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(2). The shareholder base: In order for a company be listed on NASDAQ Small-Cap market or OTC Bulletin Board it must have a specified number of shareholders to qualify for listing.
(2A). Improper due diligence: Prior to purchasing a shell private company along with consultant that they retain to assist them in Reverse merger should do a complete review of shareholder list. some of those shareholder may have excessive number of shares and true beneficial owner may be shell owner or consultant himself, there are a lot of smooth talking wolves posing as consultant who are operating in conjunction with shell owner.
Solution: First run consultantís named and his previous employer through google and see if he has been convicted of any securities related crimes and has been barred from participating in any stock related transactions. Second write regulator and request that consultants be required to have a website with their name on it, most of this unscrupulous character operate in a stealth manner so that regulators canít detect their activities.
Petition Securities and Exchange commission requesting a reduction in number of shareholders require for listing, and if a shell has too many shares outstanding donít buy it!
(3), Market Makers: Market makers in OTC Bulletin Board Securities are permitted to maintain a short position in securities that they are acting as market makers, but what some trader do is they register for a stock and go out sell stock on bid (the price other market makers are willing to pay) and immediately cease to make a market in stock and keep short position.
Technically when a trader does this, he is circumventing intent of rule which allows market makers to short a stock in his role as a market maker.
Solution: Require traders to remain acting as market makers until they purchase stock back, also regulators must make clearing agent to enforce rules concerning delivery of securities on settlement or execute a buy in (buy stock back and charge seller) if seller fails to deliver stock within prescribed period of time.
I believe that these reforms will go a long way in altering climate for participant in Reverse merger, and in removing vultures prey on unsophisticated business owner from market place.
But until regulators act responsibility is on business owner to perform proper research, if I sound like a crusader maybe that is because industry has been good to me and I hate to see vultures taking it over.
If you are thinking about doing a reverse merger and have questions contact us at: www.genesiscorporateadvisors.com
Joseph D. Quinones, President of Genesis Corporate Advisors has spent over 25 years in the securities industry. In 1992 he founded JDQ Financial Group, Inc. and proceeded to build it up from a one man operation to the point where it employed many traders, advised numerous client and generate millions in revenues.