Investing and You! By Steven Hastings UCD Investment ClubThis Little Pinkie Went To Market!
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world of investments, treading into unknown can be a very hazardous journey. While majority of investors opt for companies traded on large stock exchanges such as New York Stock Exchange, NASDAQ and AMEX, there are thousands, if not millions of people who choose to roll dice with companies traded on OTC Bulletin Board, or even more risky, Pink Sheets.
The Pink Sheets does not require companies whose securities are quoted upon its systems to meet any listing requirements. With exception of a few foreign issuers, companies quoted in Pink Sheets tend to be closely held, extremely small and/or thinly traded. Most do not meet minimum listing requirements for trading on a national securities exchange. Many of these companies do not file periodic reports or audited financial statements with SEC, making it very difficult for investors to find reliable, unbiased information about those companies. For all of these reasons, companies quoted in Pink Sheets can be among most risky investments. That's why you should take extra care to thoroughly investigate any company quoted exclusively in Pink Sheets.
Most Pink Sheet stocks are literal money pits. Company CEO’s have routinely cheated investors and have lined their own pockets through avenues such as “toxic” financing arrangements, issuing S-8’s and good old fashion selling while hyping stock through brokers and wire services.
Often, a company once trading on a big exchange finds itself demoted to Pink Sheets as it either tries to restructure itself, or is just stuck there as a last rite of passage to stock graveyard. Adelphia Communications (ADELQ) fits within this category. Once a darling among investors, due to a major CEO scandal that rocked investment community, it is now bankrupt, and trading on Pink Sheets with very little hope of ever getting back to big boards as it goes through liquidation process.
Often times however, a company will use Pink Sheets as a stepping stone to bigger exchanges. Many reasons are possible, but biggest one is usually cost factor. Without required filings, CEO’s can save time and money when first starting out, and consequently, pump those savings back into business to help grow it. When sales and revenues start to generate, CEO’s can then seek applications to larger exchanges.
