March 23, 2015 Alok Gupta Sale & Transfer of Investment Securities, Valuations

Recently we received a large pile of share certificates in different companies from a client for valuation and sale, the client having been told that the shares were worth a considerable sum of money.

On investigation by us we found that most of the shares were “penny stocks” and were quoted on extremely small stock exchanges in the USA (where you can have publicly quoted shares without them actually being on NASDAQ or Wall Street). (Pump & Dump)

Many of these shares had the “Rule 144 Restriction” on them, which means that the shares cannot be sold until a time period (usually two years but now closer to six months) has expired. Usually the “pump and dump” sellers also state that the shares cannot be sold without a legal opinion being obtained.

The cost of such legal opinion is usually in the region of £1,000.

We found that many of the shares were in companies where trading had been suspended by the Securities and Stock Exchange Commission (“SEC”); or were the subject of an SEC investigation; or the market was so thin that any sale would move the price; and usually the value of the shares was less than US$0.02.

In this case, our brokers reported the matter to the FSA for investigation (no action likely in that area – the shares are USA shares), and our brokers warned its staff and brokers of the shares in question.

This was a tragic case of “pump” up the price and then “dump” the shares before the duped shareholder knows what is happening. It did not help that the client was fairly elderly into the bargain.

Try to avoid this by contacting us and taking advantage of our expert services.