SEC Cleans up OTC Markets – SEC Trading Suspension of 71 Penny Stocks
On February 14, 2021, we published an article alerting the public about what we calculated to be the start of a new initiative by the Securities and Exchange Commission (“SEC”) to reign in the market manipulation of no information stocks through Social Media.
Since that article, the SEC has suspended 70 more stocks, in addition to the SpectraScience Inc (SCIE) suspension that kicked off the string of activity.
The 70 additional suspensions
February 16, 2021 – the SCIE suspension was followed by the suspension of All Grade Mining Inc (HYII). HYII was also heavily pumped on social media, absent any public disclosure to support the hype.
February 19, 2021 – the SEC suspended three more Issues that were being pumped on social media, absent any disclosures from the companies to support the hype, Sylios Corp (UNGS), Marathon Group Corp (PDPR), and Affinity Beverage Corp (ABVG).
February 22, 2021 – the SEC suspended trading in 48 defunct stop sign tickers: AAXT, ADTC, ARHI, ARBI, BTAM, BRTE, CCHZ, CUBG, ENGY, CGDI, CCAQ, CRRSQ, DLII, EENR, EENC, ENZH, GLWA, GSVI, HERC, HBTC, HAHI, IFCI, NEMD, IYXI, JRIV, LGTS, MGLO, MTPR, MLPH, NWUC, OLFC, OSCN, ONLI, PNLT, SKAJ, SPDE, SPXP, STCO, TSNI, TNGNQ, TPIL, ROKR, USAM, VCLD, WPEC, WGIH, WHLX, XCRP.
February 23, 2021 – the SEC suspended trading in Bangi Inc (BNGI), another no information pink sheet company manipulated on social media.
February 24, 2021 – the SEC suspended trading in Renuen Corp (RNUE), another no information pink sheet company manipulated on social media.
February 26, 2021 – the SEC threw its biggest punch so far by suspending 15 no information pink sheet companies that have been heavily promoted on social media for weeks: Bebida Beverage Co. (BBDA), Blue Sphere Corporation (BLSP), Ehouse Global, Inc. (EHOS), Eventure Interactive, Inc. (EVTI), Eyes on the Go, Inc. (AXCG), Green Energy Enterprises, Inc. (GYOG), Helix Wind Corp. (HLXW), International Power Group Ltd. (IPWG), Marani Brands, Inc. (MRIB), MediaTechnics Corp. (MEDT), Net Talk.com, Inc. (NTLK), Patten Energy Solutions Group, Inc. (PTTN), PTA Holdings, Inc. (PTAH), Universal Apparel & Textile Company (DKGR), and Wisdom Homes of America, Inc. (WOFA). Most of these stocks were horrible scams when they were active, so it was just especially erroneous to see them getting used for stock manipulation again, many years later.
If the earlier suspensions didn’t get the attention of traders, there is no question that this one did, as many of them were still very active, so the action no doubt affected a lot of traders’ brokerage accounts. The SEC followed up the suspension order with a press release reminding traders that what was going on with these stocks is not legal and that investors were warned back on January 30th. The market immediately reacted with an obvious trend of money moving away from the no information stocks and the remaining no information stocks, seeing a steady decline in price.
March 3, 2021 – the SEC suspended trading in Arcis Resources Corp (ARCS). A few months ago, ARCS, a defunct company, was used as a pump & dump by social media pumpers who created a fake website and fake emails showing fake communication with the company. It was the last Issuer to be given the Caveat Emptor designation by OTC Markets on December 18, 2020, because of suspected fraud.
That brought the current tally to 71 no information stocks suspended by the SEC since our article.
What We’ve Learned from the Suspensions
After the January 30, 2021 investor alert from the SEC and the SCIE suspension, all we knew for sure was that the SEC was going to focus on market manipulation through Social Media and that its first target was a delinquent filer.
The second suspension, which came against HYII, another delinquent filer being pumped on social media absent any public disclosures from the company to support the hype, supported this theory.
The next round of suspensions, UNGS, PDPR, and ABVG, was a breakthrough because two of those Issuers, PDPR and ABVG, were not SEC filers. That means that ALL no information pink sheet companies being pumped on social media are at risk. The pool of possible future SEC suspensions expanded by hundreds of Issuers in an instant.
The 48 stocks suspended on February 22nd technically were not part of the social media crackdown, as none of them were being pumped on social media, and most were getting little to no market activity. They were just defunct companies, and most of them were not SEC filers. This round taught us that the SEC is going around attempting to contact dark public Issuers, and any that don’t respond can and will be suspended.
The suspension of 15 stocks at one time on February 26th taught us that it didn’t matter if the Issuer had an active business license (was an active business entity at its state of domicile) or was in the middle of a custodianship petition in the court system. If their information on their OTC Market’s page isn’t up-to-date to where the SEC can easily contact them, they can and will be suspended.
A press release by one no information stock – WorldFlix Inc (WRFX) – that hasn’t gotten suspended confirms that the SEC is trying to contact the Issuers before they move to suspend them.
All that put together, we now know that all no information stocks that do not have current information on their OTC Market’s page (unable to be contacted by the SEC) are at risk of a future SEC suspension. But the ones getting pumped on social media are especially at risk.
And, whether or not a stock can be contacted or not, if they are not providing adequate disclosures (in the form of filings) or the information they are providing is questionable or inaccurate, they are at risk of an SEC suspension.
The trend is obvious, and we are very likely to see several more stock suspensions in the near future.
The Reaction from Traders
Market manipulation and stock pumping through social media are nothing new. In fact, it’s been commonplace in penny stocks for years. But it has never reached the level it has over the past few months.
There is hardly a sub-penny no information penny stock that didn’t see heavy social media manipulation since early December 2020, with many climbing thousands of percentage points. For traders that buy early and sell for a profit, it is big money, but on the flip side, traders buying into the hype and believing the nonsense being posted on social media often end up buying near the top or holding too long and losing most of their money when the stock price quickly starts to drop again.
The effects of the suspensions are already starting to show with many of the low-priced penny stocks that have received hype in recent weeks seeing sharp slides in their prices over the past several days as traders take heed of the SEC’s actions and migrate back to more sensible investments.
This has caused mixed reactions from the investment community. As many traders see their holdings dwindling in value, still believing they own something of any value, they blame the SEC for hurting the “little guy.” Many of them are new to penny stocks and hardly realize that the “companies” they are trading are actually defunct and worthless.
Others see what the SEC is doing as a relief. It can be exhausting turning off your mind and accepting that trading isn’t about fundamentals, growth, or prospects. It’s simple one big pump & dump market where there are wolves, and there are sheep. And most of the money flowing through the market is being created through bad faith and lies, often enriching people who are breaking laws.
History has shown us that if defunct shells are allowed to continue to trade, it only leads to future market manipulation and securities fraud. Some eventually find new ownership through corporate hijacking then get used for new scams. Others remain dark and become victims of fake press releases and false information being spread on social media. The bottom line is: if they aren’t dealt with now, we will only see a repeat of the same type of activity in the future.
The fact is that no other developed country in the world allows trading of defunct companies or even allows a market for unregulated stocks, free to trade without disclosures to the public.
As a society, we should never accept laws being broken as okay and normal, even if we benefit from the illegal activity somehow. So, the SEC doing their job (protecting the integrity of the marketplace) should be applauded. It is long overdue.
If the goal of the SEC was just to send a message, they accomplished their mission. But if their goal is actually to clean up the market to prevent similar fraud in the future, they have a lot more work to do.
Even with 71 down, there are still over 2700 no information penny stocks, hundreds of which are completely defunct and unable to be contacted. If the SEC were to stop now, their efforts will be forgotten within months, and, in the whole scheme of things, they will have accomplished very little to clean up the market.
It will also be interesting to see if the SEC starts taking action against some of the social media pumpers involved in the stock manipulation. The SEC has on more than one occasion referred to “certain social media accounts” being engaged in “a coordinated attempt” to artificially influence the share prices, so they obviously have their eye on specific groups involved in the manipulation.
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.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
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