Risk Bulletin for Reverse Merger Investment Released

Jack Humphrey, Regulatory journalist
June 09, 2011 /

The US Securities and Exchange Commission has issued a bulletin on risks of investing in reverse merger companies entering the US markets.

Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy, said: “Given the potential risks, investors should be especially careful when considering investing in the stock of reverse merger companies.

“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.”

Reverse mergers permit private companies, including those located outside the U.S., to access U.S. investors and markets by merging with an existing public shell company.

The SEC and U.S. exchanges recently suspended trading in a more than a dozen reverse merger companies, citing a lack of current, accurate information about these firms and their finances.

In a separate action by the Financial Services Authority in UK, BDO LLP was criticized last week after failing to liaise with the UK Listing Authority (UKLA) in advance of the announcement of a merger between Shore Capital Group PLC and Puma Brandenburg Limited while it acted as sponsor.

FSA’s public censure came as BDO auditors in USA are facing a $10.7 billion lawsuit filed by investors who claimed BDO ignored signs of fraud “that infected Stanford Financial Group’s operations” according to Edward Snyder, a lawyer for Stanford investors.

The Investor Bulletin explains the reverse merger process, describes the potential risks of investing in reverse merger companies, and details some of the recent enforcement actions that the agency has brought against reverse merger companies.

 

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