SHELL STOCK GLOSSARY
Footnote 32 Shell Stock: a type of Shell Stock that is created to bypass the SEC’s Rule 419 that places restrictions on public offerings of Shell Stocks. Basically, a promoter places minimal assets or operations within an entity to take them public, but the actual intent is to complete a future reverse merger with another company. Upon completion of the reverse merger, the promoter returns the original assets or operations to the promoter or affiliate. There is controversy in the market place as to whether these “Footnote 32 Shells” are legitimate. In his book “Reverse Mergers: Taking a Company Public Without an IPO,” David Feldman states “this one footnote sweeps aside a large percentage of the public shells in the marketplace and deems them worthless.” Other shell authoritarians say they are legal since the SEC allowed the going public transaction. For more information, see SEC Footnote 32.
IPO (Initial Public Offering): the initial offering of a private company’s stock to the public. This “traditional method” of becoming a public company is expensive and time consuming as compared to alternative methods. Registration and disclosure guidelines were created by the Securities Act of 1933.
Non-Reporting Company (Non-Reporting Shell Stock): a company that forgoes reporting to the SEC. For a Non-Reporting Shell Stock, you can only rely on what the company chooses to report.
Penny Stock: as defined in the Penny Stock Reform Act of 1990, it is basically a stock traded on the OTCBB or Pink Sheets that is priced less than $5. For complete information, see “Definition of Penny Stock.” Most Shell Stocks are considered “penny stocks.”
Penny Stock Reform Act of 1990: an amendment to the Securities Act that expanded the SEC’s enforcement to eliminate abusive activities in penny stock transactions. This act was mandated by Congress after issuance of a report by the National Association of Securities Administrators of America on Fraud and Abuse in the Penny Stock Industry. This act created the “Definition of Penny Stock.”
PIPE (Private Investment in Public Equity): an investment transaction involving accredited investors purchasing privately issued securities directly from a public company usually at a discount to the market price of the company’s common stock.
Reporting Company (Reporting Shell Stock): a company that is required to file periodic Quarterly and audited Annual financials with the SEC. They also report changes in stock ownership and any material changes in the company’s structure. For a Reporting Shell Stock, you can visit the SEC website and review detailed audited financial and stock owner information.
Reverse Merger: an alternative method for a private company to become publicly traded. It is synonymous with an IPO (Initial Public Offering), but less expensive and quicker. Typically, a private company is merged into a public shell stock, with the owners of the private company obtaining control of the new combined public entity.
SEC (Securities and Exchange Commission): the United States of America agency responsible for administering federal securities laws and regulating the stock market. For more information, see http://www.sec.gov/.
Shell Hijacking (Corporate Hijacking): a very big problem in the Shell Industry. Basically, someone identifies and usurps the identity of defunct or inactive shell company, goes to the corresponding Secretary of State, re-activates the shell company, and issues themselves controlling interest.
Shell Stock (Shell Company): a public company that no longer has any business operations. It retains its capital structure and public trading status with the intention to complete a reverse merger with a non-public company with an on-going business. This merger creates a new company that is both publicly trading and generating revenues. There are many reasons why a Shell Stock exists in the first place, but most commonly, they either lost the business due to a bankruptcy, or just sold or closed it.
SPAC (Special Purpose Acquisition Company): a type of Shell Stock that is created by investment banking firms. Characteristics include: strong experienced management, focused on reverse merging with companies in a specific industry, and have completed an initial public offering raising $20 million to $1 billion. Because of the amount of the initial public offering, they are exempt from Rule 419 and can list on the OTCBB or AMEX stock exchanges and commence trading before completing a reverse merger.
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