives. In keeping with the SEC’s recent efforts to eliminate public shell companies, as demonstrated by Operation Shell Expel, the SEC identified shell purveyors as ripe targets for enforcement actions. Hopefully, the new task force will eliminate the corporate hijackings accomplished through bogus receivership and custodianship actions that continue to plague the microcap arena. These occur when lawyers and other bad actors use fraudulent receivership and custodianship actions to take control of dormant shells and then sell them to private companies seeking to go public.
The SEC program called Operation Shell Expel was created in 2011 to expel dormant shells from the public markets to prevent the companies from being used in reverse merger transactions. OTC Pink Sheet issuers are suspended and delisted to the Greys; the reporting issuers’ registration is revoked.
Hijackers of public shells typically seize upon companies whose corporate status has been revoked in their states of domicile. The perpetrators, typically corrupt or incompetent attorneys, file for custodianship or receivership in those states – their motive being to profit from the sale of vehicle in a reverse merger transaction. If their (bogus) verified petitions are granted—and they almost always are—they’ve succeeded in taking over the public shell. They then install themselves or their associates as officers and directors, and inform the company’s transfer agent of the change in control. They may go on to arrange a reverse merger transaction for the shell, followed by a promotional campaign. In his petition to the state judge, the petitioner invariably makes fraudulent statements including that the action is being pursued for the best interests of the shareholders because the board of directors is deadlocked. In reality, the legitimate shareholders’ interests are significantly reduced or eliminated and the board was never deadlocked.
The object of Operation Shell Expel is to prevent this from happening. It is an easy and relatively inexpensive way to take vulnerable shell companies out of the marketplace.
More information about corporate hijackings can be found here:
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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