SEC Warns About Reverse Merger Companies

SEC warned investors about investing in reverse merger companies today.

“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.

Wow! What a timely warning! We wonder when SEC will issue a warning about investing in Enron. Bloomberg’s Chinese Reverse Merger Index declined 43% so far in 2011. SEC should have warned investors eighteen months ago when this index stood at 250. Today it is at 109.