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(Bloomberg) – US regulators are embarking on the stock market version of the whack-a-mole – rushing to suspend the shares of companies with questionable prospects that have been hypnotized on social media.
In a Friday statement, the Securities and Exchange Commission said it had temporarily halted trading at 15 companies over fears their stock prices had been artificially inflated. One of the companies, a penny stock called Blue Sphere Corp., was recently highlighted in a Bloomberg News article after rising in value following a barrage of posts on online discussion forums.
“We proactively monitor suspicious business activity related to stock market promotions on social media, and act quickly to stop such transactions where appropriate to protect the public interest,” said Melissa Hodgman, Acting Director of the Business Unit. SEC enforcement, in a statement.
The SEC crackdown adds to the fallout from GameStop Corp.’s frenzy, in which an army of day traders has banded together to drive long-overlooked actions to the stratosphere. The regulator has consistently sought to remove dying companies from stock exchanges because it fears retail investors may suffer losses, but that effort has accelerated amid this year’s wild trading.
In Friday’s action, regulators are venturing further into one of the noisiest parts of the market, targeting penny stocks dragged into price and volume frenzies by relentless social media pumping. The frenzied trading, often at non-profit companies, on lightly regulated broker networks is perhaps the most extreme example of speculative excess in the 2021 market, a landscape that has also included the SPAC craze and the surge in cryptocurrencies.
In February, an average of 90 billion shares changed hands every day on sites such as those operated by OTC Markets Group – often referred to as “over-the-counter” or “pink sheets” securities. It added up to about 1.7 trillion shares this month, according to data compiled by the Bloomberg Intelligence Show. In December, the total topped $ 1 trillion for the first time in a decade.
Blue Sphere is one of many titles that has gone from obscurity to viral sensation – and every day, there have been a dozen more stories like it. Often, the gossip on social media sites like Stocktwits and Twitter and other online chat rooms portends a take-off. This comes as retail traders with zero brokerage commissions jumped to 23% of stock trading volume, up from 20% last year, according to Bloomberg Intelligence.
A phone call Friday to Blue Sphere was sent to voicemail.
Two weeks ago, the SEC suspended trading in SpectraScience Inc. – a company that had jumped from 633% in 2021 to just over two-tenths of a cent before the shutdown. The SEC order noted that while the company has not filed reports in years and its phone number is not working, “social media accounts may be engaged in a coordinated attempt to influence artificially.” the course of its action. SpectraScience volume topped 3.5 billion shares in a single day at the end of January as the share jumped 167%.
None of the companies suspended on Friday have filed information with the SEC for more than a year. Under federal securities laws, the SEC can ban trading for 10 days and prohibit a broker from soliciting investors to buy or resell shares until certain reporting requirements are met.
Here are the actions suspended by the SEC:
Blue Sphere Corp. Babyida Beverage Co. Ehouse Global Inc. Adventure Interactive Inc. Eyes on the Go Inc. Green Energy Enterprises Inc. Helix Wind Corp. International Power Group Ltd. Marani Brands Inc. MediaTechnics Corp. Net Talk.com Inc. Patten Energy Solutions Group Inc., PTA Holdings Inc., Universal Apparel and Textile Company, Wisdom Homes of America Inc.
(Updates with information on OTC trading)
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