Only In An SEC Regulated World

The SEC regulations for going public are so onerous that entrepreneurs are often willing to pay hundreds of thousands of dollars to buy shell companies with no assets or on-going businesses, so that they can back into the shells and go public this way. These are known as a reverse mergers. Of course, there are more crooks lined up along the way from the time the entrepreneur buys the shell to when he tries to raise money through a section 504D money raise. All the crooks have one edge over the poor entrepreneur, they study SEC regs and no their way around SEC roadblocks so that they profit from the shell they just sold, while the entrepreneur is left sucking his thumb, wondering what other SEC impediment is in front of him.
I consider the price of a shell company a good measure of how obstructionist SEC regulations are at any moment in time. The higher the price, obviously the less willing are entrepreneurs to pay the price of going public via the even more SEC hurdled plagued IPO method. Currently, shell companies that would be generally worthless, if it wasn't for SEC regulations, trade in the range of $250,000 to $300,000.

Indeed, the demand for shells is so strong that "creative" attorneys are, well, getting very creative about creating shell companies.

Floyd Norris at NYT explains:

In the annals of penny stock crime, here’s one tactic I have not seen before: Steal the company.

As described by the Securities and Exchange Commission in a suit filed this week, David B. Stocker, a Phoenix lawyer, came up with the ingenious idea of stealing companies that had no assets except for their S.E.C. registrations.
How do you steal a company?

First, pick a company that is defunct for all practical purposes but still has an S.E.C. registration. There is a market for such companies, since they can be used by a stock promoter to take a company public without all the bother of having to write a prospectus that the S.E.C. will read and comment on, and might not let go forward. Just merge your company into the shell, in return for lots of stock, and you have a tradable stock you can promote.

Unfortunately, such shells often have a lot of shares outstanding, owned by who-knows-who? If you pump them up, some stranger might be able to profit.

Mr. Stocker seems to have artfully avoided that problem.

Having found a company, the S.E.C. says, Mr. Stocker “incorporated a new company under the same name in the same state and, using his authority to act for the new company, purported to act on behalf of the old company.”

He arranged for “stock in the old companies to be exchanged for stock in the new companies under the false pretense that the old company was undergoing a reverse stock split,” the S.E.C. says. With that stock under his control, he could then sell the shell and keep the proceeds.

The S.E.C. says he did it several times.