Articles Posted in Microcap Stock Fraud

How Are Microcap Stocks Different From Other Stocks?

Lack of public information.  Often, the biggest difference between a microcap stock and other stocks is the amount of reliable publicly-available information about the company. Most large public companies file reports with the SEC that any investor can get for free from the SEC’s website. Professional stock analysts regularly research and write about larger public companies, and it is easy to find their stock prices on the Internet or in newspapers and other publications.  In contrast, the same information about microcap companies can be extremely difficult to find, making them more vulnerable to investment fraud schemes and making it less likely that quoted prices will be based on full and accurate information about the company.

No minimum listing standards.  Companies that list their stocks on exchanges must meet minimum listing standards. For example, they must have minimum amounts of net assets and minimum numbers of shareholders. In contrast, companies quoted on the OTC Bulletin Board (OTCBB), OTC Link LLC (OTC Link) or Global OTC generally do not have to meet any minimum listing standards, but are typically subject to some initial and ongoing requirements. You can find the OTCBB’s eligibility requirements for stocks at  and you can find additional information about OTC Link and Global OTC at  and , respectively.

FAQ – Where Do Microcap Stocks Trade?

Many microcap stocks trade in the “over-the-counter” (OTC) market. Quotes for microcap stocks may be available directly from a broker-dealer or on OTC systems such as the OTC Bulletin Board (OTCBB), OTC Link LLC (OTC Link), or Global OTC.

OTC Bulletin Board is an electronic inter-dealer quotation system that displays quotes, last-sale prices, and volume information for many OTC equity securities that are not listed on a national securities exchange. The OTCBB is operated by the Financial Industry Regulatory Authority, Inc. (FINRA). You can read more about the OTCBB marketplace at .

What Is a Microcap Stock?

The term “microcap stock” (sometimes referred to as “penny stock”) applies to companies with low or micro market capitalizations. Companies with a market capitalization of less than $250 or $300 million are often called “microcap stocks” – although many have market capitalizations of far less than those amounts. The smallest public companies, with market capitalizations of less than $50 million, are sometimes referred to as “nanocap stocks.”

Please be advised that this information is being provided for educational purposes only.  It is not designed to be complete in all material respects.  If you have any questions about this post or have been adversely affected by investing in a microcap or nanocap stock, you should contact a qualified professional.

Securities and Exchange Commission v. Keith Houlihan, No. 9:18-cv-80585 (S.D. Fla. filed May 4, 2018)

The Securities and Exchange Commission recently filed an enforcement action against a former microcap company president with defrauding over 700 investors nationwide who were pressured to invest has agreed to lifetime officer-and-director and penny stock bars.

The SEC’s complaint alleges that from 2009 until 2015, Keith Houlihan of Boca Raton, Florida, while president of publicly-traded Sanomedics, Inc., hired and worked with an unregistered broker and his boiler room operation to illegally sell shares of Sanomedics by cold-calling the investing public using high-pressure sales tactics. In 2009 and 2010, Houlihan falsely told investors that for a limited time he was able to offer them Sanomedics shares at a steep discount to the stock’s market price. The complaint alleges further that Houlihan used investor monies to pay undisclosed sales commissions to boiler room sales agents and more than $110,000 to himself for personal expenses. In 2013 and 2014, Houlihan signed Sanomedics’ annual and quarterly filings with the SEC that contained false statements about Sanomedics’ financing and did not disclose the illegal boiler room activity.

Securities and Exchange Commission v. Diane J. Harrison, et al., Civil Action No. 18-cv-01003 (M.D. Fla., filed April 25, 2018)

The Securities and Exchange Commission recently announced that it filed a civil injunctive action on April 25, 2018, against a lawyer and two other individuals relating to two microcap schemes involving undisclosed “blank check” companies. In separate, settled administrative proceedings, the SEC charged another individual and two public companies related to one of the schemes.

The SEC’s complaint alleges that attorney Diane J. Harrison, Esq. and her husband, Michael J. Daniels, both of Palmetto, Florida, manufactured at least five microcap issuers with the undisclosed intent to sell them based on their status as public companies with purportedly unrestricted shares available for resale in the public markets. According to the complaint, Daniels and Harrison created the false appearance that the companies were pursuing specific business plans with independent management and shareholders by installing friends and family (including defendant Catherine A. Bradaick-Zolla of Sarasota, Florida, who also provided other assistance to the fraud) as purported officers and shareholders. The SEC alleges that, in reality, Daniels and Harrison controlled the shares. According to the complaint, Daniels and Harrison sold four of the five companies to Andy Z. Fan of Las Vegas, Nevada and, along with Bradaick-Zolla, continued to provide support to Fan. For example, the SEC alleges that Daniels, Harrison, and Bradaick-Zolla prepared false SEC filings, Harrison submitted false legal opinion letters, and Daniels and Bradaick-Zolla entered manipulative trades to artificially set the price of the stocks in the public market. The SEC previously issued a stop order on the public offering of the fifth company in Daniels and Harrison’s pipeline.

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