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Exit Strategies for Public Companies
By William Cate
Exit Strategies for Public Companies by William Cate
Exit Strategies for Public Company Insiders
By William Cate
Published January 2001
[http://home.earthlink.net/~beowulfinvestments/]
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
There are three ways that public company insiders can convert their
equity into cash.
1. They can sell their stock to the public. This is the goal of the
insiders in most OTCBB and Nasdaq Small Cap Companies. It's summarized in the axiom "Pump &
Dump." The stock is promoted as the insiders sell their shares into the public buying.
The SEC has spent 60 years trying to stop this practice. We have
insider trading rules that ban it. Yet, the insiders' goal, in over 80% of
the OTCBB companies, is to dump their stock on the public.
This strategy is unprofitable for the promoters. It's not that the
promoters face undue risk from an SEC investigation. The odds of a high
flying turkey being investigated are about one-in-ten. The profits for
insiders in "Pump & Dump" schemes are small.
It costs money to promote stock. The insiders illegally pay outside
promoters with part of their free-trading shares. The average "Pump & Dump" company insider nets
less than $150,000 from the stock promotion.
For example, the Canadian media believes the Bre-X Scandal was the
biggest mining stock scam in history. These newspapers reported that only
one insider made more than a million dollars from it.
2. The insiders can create an industry giant. It will qualify to
trade on the New York Stock Exchange. The insiders and their heirs can live
of