For Immediate Release

Washington, D.C., June 9, 2011 – The Securities and Exchange Commission today issued an Investor Bulletin about investing in companies that enter U.S. markets through so-called “reverse mergers.”

“Given the potential risks, investors should be especially careful when considering investing in the stock of reverse merger companies,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. “As with any investment, investors should thoroughly research the company – including ensuring there is accurate and up-to-date information – before making a decision to invest.”

Reverse mergers permit private companies, including those located outside the U.S., to access U.S. investors and markets by merging with an existing public shell company. The SEC and U.S. exchanges recently suspended trading in a more than a dozen reverse merger companies, citing a lack of current, accurate information about these firms and their finances.

The Investor Bulletin explains the reverse merger process, describes the potential risks of investing in reverse merger companies, and details some of the recent enforcement actions that the agency has brought against reverse merger companies.

public shell companies · reverse merger

Comparing three Ways to Go Public

1. Traditional Underwriting:

• Time: 6 to 12 months
• Cost: $350,000 to $1,000,000. (The company will be out of pocket at least 50% of this amount prior to completion.)
• Capital: Typically raises more capital than other types of transactions.
• Problems: Underwriting may be delayed or canceled. Issue price may be changed by market conditions or underwriter.

2. Reverse Merger or Buy and Existing “Public Shell”

• Time: 2 weeks to 60 days
• Cost: $300,000 to $800,000
• Capital: Does not raise money but stock is now valued and tradable
• Problems: Potential “skeletons” in acquired shell. Control shareholders of operating company may receive restricted shares.
• Advantages: Typically, reverse merger or public shell merger is the quickest way to get public. Non-control investors may receive registered or trading shares.

3. Merge with a “Custom Designed” Public Company

• Time: 4 to 8 months
• Cost: $150,000 to $300,000
• Capital: May raise money and stock is now valued and tradable
• Problems: None
• Advantages: Public company can be “Custom Designed” to the operating companies specifications. Shareholders of operating company receive registered shares. New corporation so no “SKELETONS” in the company. Financial expertise during the transaction. Market support after the transaction. Automatic shareholder base friendly to the “Small Cap” market.

going public · IPO · public shells · reverse merger · taking your company public