TheCorporateCounsel.net

When stocks are delisted from (or never achieve listing on) a national securities exchange – because they fail to meet the minimum bid price requirement or some other listing standard – limited trading might continue on the over-the-counter market, or the “pink sheets.” Yesterday, the SEC signaled that it is keeping an eye on OTC trading – by announcing these charges against OTC Link for alleged failure to monitor, investigate and file Suspicious Activity Reports for transactions on its platforms. Here’s an excerpt:

In particular, during the Relevant Period, OTC Link failed to surveil for, recognize and investigate red flags of: (a) sell orders from subscribers representing a large volume of trading relative to the average daily trading volume in thinly-traded microcap issuers; (b) consistent one-sided trading by a subscriber in a particular thinly-traded microcap issuer accompanied by a significant increase in stock price; (c) trading activity by subscribers involving apparent pre-arranged securities trading, including wash or cross trades, in thinly-traded microcap securities; or (d) transactions involving subscribers who were publicly known to be the subject of criminal, civil or regulatory actions for crime, corruption, or misuse of public funds.

OTC Link is a subsidiary of OTC Markets Group, Inc. and is a registered broker-dealer and an “interdealer quotation system.” Dave blogged a few years ago about the rules that apply to quotation of OTC securities – and why we call the OTC platforms the “pink sheets.” He had also noted at that time a suggestion by OTC Link about a so-called “expert market” to increase liquidity for these stocks, which was denied by the SEC.

In the order announced yesterday, without admitting or denying the SEC’s findings, OTC Link agreed to a censure and a cease-and-desist order in addition to the $1.19 million penalty. The SEC’s order also directs OTC Link to continue its engagement of a compliance consultant to review and recommend changes to the firm’s anti-money laundering policies and procedures.

– Liz Dunshee