Memo to SEC: Put the zombie stocks out of their misery

Posted Oct 13th 2009 5:30PM by Zac Bissonnette
Filed under: Scandals

USA Today's Matt Krantz reports that shares of some companies bankrupted by the financial crisis have posted huge gains in recent months: "Lehman and WaMu, for instance, were booted from stock exchanges and filed for bankruptcy protection. Yet on the lightly regulated Pink Sheets markets, this year their stocks are up 500% and 1,050%, respectively."

The problem is that shares of companies like Lehman and WaMu are completely worthless with no prospect for recovery for shareholders. Ownership of the company's assets is no longer held by the common stock -- and with creditors taking losses, there is no chance that shareholders will receive a nickel.

So why are the stocks rallying? A combination of short sellers locking in gains and speculative buying by naive speculators who don't understand how the bankruptcy process works. That -- combined with the illiquidity of these stocks -- makes for a great opportunity for internet hucksters to dupe people into buying these worthless stocks.

Here's an idea: The SEC should move quickly to halt trading in these bankrupt companies trading on the over-the-counter market. There is no upside to allowing these stocks to be traded, and it only creates an opportunity for small investors to get ripped off and exploited.

Tags: featured, penny stocks, PennyStocks, SEC, Zombie Stocks, ZombieStocks

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Reader Comments (Page 1 of 1)

10-13-2009 @ 7:13PM

kpinvest said...

Same thing with GM shares. They should've been removed when they went into protection. Everyone has said time and time again to halt trading. They've gone through 3 tickers (GM, GMGMQ, and now MTLQQ.PK)! Give it up already. Stop allowing innocent morons to be morons with their monies.