SEC identifies 379 firms as shells, halts trading

The Securities and Exchange Commission last week halted trading in 379 companies it had identified as shells amid concern that fraudsters could hijack stocks to steal investor money. The trading suspensions, the most by the SEC in a single day, stem from the work of a commission task force that identified clearly dormant microcap stocks in 32 states and at least six countries, the commission said in a statement. Microcap shares have long been used for frauds such as pump-and-dump schemes, in which a perpetrator buys stock in a thinly traded company and touts its value through false and misleading statements. Illicit profits are reaped when those behind the fraud dump their shares into the market after pumping the prices higher. “Empty shell companies are to stock manipulators and pump-and-dump schemers what guns are to bank robbers — the tools by which they ply their illegal trade,” SEC enforcement director Robert Khu-zami said in the statement. “This massive trading suspension unmasks these empty shell companies and deprives unscrupulous scam artists of the opportunity to profit at the expense of unsuspecting retail investors.” Regulators sharpened their focus on shell companies about two years ago amid complaints that issuers, many from China, were using them to enter U.S. markets through so-called reverse mergers. In a reverse merger, a closely held firm buys a shell that lets it sell shares on exchanges without the scrutiny that would surround a public offering.