NEW YORK, Feb 3 (Reuters) - The Securities and Exchange Commission on Monday said it had suspended trading in 255 dormant shell companies as part of a previously announced initiative to fight fraud in microcap stocks.
The SEC said the issues were “clearly inactive” and “ripe for abuse” in the over-the-counter market, though no abuse was reported.
The suspensions came as part of an anti-fraud initiative that began in 2012. Shell companies have faced heightened scrutiny for years. There was a wave of “reverse-mergers,” where foreign companies acquire U.S. shell companies as a way to list on domestic exchanges while bypassing regulatory requirements. Several of those names, especially those from China, were accused of fraud in 2011.
In a statement, Andrew J. Ceres, director of the SEC Enforcement Division, said dormant shell companies were frequently used in pump-and-dump schemes, where perpetrators buy cheap stocks and talk them up through false statements, then selling the holdings at a higher price for a profit.
The suspension took hold at the start of trading on Monday and will end at 11:50 p.m. on Feb. 14. Suspended stocks can’t be relisted unless the company can prove it is still operational, a requirement that the SEC said was “extremely rare.”
“The trading suspension essentially renders the shells worthless and useless to scam artists,” the SEC wrote.