October 15, 2019
The proposed rule will have considerable unintended consequences. While it is admirable that the SEC is looking to take these steps to protect investors from scams, the small investor will feel the brunt of this rule. While there are some scams that take place, the majority of these "dark" stocks are actually legitimate businesses that have a large following among value investors. These investors will lose most or all of their money, while the founders of the companies will be able to profit from the non-trading status. I personally own a number of these stocks that communicate their financials and other information by mail or occasionally on their websites. They hold annual meetings and shareholder votes. If this proposed rule were to pass, all of these investments would become worthless. The majority owners and managers of these businesses would effectively be encouraged to stop any communications and run the business to their benefit rather than that of shareholders.
I would like to take this opportunity to recommend that the SEC stop allowing these companies to go dark. If they were to allow a lower tier of reporting requirements for smaller companies, it would lower the financial burden for companies to provide information. Further, I would propose that management or majority owners face financial penalties for unwillingness to file proper financial information. This would help in two ways, as companies would be forced to communicate and also not go completely dark on investors while perhaps even going out of business or becoming a shell company. This would provide significantly more benefit to the small investors compared to the proposed rule.
I respectfully ask that this proposal is rejected and the SEC continue to look for more reasonable and effective ways of eliminating fraud in the OTC markets.