Sec Oks New Tool To Fight Fraud Tougher Regulation Is Intended To Combat Penny-Stock Abuses

Federal regulators, battling burgeoning fraud in the penny-stock market, got a new tool from the Securities and Exchange Commission on Tuesday and preliminary approval of two others.

At a meeting, the SEC commissioners voted 4-0 to adopt a new rule aimed at fighting abuses in offshore securities offerings and to propose two other rules, also related to penny-stock fraud, opening them to public comment for 60 days.

The rule adopted on offshore securities tightens a “safe harbor” regulation that allows companies to issue discounted shares to foreign investors who must wait before reselling them in the United States. Regulators say the current rule, which lets companies issue the shares offshore without meeting the normal U.S. registration requirements, has been abused by foreign investors quickly selling the shares back into this country.

Among other changes, the new rule increases from 40 days to one year the waiting period before such shares can be distributed.

The other proposed rule would restrict accelerated sales of shares to a company’s employees and selected other individuals by no longer allowing the shares to be issued to so-called consultants and advisers who actually promote the stock.

A sweeping proposal by the board of the National Association of Securities Dealers in December included removing from the OTC Bulletin Board stocks of any companies that don’t file financial disclosure statements with regulators.

Also under the NASD proposal brokers would be required to review current financial statements of a company before they recommend trading its stock.