Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, April 12, 1991 TAG: 9104120214
SECTION: BUSINESS PAGE: B5 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
The draft rules are designed to make it more difficult for fast-buck artists to take advantage of unsuspecting investors.
"These rules really open the door for investor information," said Sarah B. Ackerson, chief of the Securities and Exchange Commission's Penny Stock Task Force.
"They're very consumer oriented and hopefully will arm investors with the kind of information that they need to make better choices and to monitor their own investment opportunities," she added.
Since 1988, when it formed the Penny Stock Task Force, the SEC has been stepping up its attack on penny-stock fraud. In 1989, it passed rules making it impossible to close a penny-stock sale with a first-time customer over the phone.
The proposed rules announced Thursday, if adopted after a 60-day waiting period for public comment, would among other things require brokers to furnish potential buyers with documents outlining the potential risks of their investment. They would limit so-called "blank check" investments for undisclosed purposes.
Penny stocks are highly speculative securities that sell for a few dollars or less. They are usually issued by new companies with an untested or uneven earnings history.
Penny stocks are vulnerable to fraud because it is difficult to obtain up-to-date information about the stocks, most of which are not listed on national stock exchanges or automated price quotation systems.
A 1989 study released by the North American Securities Administrators Association, a state regulators' group, concluded that U.S. investors lose $2 billion a year to penny-stock fraud.
The new rules proposed by the SEC define a penny stock as one selling for less than $5 a share, without daily reporting of closing prices, not listed on a stock exchange or electronic quotation system.
Brokers selling them would be required to provide prospective buyers with:
Documents outlining the potential risks of an investment and explaining key penny stock market terms.
Monthly statements on the value of their holdings.
An explanation of how much commission the seller gets.
by CNB