One executive was convicted of filing false tax returns, another for obstructing justice and a third accused of selling unregistered stock.
But three tiny companies with ties to the executives have now gone public in the U.S. in what may just be the zaniest little market on Wall Street: mini-IPOs.
These companies -- just seven so far -- aren’t exactly blue chips. One made its debut on the New York Stock Exchange with a value of just $43 million -- less than 3 percent of the market cap of a typical NYSE-listed company—mostly from individual investors.
And some of the securities firms bringing these companies to market aren’t exactly blue chip, either. A couple have checkered records themselves. Authorities’ advice: buyer, beware.
“These offerings are extremely difficult to police,” says William Galvin, the top securities regulator for Massachusetts.
None of the companies have been accused of wrongdoing. But these super-small initial offerings are seriously high-risk investments. All of the companies have lost value since going public, by an average drop of 40 percent.
Mini-IPOs grew out of the Jumpstart Our Business Startups Act, a 2012 law that was supposed to eliminate red tape, help small companies go public and, ultimately, spur the economy.
Yet there’s little evidence the JOBS Act has actually encouraged many IPOs or created many jobs. Their number has declined over the last two decades with the drop becoming more pronounced in recent years because companies can raise plenty of money from private equity and venture capital firms, according to Robert Bartlett, a law professor at the University of California at Berkeley. Regulatory hurdles play a smaller role, he said.
Income Limits
Under the law’s Regulation A+, adopted by the Securities and Exchange Commission in 2015, tiny companies can sell shares with limited disclosure requirements and seek money from less well-off investors even if the securities don’t trade on a major stock exchange. The Trump administration wants to increase the maximum size of these so-called crowdfunding offerings to $75 million from $50 million.