On February 16, 2018, the U.S. Securities and Exchange Commission (“SEC”) suspended trading in three penny stocks due to concerns about the accuracy of recent statements the companies made relating to their ties to cryptocurrency and blockchain technology. The 10-trading day suspension is slated to end on March 2, 2018.
The SEC said that the public interest and the protection of investors require the suspension of trading in the securities of Cherubim Interests Inc. (CHIT), PDX Partners Inc. (PDXP), and Victura Construction Group Inc. (VICT). All three companies issued press releases last month stating that they acquired AAA-rated assets from a subsidiary of a private equity investor in cryptocurrency and blockchain technology (among other areas). All three of the companies list the same chief executive officer, Patrick J. Johnson, former NFL wide receiver, in their press releases.
“This is a reminder that investors should give heightened scrutiny to penny stock companies that have switched their focus to the latest business trend, such as cryptocurrency, blockchain technology, or initial coin offerings,” said Michele Wein Layne, Director of the Los Angeles Regional Office of the SEC.
This most recent move by the SEC is in keeping with its recent enforcement efforts. As we explained in a client alert this month, the SEC has been focused on monitoring initial coin offerings (“ICOs”) that the Commission considers to be unregistered securities offerings, and continues to devote a significant portion of its resources to the ICO market.
Penny stocks, which are generally considered volatile and high-risk investments, typically trade outside of the major market exchanges and have limited disclosure requirements. The SEC generally considers shares trading below $5 to be penny stocks. Policing penny stocks associated with companies who may be taking advantage of the cryptocurrency trend is one way that the SEC can protect cryptocurrency investors. The move is also in keeping with the SEC's August 2017 warning to investors to be on alert for companies that may publicly announce ICO or coin/token related events to affect the price of the company’s common stock.
