Non-Reporting Shells
By William Cate
Published January 1999
[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
Clean shells don't exist. Among the dirtiest of dirty shells are
non-reporting shells. A shell is a company that's trading but lacks assets.
Usually, the private company buys the shell and puts their business into
it. It rarely works out well for the private company.
As I read Section 5 of the 1933 U. S. Securities Act, the only
American stock that should be publicly traded are the shares of companies
reporting to the U. S. Securities and Exchange Commission (SEC). The
National Association of Securities Dealers (NASD) didn't share my view of
the need to be a "reporting" company to trade on the Over-the-Counter
Bulletin Board (OTCBB). In 1998, they changed their minds. In January 1999,
the NASD announced that they would be delisting about 3,400 OTCBB companies that weren't "reporting" to the SEC. The delisting will start in July 1999. The companies will be delisted by trading symbol starting with AA. The last of the companies will be delisted in 2000.
The NASD advises that "non-reporting" companies can become
reporting companies by filing a Form 10SB with the SEC. It will cost the
non-reporting company over $100,000. I suspect that few non-reporting
applicants will get their "Effective" letters before they are delisted.
Applying the axiom that "There's a sucker born every minute," an
industry developed to sell these worthless shells to unsuspecting private
companies. You can own your worthless non-reporting shell for only
US$150,000.
I interviewed one shell seller for a client. To my comment that the
shell company was facing delisting in August, his reply was, "but there is
so much more you can do with a company about to be delisted."
My reply was "what more can I do with a company that's about to be
delisted? There was a pause and then a click.
If you buy a non-reporting shell, you deserve the failure that will
certainly follow. There are a few things that can be done with
non-reporting shells. But these are options for market professionals, not
entrepreneurs building real companies.
To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
About the Author
He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]