Caveat Emptor Securities Hit with a Big Setback

Last week, E*TRADE, a subsidiary of Morgan Stanley, which offers an electronic trading platform to trade financial assets including common stocks, announced that effective November 21, 2020, customers will no longer be able to open positions in Caveat Emptor securities due to the risks associated with trading shares in these companies.

E*TRADE further stated that Caveat Emptor securities currently held in accounts will be set to liquidation only, meaning you may close or continue to hold existing positions but no new or additional positions may be added. E*TRADE will also prohibit deposits and transfers in Caveat Emptor securities as of the effective date.  The full statement can be found on the E*TRADE website.

This is a big hit to Caveat Emptor securities, many of which had become easier and more common to trade because of recent moves made by OTC Markets Group, including the creation of the Expert Market.

What Is Caveat Emptor?

The OTC Markets Group identifies securities with a Caveat Emptor symbol when it is probable that there is a lack of adequate public information about the issue.  The Caveat Emptor designation is also used to warn investors that there may be a reason to exercise additional care and perform thorough due diligence in making investment decisions about that particular security.

The Caveat Emptor symbol is displayed in place of the OTCQX, OTCQB, or OTC Pink marketplace designations.  The symbol is displayed wherever OTC Markets Group quote data is available. The designation may be applied to all market participants.

The OTC Markets has identified specific circumstances in which a Caveat Emptor designation is assigned.  Once assigned, more often than not, it is not removed.  The circumstances are set forth below.

  • Promotion/Spam Without Adequate Current Information

The security is being promoted to the public, but adequate current information about the company has not been made available to the public.

  • Investigation of Fraud or Other Criminal Activities

OTC Markets Group becomes aware of an investigation of fraudulent or other criminal activity involving the company, its securities, or insiders.

  • Suspension/Halt

A regulatory authority or an exchange has halted or suspended trading for public interest concerns (i.e., not a news or earnings halt).

  • Undisclosed Corporate Actions

The security or company is the subject of a corporate action, such as a reverse merger, stock split, or name change, without adequate current information being publicly available.

  • Unsolicited Quotes

The security has only been quoted on an unsolicited basis since it entered the public markets, and the company has not made adequate current information available to the public.

  • Other Public Interest Concern

OTC Markets Group has determined that there is a public interest concern regarding security.  Such concerns may include but are not limited to promotion, spam, or disruptive corporate actions even when adequate current information is available.

Despite the warning by OTC Markets Group that Investors should exercise extreme caution before purchasing a security with a caveat emptor designation, E*TRADE felt that the securities still posed a high enough degree of risk to cease continuing to offer trading services in such securities.

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  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.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855