Thursday, June 9, 2011

SEC Press Release: Reverse Mergers

SEC Issues Bulletin on Risks of Investing in Reverse Merger Companies

The Securities and Exchange Commission (SEC) announced in a press release today announcing that it had “issued an Investor Bulletin about investing in companies that enter U.S. markets through so-called ‘reverse mergers’.” The purpose of the Investor Bulletin, according to SEC’s Office of Investor Education and Advocacy’s, is to educate investors on the potential risks of investing in the stock of reverse merger companies.

Reverse mergers, or reverse takeover, is when a private company goes public through the acquisition of a public company, allowing the private company to obviate the often arduous and time-consuming process of going public the conventional way. Specifically it requires the private company to take control of and then merge with a ‘shell company’, which is a company with only an organizational structure but with little to no assets or operations.

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