Newspaper article THE JOURNAL RECORD

Regulators to Clamp Down on Penny Stock Industry

Newspaper article THE JOURNAL RECORD

Regulators to Clamp Down on Penny Stock Industry

Article excerpt

WASHINGTON (AP) - Federal regulators seeking to clamp down on the $2-billion-a-year fraud in the penny stock industry proposed new rules Thursday to protect investors in the risky low-cost securities.

Fast-buck artists will have a more difficult time taking advantage of unsuspecting investors if the proposed Securities and Exchange Commission rules, which were submitted for a 60-day public comment period, are passed.

``These rules really open the door for investor information,'' said Sarah B. Ackerson, chief of the SEC's Penny Stock Task Force.

``They're very consumer oriented and hopefully will arm investors with the kind of information that they need to make better choices and to monitor their own investment opportunities,'' she said.

Since 1988, when it formed the Penny Stock Task Force, the SEC has been stepping up its attack on penny stock fraud. In 1989, it passed rules making it impossible to close a penny stock sale with a first-time customer over the telephone.

But SEC Chairman Richard Breeden expressed some fears last year that a penny stock reform bill might cause as many problems as it solved.

Nonetheless, Congress passed and President Bush signed the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, prompting the SEC to implement its provisions.

Penny stocks are highly speculative securities that sell for a few dollars or less. They usually are issued by new companies with an untested or uneven earnings history.

While legal, penny stocks are prone to fraud because it is difficult to obtain up-to-date information about the stocks, most of which are not listed on national stock exchanges or automated stock quotation systems.

``This market has been fraught with widespread fraud,'' Ms. Ackerson told some of the five-member commission, who worried that too tight a leash might inhibit small, innovative companies from obtaining capital.

A 1989 study released by the North American Securities Administrators Association, a state-level regulators' group, found that U. …

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