A Short Essay For A Intro To

( Bussiness Class) Essay, Research Paper

In the October 14th issue of Businessweek there

is an article entitled “Cavwat Entrepreneur” by

Michelael Schroeder. This artical details how modern

day stock fraud scams are committed and it details

one such example. In brief, the conmen target a small,

non-public company that has the prospects of growth.

They promise its managers finanial assistance by

merging it with a public company in financial trouble,

getting the public listing with minimal disclosure. The

conmen pump in money, aquiring ventures, while taking

control by placing cohorts on the board of directors.

They then do a reverse stock split to boast the stock

price and reduce the number of shares (in the example

the number of shares outstanding dropped from 10 million

to about 500,000, which caused the stock’s price to rise

from 34 cents a share to nearly $7.00 a share). Then the

board of directors quietly issued millions of additional

shares, which they and the conmen snapped up, registering

the shares through SEC loopholes. Next they get brokers to

push customers to buy the stock, which increases the stock’s

price. When the stock price is high enough, the hustlers

then unload their shares, employing off-shore accounts

to hide the profits.

What makes this type of stock fraud often go undetected

is the fact that the conmen work through leditmate

companies and not some sham organization. By the time anyone

figures out that a crime has been committed, the conmen

have their money in off-shore accounts.

This is a good case of what happens when there are no checks

on busunessmen. All the stake-holders in the company that was used

by the conmen lose, because once it is made known what has happened,

the stock becomes worthless, and a successful up and coming company

is destroyed by such a stock scam. Personally, I believe that steps

should be taken to tighten up the regulations in such

mergers, so that these sorts of stock frauds can be stopped. Changing

the minimal disclosure reguirements, and corking the SEC loopholes would

be the best steps to take to correct this problem.