Thursday, June 9, 2011

LOL, SEC Issues Bulletin on Risks of Investing in Reverse Merger Companies

There have been risks with reverse merger companies for about 20 to 25 years. Glad they finally noticed.

It should be known, though, that reverse merger companies have come about because of the onerous SEC regulations that make it difficult for a small company to go public via IPO.  The big investment bank controlled SEC piles regulation, upon regulation on IPOs virtually wiping out access to the IPO market for small firms.

This results in often shady characters finding a back door to IPOs via reverse mergers These characters often prey on the financially unsophisticated presidents of a small companies.They make the stocks do cartwheels, with the president of such a company many times not knowing what is going on.

Without the suffocating SEC regulations, brokerage firms would emerge that would develop brand names that small firms would be able to rely onto go to to raise public money. Right now the business is messier than a back alley abortion.

Here's what the SEC says about reverse mergers:
“Given the potential risks, investors should be especially careful when considering investing in the stock of reverse merger companies,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. “As with any investment, investors should thoroughly research the company – including ensuring there is accurate and up-to-date information – before making a decision to invest.”
It should be noted that, although dangerous, reverse mergers are nowhere near the real scam: Social Security. No SEC warnings about that. In fact, surprise, Social Security is exempt from SEC oversight.

The SEC is worse than incompetent. They interfere in free markets, distort markets and generally make markets less efficient and more dangerous.


  1. "The SEC is worse than incompetent." i laughed at your reasoning and conclusion.

  2. That's funny, anon- I guess that the dozens of investigators that tried to persuade their bosses to investigate Maddoff, or the "show trials" of insider traders that step in too many toes, or the total lack of oversight during the Boom were just anomalies, and not the typical way the SEC functions.

    Thanks for setting the record straight!