Quite a ways from these parts, across the Misty Sea, lies the dark and dusky country of Vernebeltland. Few know of it, and those who do speak of it only behind close doors. Respecting the quiet people of Vernebeltland, I have kept the ancient tradition of silence. But now that I've started a blog, I'll spill the beans free of charge. The contented inhabitants of this lowland go daily about their affairs, dutifully smithing and fletching and trading amongst themselves. But once a year, at the Royal Repast, all good elves assemble to rejoice in dance and song, trusting in the Shining Protector, S. E. C.
The ground beneath Vernebeltland lies fallow, a legacy of centuries of toil and overuse. The discount rates used by the clever farmers of Vernebeltland are too low, and the only way to earn a decent living is to venture into the gloomy land of Finsternis, whose glowering crests deter the faint of heart. Finsternis is a maiden land, overflowing with milk and honey. Those who dare to enter number few, but riches abound beyond the giddiest fancies of any on our side of the Misty Sea.
A bit of history is in order. The tree dwellers of Finsternis have been the subjects of the elven tree masters of Vernebeltland since time immemorial, and are duty-bound to offer all the bounty of the land to the Vernebeltlanders. In the Olden Days, the tree dwellers of Finsternis grumbled against the reign of S. E. C., saying, "Why must we bear the hideous burden of preparing quarterly scrolls for your Awesome Majesty? Would it not be enough for us to report these things to our masters, the Vernebelt Elves?". S. E. C. showed mercy, declaring, "Mark my words, O rebellious people, and mark them well. I shall cordon Finsternis off from the rest of the land, and dub it Section 12(g). You may lay your scrolls aside, but abide by one law: Thou shalt continue providing timely and accurate reports to the Vernebeltlanders."
At first, the tree dwellers did so happily. As time wore on, however, the tree dwellers forgot their vows, and grew lax in reporting the bounties of Finsternis to the Vernebeltlanders. This grieved S. E. C., who bellowed in his wrath, "O wicked tree dwellers, I shall forbid the Vernebeltlanders from entering again into your land until you resume reporting its abundance."
This saddened the Vernebeltlanders. Unable to sustain themselves from the foodstuffs of Finsternis, the elves of Vernebeltland starved. Vernebeltland was no more. The tree dwellers rejoiced, keeping the fruits of the land to themselves for all eternity.
This concludes the lore of the country across the Misty Sea.
When the Securities Exchange Commission proposed a rule that would prohibit brokerages from quoting "dark" stocks that don't file reports with the SEC or OTC Markets, the sorry plight of the Vernebeltlanders instantly came to mind. An echo on this side of the Misty Sea would come close to giving me a heart attack.
If the SEC goes ahead with this rule, over $1 billion worth of dark stocks will become untradeable overnight, not including the countless Pink Sheet and exchange listed companies that will choose to delist and go dark as a result. If the rule goes through, owners of such stocks have no way of protecting themselves. The closest to "protection" against the rule that shareholders will get is panic selling before the effective date of the rule. The extreme illiquidity of the affected stocks means that such selling could result in prices 75% or more below today's levels. When considering the many small public companies this rule would incentivize to go dark, it's easy to envision investor losses approaching $1 billion. It is both silly and wrong to punish "everyday Joe" investors for actions perpetrated by their fiduciaries against the everyday Joes. Back where I grew up, we generally punished the criminals instead of the victims.
Rather than ruining the numerous OTC stock investors who specialize in dark companies, a wiser course of action would be to:
Impose heavy civil penalties and a bar against serving as a fiduciary in any capacity on management wantonly withholding financial statements from shareholders in violation of state law.
Streamline the process of requesting and collecting financial statements from errant companies.
The $1 billion of theoretical losses the rule could cause is twice the aggregate market value of:
Build-A-Bear Workshop
Tandy Leather Factory
OTC Markets
I highly recommend you read David J. Flood's post on the proposal at Elementary Value. For more commentary on the rule, check out Dan Schum's post over at NoNameStocks.
Please tell the SEC what you think. Families are counting on you. It's a cinch to leave a comment. Instructions are here. My comment is here. All comments can be found here.
