Each year, stocks are suspended and delisted from various exchanges. And while it’s not uncommon, it’s not exactly something you want to experience as an investor. Because the big question is: What happens to your money?
The SEC can suspend trading when it believes that’s in the best interest of the public. That includes the following situations:
A lack of current, accurate, or adequate information about the company, for example, when a company is not current in its filings of periodic reports;
Questions about the accuracy of publicly available information, including in company press releases and reports, about the company’s current operational status, financial condition, or business transactions;
Questions about trading in the stock, including trading by insiders, potential market manipulation, and the ability to clear and settle transactions in the stock.
And while it’s possible for the stock to trade again after the suspension is lifted, sometimes the stock is delisted from its exchange, and that’s bad news for your portfolio.
Why? We’re not talking about taking a company private, which could be a good form of delisting. In this case, it’s probably a sign that something is very wrong with the company you’re investing in. While you don’t “lose” your money right away—you’re still, technically, a shareholder—it’s possible that the shares will become essentially worthless.
“While the intrinsic value of the stock hasn’t changed since the day before the stock was delisted, the very fact that it was ejected from its exchange is enough to make the market factors push its price even further below water,” writes The Street. “That stock that you once paid your hard-earned cash for is likely pretty close to worthless now.”
That’s not to say you should rush to sell and cut your losses. If the company gets its act together, it’s possible that the stock could be re-listed. Where you’re likely completely out of luck is if the company files for bankruptcy.
If you’re interested in a stock but the company has been suspended in the past, the SEC recommends taking the following steps:
Research the Company
: Always research a company before buying its stock, especially following a trading suspension. Consider the company’s finances, organization, and business prospects.
Review the Company’s SEC Filings
: This information is free and can be found on the Commission’s
EDGAR filing system
.
Be Skeptical:
Investors should always ask why someone provides them a “hot” tip. Investors should also do their own research and be aware that information from online blogs, social networking sites, and even a company’s own website may be inaccurate and sometimes intentionally misleading:
You can see recent trading suspensions here.