Watch Out for the Skull and Crossbones
Sunday, July 29, 2007
Riding the stock of Vision Airships during the past few months would have made any investor airsick.
The company, which described itself as a blimp business in the making, was trading at less than a penny in April when it suddenly shot to $3, only to crash like the Hindenburg to near zero this month.
The climb was fueled by hyperbolic press releases -- "We are on the road to explosive growth" -- and spam e-mail touting the stock. The subsequent flameout was best described by the Securities and Exchange Commission in an order issued Monday. The SEC said it had halted trading in the stock due to questions about the company's assertions regarding its acquisition of blimps, its funding for expansion and its potential revenue.
The turbulence of Vision Airships' shares highlights the sometimes dangerous world of over-the-counter stock investing. It's because of stocks like Vision Airships that companies quoted by an OTC service called Pink Sheets will start carrying warning labels this week.
Over-the-counter stocks are those not listed on the regulated stock exchanges and markets. Many of the companies are too small, thinly traded or financially troubled to be listed on exchanges and markets where issuers must meet minimum size and financial requirements.
Internet-based Pink Sheets publishes price quotes for about 8,000 over-the-counter securities. It does not require issuers to register with or report audited financial results to the SEC or other regulatory authority; some do, and some don't.
These securities "can be among the most risky investments," the SEC says in a note to investors on its Web site. "That's why you should take extra care to thoroughly research any company quoted exclusively in the Pink Sheets."
The warning labels, said Cromwell Coulson, chief executive of Pink Sheets, will help investors distinguish between dodgy and decent securities. For example, a black skull-and-crossbones icon would appear alongside securities promoted by spam or "other questionable action," said Coulson. The symbol will mean, "bad people are involved," he said. "Pirates. You should be careful."
Pink Sheets also displays price quotes for the securities of solid companies with real operations and earnings, including big-name multinational corporations.
Some issuers of stocks on Pink Sheets could list on U.S. exchanges but choose not to because of the cost of meeting the reporting requirements.
Many companies, such as Volkswagen, Heineken, Nestle and Nintendo, are listed on foreign exchanges and sell their American depositary receipts through Pink Sheets.
Several issuers, such as auto parts maker Delphi, have been delisted from an exchange because they are bankrupt or are going through some other financial distress.