Unlike Pink Sheets, companies quoted on the OTCBB must be fully reporting (i.e. current with all required
SEC filings), but aren't regulated on market capitalization, minimum share price, corporate governance or other
requirements to be quoted.
There are many investment opportunities for intelligent, informed,
investors in the OTC market but it comes with a high degree of risk. Companies which have been "de-listed"
from stock exchanges for falling below minimum capitalization, minimum share price or other requirements often end up being
quoted on the OTCBB. Many OTC issuers are small companies that are economically distressed or have limited operating
histories. Even investing in legitimate OTC companies can lead to complete loss of investment.
risk associated with OTC stocks is a form of fraud called “Pump and dump”. Pump & Dump is carried
out through email spam or telemarketing in which the supposed hot stock is promoted to the victim. The person promoting the
stock purchased it at a lower price and then sells it at a higher price after the promotion. Investors who purchase securities
based on the "hot tip" will often be disappointed. Research has shown that the typical victimized investor
sells his stock after 2 days, and loses 5.5%
It is advised that unsophisticated or passive investors
should completely avoid the Pink Sheets or OTC markets.
Potential investors interested in investing in OTC stocks should:
1. Contact their broker or investment company and ask about OTC services. Some of the larger brokerages and
investment banks offer OTC options.
2. Using the OTCBB, research the companies that you would
like to invest in.
3. Buy shares as you would a normal company, or as instructed by your broker
or financial institution
4. Track OTC shares more carefully than other stocks. Their performance
may be volatile due to lower trading volume or manipulation. Ask your broker or financial institution about special
fees or trading times for your OTC stock.
Investors should always be wary when investing in Pink
Sheets and/or OTC markets. It is very important to research any company in which you wish to invest prior to
making your first buy. Don’t believe everything you hear or read. If it sounds too good to be true, it probably is.