Once upon a time, small publicly traded companies used stock as a means to finance their company and to pay for services. There can be little doubt that the stock of many of these companies has been used to line the pockets of company management teams, the seedy promoters and the deal-doers. But, what about the legitimate companies; the companies that have actual products and/or services?
Small Business in America
The U.S. Small Business Administration has been telling us for years that small companies provide the jobs for the economy especially when recovering from a recession. Small companies are responsible for 64 percent of net new jobs over the past 15 years; they employ more than half of all private sector employees. These small businesses include publicly traded companies.
The Chill
It has become clear to me (and many others) that the Depository Trust and Clearing Corporation (DTCC) is no longer interested in clearing the stock of micro cap companies. One CEO that I spoke with yesterday and have known for years told me their Company’s story in detail. His company is a fully reporting OTCBB company. I knew that things were getting bad with regard to clearing stock but his company’s story in nearly unbelievable.
His company’s stock has been “chilled” by the DTCC even though they have long since filed all paperwork and fulfilled all requests from the DTCC. This chill has brought the company to a halt and their stock cannot be cleared through the DTCC therefore they have to use certificates which takes weeks to clear. This whole process has cost the Company upwards of a million dollars in the last few months. I will assure you that you will be hearing more about this issue soon.
Clearing Certificates
If your company is traded on the Pink Sheets and especially if the price of your stock is below a penny (which many are), then your stock is for all practical purposes, useless (worthless) as a financial instrument.
My companies provide a variety of services to small publicly traded companies. While it is LEGAL to take stock for some of these services and Rule 144 (restricted) stock for nearly all of our services, we are now forced to take only cash as a payment and have done so for years. Why?
It takes at least 2-3 weeks for an OTCBB stock certificate to clear some brokerage accounts while many of the mainstream brokers will not even accept OTCBB stock any more, especially those trading at a very low price. Over the last several months, I have not seen or heard of any Pink Sheet stock certificates clearing anywhere.
I have a desk in my library that is loaded with stock certificates that never cleared. None of the 144 stock I have ever received as compensation has ever cleared.
It is hard to blame the brokers for this mess; it is their responsibility once they clear the stock for the validity of that stock. Many brokers have been burned over the last few years for clearing unregistered and what amounts to counterfeit stock.
What does it all Mean?
I will guarantee you this: Somewhere, someone is getting wealthy because micro cap companies are getting starved out of existence. It has always been said, that if you want to get to the root of a problem, follow the money. I believe if you follow the money it will lead offshore somewhere. This money leak involves far more than just the micro caps though; it also extends to the small and mid caps. In short, one day we are likely to wake up and realize that the only companies that are thriving are the big ones and the rest of us work for them.
Now, what does that sound like to you? To me, it sounds like modified or “the new” socialism.
Do I have all the answers? No. I can only describe it from my perspective. What is your take on this?
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Tom, I can’t begin to tell you how grateful I am that you wrote this article. Why? Well as it turns out I am currently in the process of forming an investment club devoted exclusively to buying penny and sub penny stocks. I have talked to people and I’m looking for race horse owners and penny slot machine players in particular. I figure that owning a race horse is ridiculously expensive and often a losing business venture. I thought that penny stocks would be a better deal. HOWEVER I JUST READ YOUR ARTICLE. WHEW! Yes please follow up with that article about the rest of it as you mentioned. I don’t want to end up with any more egg on my face. Long story short – in 2005 a Tulane professor put me on to forex trading and I’ve been away from stocks ever since. I never did get the full story with regard to the level 2 quotes and which market makers were on the ask or the bid and why or how that made such a difference. Maybe you could explain that to me? I’d really appreciate it. Now then having said all of that, why did I come back to stocks? Well in January, a rapper -50 Cent aka (fiddy cent) bought 30 million shares of HNHI at around .04 I believe. He pumped it on his twitter site (3000) followers) and it hit 39 cents the next day. 6 weeks later it hit 1.68 and has since fallen to 50-70cents. The once 215 million float is down to 2 million according to pink sheets. BTW, Tom what happens if every single share in the float is bought? Is that possible? Anyway the rapper was never busted as Lebed was in 1999. Maybe fiddy didn’t dump his stock and that’s why he wasn’t busted? Dunno. Tom please help me clear up this stuff if you can. I know it’s a load but I’m having a private meeting in June. BTW I added WRAP.PK to my watch list just in case they are clean. Thanks again PS I know about naked shorting but I figured with enough buying pressure we could blow them off and create a squeeze. Where am I going wrong here because if it was that easy it would be done every day. Thanks again.
Don’t get me wrong Louis… if you know what you are doing, you can make a lot of money trading penny stocks. IF YOU KNOW WHAT YOU ARE DOING… The main problem I am pointing out is that companies are increasingly having a hard time using their stock as a financial vehicle. There is much more to it and I will update as it all unfolds.
Yes I will be waiting for that update but in the mean time I need to read a book entitled “Trading Penny Stocks for Dummies” – Wish there really was one. Thanks again.
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