On June 9, 2011, the Securities and Exchange Commission in release 2011-123 issued an Investor Bulletin about investing in companies that enter U.S. markets through so-called “reverse mergers.”
As stated in the Release:
“Given the potential risks, investors should be especially careful when considering investing in the stock of reverse merger companies,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. “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.
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.
I have long advocated the benefits of a Go Public Direct transaction and the risks of reverse mergers with public shells. I urge all visitors to our site and readers of our Blog to review the entire Investor Bulletin, here: