The Pink Sheet (OTC) Market for CFOs

The Pink Sheet (OTC) Market for CFOs By William Cate The Over-the-Counter Market (OTC) is the Elephant's Graveyard for companies like Enron, WorldCom or Global Crossing. The reason these companies have ended up in the pink wastebasket is that they made major financial and stock mistakes. In some cases, those mistakes have sent their management to prison. People buy Heineken's beer, eat Nestles chocolate and wear Bulova watches. These companies's shares trade on the Pinksheets. There are an increasing number of real companies that see the OTC Market as their first step into public finance and not the end of the road. Your company should consider the Pinks as a possible path to the NYSE. The Pinksheets are the Happy Hunting Ground of swindlers, hucksters and flakes. It's why the OTC Market is known as the Penny Dreadfulls. And, it's the home to predatory Market Makers, who regularly fleece both the public and the companies that trade Over-the-Counter. It's a place where most honest companies are destroyed because the CFO failed to realize the risks involved in a minimally regulated stock market. The Pinks operate more like a rigged swap meet than any textbook definition of a stock market. When you don't know what you are doing on the OTC, your company will quickly become food for the pack of pink sharks that feed on the unwary. The Pink Sheets (http://www.pinksheets.com) are a privately owned and operated listing and information service. They have been around for over 100 years. They have a good following of get-rich-quick speculators, who buy stocks with the hope of quickly selling them into a sharp share price rise. The OTC followers' expectation of profit is rarely realized by the reality of the Pinksheets rigged game. Since SEC regulation of the Over-the-Counter Bulletin Board (OTCBB) and Nasdaq has done little to resolve their real ethical problems, increased regulation of the Pinks would do nothing to remove the crooks. As with the OTCBB, increased regulation means greater registration and compliance cost with fewer real companies with enough money to afford to list their shares on that Market. The primary reason that CFOs of real private companies should consider listing on the Over-the-Counter Market is cost. Thanks to Sarbanes-Oxley Act, the average cost to do a SB2 filing with the U.S. Securities and Exchange Commission (SEC) are now over US$3 million. Your odds of getting past the SEC review process are about even. On average, it will take you over one year to get your "Effective Letter" from the SEC. If you adopt the standard public company strategy, recommended by CPAs and securities attorneys, your annual regulatory compliance costs will be over US$2 million. Listing on the Pinksheets can save you over 95% of these costs. It's worth seriously considering, if your company can't afford the traditional SEC registration process. It's very easy for an honest company to commit financial suicide listing on the Pinks. Any CFO who thinks they can safely get past all the sharks without a guide is mistaken. An equity finance consultant with the right contacts and knowledge is essential. Here are a few of the things that your consultant must do to ensure your company's survival. 1. Raise Equity Capital for your company. Most professional money managers won't speculate on Over-the-Counter Market stocks. 2. Get your company off the Pinksheets, without incurring the usual US$2 million in annual regulatory compliance costs. 3. Protect your company's shares against the manipulation of OTC Market Makers. 4. Ensure that your company has a strong and sustainable share price at reasonable investor relations' costs. On the Pinks, your company's trading volume matters far less than your company's share price. You can't expect to attract investors as your shareholders on the OTC Market. The public buyers of your shares expect to get-rich-quick selling into any upward move of your share price. You are better served with an equity finance consultant who can supply you long-term investors as shareholders. Once these investors have their positions in your stock and you have a poison pill defense against short sellers, you can pretty much forget the OTC and set your sights on trading the OTCBB and beyond. If you are a CFO considering listing your company on the Pinks, develop a stock plan that addresses the issues raised here and suggested by whomever you employ as your advisor. The Pinks can be the beginning or end of your company. Find an advisor who has solutions to the real risks that you will face and you will take the first step toward the NYSE. Do it yourself and your company is most likely to only see the light of day as pink and your company will be buried in a pink coffin. It's your choice.