I have had occasion recently to discuss the concept of self-regulation and how this may inure to the benefit of the public investor as well as those in the brokerage community. It is in this context that I would like to invite your attention to an area which has been of real concern to the Commission. Increasingly, public investors are being asked to invest in what we refer to as “shell” corporations. These companies have little or no assets, little or no management or operational capacity and, obviously, little or no future. They are marked by a lack of financial and other information and they involve extremely high investment risk. Trading in a shell corporation usually has the following history. First of all, a promoter will purchase the outstanding sleeping shares of a publicly-owned corporation, a shell, for use as a holding company. Suppose we call this sleeping company South Sea Bubble of 1969. Since South Sea Bubble of 1969 is already incorporated and publicly owned, it affords immediate access to the public marketplace. Following the cquisition the promoter merges into the shell a private corporation, and usually one in which he has a controlling interest. As a dividend, the original shareholders in South Sea Bubble of 1969 now receive certificates representing their pro rata share in the new corporation. Shortly thereafter these same shareholders begin to receive letters, news releases and even annual or quarterly reports describing discoveries by, acquisitions of and projected sales by the formerly dormant corporation. Unfortunately it has been our experience that almost without exception these reports prove to be false.

Remarks of Hamer H. Budge, Chairman of the Securities and Exchange Commission, before the National Security Traders Association in Boca Raton, Florida, October 19, 1969.