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Watch for Reverse Splits
Companies do reverse splits (e.g., 1 share for your 2 shares) in order to reduce the number of shares outstanding. That typically boosts the price of the shares, but one owns fewer shares.
So, why bother? Lagging companies use reverse splits to keep themselves listed (or to become listed) on the NASDAQ stock market, which has minimum share price requirements.
Worse, some stock splits are used in stock manipulations. Securities crooks can gain control or a company by issuing new shares to their cronies at the same time that they are reducing the number of shares held by outsiders/public investors.
According to the Wall Street Journal, dated, 11/20/98, more that 100 companies have done reverse splits this year, compared to 64 in 1997 and 36 in 1996.
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Sponsored by James J. Eccleston, an attorney representing stockbrokers, financial planners and
investors nationwide in arbitration, litigation and regulatory matters, and a shareholder with the law firm
Shaheen, Novoselsky, Staat, Filipowski & Eccleston
P.C.(www.snsfe-law.com). This Web site contains material
of general interest. It is neither intended to, nor constitutes, either legal advice or investment advice.
Always consult an attorney and/or investment advisor when building and protecting your wealth.
All content Copyright © 2008 Advocate Capital Management, Inc. except where noted. All rights reserved.
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