The Securities and Exchange Commission suspended trading of 26 small, barely operating or defunct companies earlier this month because they had not filed quarterly and annual reports in one to nine years.

Securities lawyers say the Securities and Exchange Commission seldom suspends trading, especially as a punishment for missing or late financial paperwork. Instead, companies have to ignore several warnings, neglect to ask for extensions, and miss more than two quarters to risk such a punishment. One of the suspended companies, Amitelo Communications, hadn’t filed a financial report since Dec. 31, 1995.

THE COMPANIES

The 26 companies whose trading was suspended include:

Abacan Resources Corp. (ABACQ)

Advanced Solutions & Tech. (ADVK)

American Multiplexer Corp. (AMUT)

Amitelo Communications (ALOC)

Asset Equity Group (ASEQ)

Comparator Systems Corp. (IDID)

Digi Link Technologies (DGLT)

DMT Energy (DMTY)

DrKoop.Com (KOOP)

Emerging Enterprise Solutions (EESI)

First Pacific Networks (FPNQ)

GEMZ (GMZP)

Heroes (HERS)

Homeland Security Tech. (HSTJ)

Household Direct (BYIT)

Infotopia (IFTA)

International Brands (INBR)

Interspace Enterprises (ITET)

JTS Corp. (JTSC)

Mega Micro Technologies Group (MGGA)

1st Miracle Entertainment (MEMI)

Shaman Pharmaceuticals (SHPH)

United States Crude Int'l (USCI)

Vertical Computer Systems (VCSY)

Webvan Group (WBVNQ)

Whitehall Enterprises (WTHL).

Ryan

"For most functioning companies, this news isn’t that significant because it's rare for the SEC to jump on companies if they miss a couple filings," said Russell Ryan, a former assistant director at the SEC’s Division of Enforcement. “This is a list of companies that are habitually late or have stopped filing altogether,” adds Ryan, now practicing in the government investigations group of King & Spalding.

Still, it’s unusual for even those companies to be suspended. The SEC said it was protecting investors, who need accurate and current information.

Bruch

“These actions are a significant change of course for the SEC in how they deal with delinquent filers,” said Gregory Bruch, who supervised policing of delinquent-reporting companies at the SEC from 1995 to 2001. Bruch—who now chairs the securities litigation, enforcement and regulation group at Foley & Lardner in Washington, D.C.—said the SEC was reluctant to suspend companies because it didn’t want to usurp market judgment. “Investors can make their own judgments based on what information was available,” said Bruch.

Companies that exist but don’t do any business could be placeholders for other companies looking for an inexpensive, quick way to become public. “There are a lot of seriously delinquent reporting companies out there and all of them are a potential problem,” Bruch said.

The suspensions, which began on Dec. 1 and lasted for 10 days, could lead to permanent expulsion unless the companies get all financial paperwork in by Dec. 14, which securities lawyers said was unrealistic.

The suspended companies trade on the National Association of Securities Dealers’ OTC Bulletin Board, so trading doesn’t start automatically after 10 days. The brokers must check whether all the required information has been filed and is accurate before they can trade the stocks. Brokers don’t want to risk violating securities laws so it’s more likely they won’t resume trading.

Bishop

“My first impression is the SEC is doing some clean-up,” said Keith Bishop, a securities lawyer at Buchalter, Nemer, Fields & Younger. “Maybe these companies ran out of money and have no employees—there’s no one there to do anything—so it’s a way to kill them off,’ adds Bishop, a former California corporations commissioner.

On top of suspending trading, the SEC said it would hold hearings before an administrative law judge to take away the securities registrations of 25 companies, including 12 of those suspended. This means the companies would be permanently expelled from trading. Ten out of the 25 agreed to have their registrations revoked without proceeding with administrative hearings—the companies are shut down or broke, and couldn’t afford to de-register on their own.

For example, the SEC last heard from Abacan Resources Corp., one of the suspended companies that’s liable to lose its securities registration, when the company filed a quarterly report in 1999. A bankruptcy trustee was appointed to the Houston-based company in March 2000, and all the directors and officers resigned. Abacan had an average daily trading volume of 94,489 shares on the Pink Sheets for the six months ended Aug. 24, 2004.