The SEC’s Office of Investor Education & Advocacy is issuing this Investor Bulletin to help educate investors about the SEC’s rules & regulations related to trading suspensions. The federal securities laws generally allow the SEC to suspend trading in any stock for up to ten business days. This bulletin answers some of the typical questions we receive from investors about trading suspensions. A list of companies whose stock is currently subject to an SEC trading suspension, or which previously has been subject to an SEC trading suspension, may be found here.
Why would the SEC suspend trading in a stock?
The SEC may suspend trading in a stock when the Commission is of the opinion that a suspension is required to protect investors & the public interest. Circumstances that might lead the Commission to suspend trading include:
- A lack of current, accurate, or adequate information about the company, for example, when a company is not current in its filings of periodic reports;
- Questions about the accuracy of publicly available information, including in company press releases & reports, about the company’s current operational status, financial condition, or business transactions;
- Questions about trading in the stock, including trading by insiders, potential market manipulation, & the ability to clear & settle transactions in the stock.
Why couldn’t the SEC forewarn investors that it was about to suspend trading in a stock?
The SEC cannot announce that it’s working on a suspension. We conduct this work confidentially to maintain the effectiveness of any related investigation we may be conducting. Confidentiality also protects a company & its shareholders if the SEC ultimately decides not to issue a trading suspension. The SEC is mindful of the seriousness of suspensions, & carefully considers whether it is in the public interest & for the protection of investors to order a trading suspension.
What happens when the ten business day suspension period ends?
The SEC will not comment publicly on the status of a company when the ten-day suspension period ends because the company may still have serious legal problems. For instance, the SEC may continue to investigate a company to determine whether it has defrauded investors. The public would not know if the SEC is continuing its investigation unless the SEC publicly announces an enforcement action against the company.
Furthermore, when an SEC trading suspension ends, a broker-dealer generally may not solicit investors to buy or sell the previously-suspended over-the-counter (“OTC”) stock until certain requirements are met. Before soliciting quotations or resuming quotations in an OTC stock that has been subject to a trading suspension, a broker-dealer must file a Form 211 with the Financial Industry Regulatory Authority (“FINRA”) representing that it has satisfied all applicable requirements, including those of Rule 15c2-11 & FINRA Rule 6432.
Among other things, Rule 15c2-11 requires broker-dealers to review & maintain certain documents & information about the company, & make sure information about the issuer is currently & publicly available, including in certain cases:
- the company’s state of organization, business line, & names of certain control affiliates;
- the title & class of the securities outstanding; &
- the company’s most recent balance sheet & its profit & loss & retained earnings statement.
After expiration of the suspension, no broker-dealer may solicit or recommend that an investor buy an OTC stock that had been subject to a trading suspension unless the broker-dealer has complied with Rule 15c2-11’s review requirements & submitted a Form 211 to FINRA in which the broker-dealer has certified that it has determined that the information is accurate in all material respects & that the sources of information are reliable. Further, no broker or dealer may re-initiate quotations in the previously-suspended stock unless & until FINRA has processed a Form 211 relating to the stock, or a qualified interdealer quotation system makes a publicly available determination that it has complied with the information review required by Rule 15c2-11.
However, limited or “unsolicited” trading can occur in an OTC stock that has been subject to a trading suspension after the suspension ends but before a Form 211 is processed. This may allow investors to trade the stock when a broker or adviser has not solicited or recommended a transaction, but an investor has affirmatively asked to trade the OTC stock. Even though this type of trading is allowed, it can be very risky for investors without current & reliable information about the company.
Will trading automatically resume after ten days?
It depends on the market where the stock trades. Different rules apply in different markets.
For stocks that quote in the OTC market (e.g., stocks quoted on Global OTC ATS & OTC Link ATS, among other venues), quoting does not automatically resume when a ten-day suspension ends. Before OTC stock quoting can resume after a suspension period, SEC regulations require a broker-dealer to review specific information about the company in accordance with Exchange Act Rule 15c2-11 & FINRA Rule 6432. If a broker-dealer does not have confidence that a company’s financial statements are reasonably current & accurate in all material respects, especially in light of the questions that may have been raised by the SEC suspension action, then a broker-dealer may not publish a quote for the company’s stock. Additionally, Rule 15c2-11 specifies information about the issuer that must be current & publicly available for a broker-dealer to resume proprietary quotations in a security, including securities that have been the subject of a trading suspension. The OTC markets function through dealer systems where only broker-dealers may quote & facilitate trading in OTC stocks.
In contrast to stocks that trade in the OTC market, stocks that trade on an exchange resume trading as soon as an SEC suspension ends.
If the suspended stock resumes trading, why is it trading at a much lower price?
The trading suspension may raise serious questions & cast doubts about the company in the minds of investors. While some investors may be willing to buy the company’s stock, they will do so only at significantly lower prices.
Take Precautions following an SEC Trading Suspension: Check for Reliable Information.
Investors should be very cautious in considering an investment in a stock following a trading suspension. At the very least, investors should assure themselves that they have current & reliable information about a company before investing.
- Research the Company: Always research a company before buying its stock, especially following a trading suspension. Consider the company’s finances, organization, & business prospects. This type of information often is included in filings that a company makes with the SEC.
- Review the Company’s SEC Filings: This information is free & can be found on the Commission’s EDGAR filing system. Some companies are not required to file reports with the SEC. These are known as “non-reporting” companies. Investors should be aware of the risks of trading the stock of such companies, as there may not be current & accurate information that would allow investors to make an informed investment decision.
- Be Skeptical:Investors should always ask why someone provides them a “hot” tip. Investors should also do their own research & be aware that information from online blogs, social networking sites, & even a company’s own website may be inaccurate & sometimes intentionally misleading:
If current, reliable information about a company & its stock is not available, investors should consider seriously whether this may be a good investment.
Why would the SEC suspend trading of a stock when it knows that such action will hurt current shareholders?
The SEC suspends trading in a security when it is of the opinion that the suspension is required in the public interest & to protect investors. Because a suspension often causes a dramatic decline in the price of the security, the SEC suspends trading only when it believes that the public may be making investment decisions based on a lack of information, or false or misleading information. A suspension may prevent potential investors from being victimized by a fraud.
How can investors find out if the stock will trade again after a suspension?
Investors can contact the broker-dealer who sold you the stock or a broker-dealer who quoted the stock before the suspension. Ask the broker-dealer if it intends to resume publishing a quote in the company’s stock.
If there is no market to sell my security, what can investors do with their shares?
If there is no market to trade the shares, they may be worthless. Investors may want to contact their financial or tax advisers to determine how to treat such a loss on their tax returns.
What can investors do if the company acted wrongfully & they have lost money?
If investors want to get their money back, they will need to consider taking legal action on their own. The SEC cannot act as their lawyer. Investors must pursue all of their legal remedies themselves or with the assistance of legal counsel they engage themselves. For more information about how to protect your legal rights, including finding a lawyer who specializes in securities law, read our flyer, How the SEC Handles Your Complaint or Inquiry.
To learn how to file an arbitration action against a broker-dealer, investors can contact the Director of Arbitration at FINRA. FINRA also offers mediation as an option before going to arbitration.
Where can investors get information about trading suspensions?
Investors can find a list of companies whose stocks have been suspended by the SEC since October 1995 on our website.
How can investors learn more?
For additional information relating to (i) trading suspensions & (ii) the risks of investing in low-priced stocks, see:
- Our Microcap Stock Investor Bulletins: Microcap Stock Basics (General Information); Microcap Stock Basics(Research); & Microcap Stock Basics (Risk)
- Our Spotlight Page, Microcap Fraud
- SEC Trading Suspensions: http://www.sec.gov/litigation/suspensions.shtml
- Company filings with the SEC
- Section 12(k) of the Exchange Act
- Exchange Act Rule 15c2-11; FINRA Rule 6432
- Form 211
Call OIEA at 1-800-732-0330, ask a question using this online form, or email us at [email protected].
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