Defunct Companies (“Microcap”) – Pump and Dump Scheme – Florida Securities Investment Fraud Attorney

Defunct Companies (“Microcap“) – Pump and Dump Scheme – Florida Securities Investment Fraud Attorney

Defunct Companies: Can the Stock Continue to Trade?

Even when a company is no longer in business, there may still be active trading in its stock. This is because companies that are no longer operating may still have outstanding registered stock, which can be traded until the company has the shares deregistered or the stock’s registration is revoked. The SEC does not have a rule that prohibits the trading of stock once a company becomes defunct because it does not want to forbid transactions between willing buyers and sellers, including those holding shares in defunct companies.

Including bankruptcy, other issues that might arise with defunct companies include the following:

Trading stocks vs. publishing quotations in stocks. Rule 15c2-11 of the Securities Exchange Act of 1934 prohibits broker-dealers from publishing a quotation for a security (an offer to buy or sell) unless they have reviewed certain information about the company. The rule regulates when broker-dealers may publish a quotation in, the Over-the-Counter Bulletin Board, the Pink Sheets or other quotation mediums, but does not, address when a stock can be traded between two broker-dealers. As a result, there may be trading in a stock even though the company is no longer in business and quotations in the stock are not actively published.

An exception to the rule permits a broker-dealer to publish quotations for a stock without reviewing information about the company if there are regular and continuous quotations published for a specified period of time by broker-dealers that did have the appropriate information. Although a company has become defunct, its stock may still be quoted under this “piggy-back” exception. In addition, if a company becomes defunct after quotations in the stock are published for the specified time period, the broker-dealer is not obligated to acquire current information on the company.

The SEC may invoke a trading suspension. In some cases, the SEC or an exchange may halt trading in the stock of a defunct company if the stock price appears to be manipulated or if it believes that public information about the issuer is false or misleading. When the trading suspension ends, a broker-dealer wishing to publish quotations must comply with Rule 15c2-11, which may be impossible to do in the case of a defunct company.

The SEC may revoke the registration of stocks. In some circumstances, the SEC may revoke the registration of a defunct company’s stock. Section 12(j) of the Exchange Act authorizes the SEC to revoke the registration of a security if the issuer fails to comply with the federal securities laws. Broker-dealers may not execute any trades in stocks whose registration has been revoked pursuant to Section 12(j).

A defunct company may not have a transfer agent. In some situations, the defunct company does not have a transfer agent. Although the federal securities laws do not require a company to have a transfer agent, if a company does not have a transfer agent, investors are unable to receive or transfer their stock certificates. Sometimes the SEC has considered a company’s lack of a transfer agent as a factor in determining whether to revoke the registration of stock pursuant to Section 12(j) for the protection of investors.

Many times defunct microcap stocks are used by in pump and dump schemes.  please follow the following link to read in conjunction with this post.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firm.



Contact Information