SEC Microcap Stock Guide

To assist investors interested in the unique but challenging market of microcap stocks, the U.S. Securities and Exchange Commission (SEC) has created a useful guide, describing the special characteristics of microcap stocks, how to evaluate them, and what to watch out for. It also provides a number of handy links to additional information resources.

Below is just some of the information included in the SEC guide to microcaps:

• What Is a Microcap Stock?

The term Microcap Stocks applies to stocks of companies with very low capitalization, meaning the total value of the company’s stock. Such companies may have under a million dollars in net tangible assets.

• Where Do Microcap Stocks Trade?

Many microcap stocks trade in the “over-the-counter” (OTC) market and are quoted on OTC systems, such as the OTC Bulletin Board (OTCBB) or the “Pink Sheets.”

• How Are Microcap Stocks Different Than Other Stocks?

A lack of readily available and dependable information is the biggest difference between microcap and other stocks. In addition, there are no minimum standards for listing a microcap stock, such as a minimum amount of assets or minimum number of shareholders. And, since microcap companies are often small, relatively new, and have low trading volumes, microcap stocks typically involve more volatility and risk.

• Do Microcap Companies File Reports With The SEC?

All but the smallest companies are required to file reports with the SEC. Companies with less than $10 million in assets are generally not required to file with the SEC. Nevertheless, some smaller companies, including microcap companies, may choose voluntarily to register their securities with the SEC. Companies that register with the SEC must file quarterly, annual, and other reports. The more accurate information you can get about a company and its financial status, the less likely the chance of mistakes or fraud.

• What About Other Sources Of Information?

Although the SEC has no way of guaranteeing that a company is filing 100% truthful reports, by law the public reports that companies file with the SEC are expected to be truthful and complete. Such public information is an important resource for investors. There are many other sources of information on microcap and other stocks, but investors need to be wary of non-verifiable information that may be fraudulent. Fraudsters can distribute email spam, spreading false information to thousands of potential investors. Fraudsters can post messages on bulletin boards and chat rooms urging investors to buy microcap stocks based upon “inside” information. Microcap companies may pay stock promoters to recommend the stock in supposedly independent and unbiased investment newsletters even though such payments are not disclosed. Stock telemarketing companies can telephone potential investors to promote a stock which the investor may not realize the company has a direct financial interest in. Fraudsters can publish dishonest press releases with false or misleading information. In short, you have to make sure who you’re dealing with.

• What Are Good Sources Of Information On Microcap Companies?

Check with the company, or call your state securities regulator to see if the company is registered with the SEC. You can also check the SEC’s EDGAR database or their Public Reference Room to get information. The SEC guide provides a number of links to get the information you need.

For additional information, visit www.sec.gov/investor/pubs/microcapstock.htm

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