The Securities and Exchange Commission is beefing up protections against fraud and manipulation in the lightly regulated market for over-the-counter stocks, the Wall Street Journal reported. The SEC yesterday approved a change to its rules that would largely prevent brokers from quoting prices for OTC stocks unless the companies issuing such shares released up-to-date financial information to the public. That would make it harder for individual investors to trade shares of OTC companies that have gone “dark,” meaning they have stopped releasing their financials. In turn, that would make it harder for would-be swindlers to use such stocks in schemes targeting small investors. OTC stocks aren’t listed on an exchange such as the New York Stock Exchange or the Nasdaq Stock Market. Many are so-called penny stocks, or stocks of tiny companies that trade for less than $5 a share. The SEC has suspended trading in hundreds of OTC stocks in recent years for failing to publish financial information. Such stocks have also been used in a number of illegal pump-and-dump schemes. In such a scheme, promoters affiliated with the holders of a particular stock stir up a buying frenzy in that stock, often by touting it on social media or bulletin boards, and then sell their holdings, leading to a price crash.
