Stricter Promotion Policies and Best Practice Guidelines Fuel OTC Markets Groups Embrace of More Disclosure and Greater Investor Confidence

The New York-based financial market that specializes in more than 10,000 over-the-counter securities is cracking down on fraudulent or improper stock campaigns with a two-pronged initiative that emphasizes greater transparency, more factuality, and the correction of false statements or misleading information linked to stock and investment promotions.

West Palm Beach attorney Laura Anthony, a securities investment specialist and founder of Legal and Compliance, LLC, describes the efforts of the OTC Markets Group to position itself as a respected venture trading platform in this weeks Securities Law Blog .

Technology has increased the ability for companies, insiders and third parties to engage in improper and manipulative activities, including spam campaigns and anonymous social networks and message groups, Ms. Anthony writes. By announcing a new stock promotion policy and updated best practice guidelines, OTC Markets Group is urging its trading firms to disclose information in a timely manner and use all channels at their disposal to dispel rumors, halt misinformation and correct false statements, she says.

The new policies will accompany the OTC Markets Groups current framework, which relies on the use of a skull-and-crossbones icon to flag questionable companies or risky investment activities, according to Ms. Anthony.

Governed by the new policies and guidelines, companies that trade on the OTC Markets Groups exchanges can now be denied an application for trading on the OTCQB or OTCQX , and may be removed from either if they engage actively in campaigns marked by misleading information or manipulative promotions.

Ms. Anthony also gives to a nod to OTC Markets Groups recommendation that companies perform due diligence about investor relations firms and their principals before engaging in a firms services.

This is advice I constantly give my clients, she writes. Basic due diligence includes reviewing other represented clients and doing basic search for regulatory issues or negative news. Likewise, companies should be clear about an investor relations firms specific services and compensation, she says.

In general terms, the new stock promotions policy and best guidelines focus on key areas. Companies are expected to scrutinize and refrain from engaging in paid promotions, especially those that:

involve improper or misleading materials

focus on a companys stock rather than its core business

make unsubstantiated, grandiose or unreasonable stock performance claims

urge immediate action to avoid missing out, or do not inform potential investors about risks

lack core information

On the best practices front, she encourages companies to know their investors or investor groups, and approach warily those that desire anonymity or support anonymous third-party promotions, rely on offshore entities, own significant control or will qualify to remove restrictive legends on stock.

If companies fall prey to misleading or manipulative stock promotions, the OTC Markets Group urges them to publicize and describe the promotions impact on the companys trading activity, indicate whether the promotion is accurate, conduct an inquiry of all involved parties, and provide more information and disclosure about reputable promotion services and investment rates.