Scam Dogs & Mo-mo Mamas / Reverse Merger

This is the book I finished reading recently. Using a humorous tone, The Wall Street Journal senior writer, John R Emshwiller, describes the world of penny stocks trading (well, they are sold for pennies before pumped) in the days of the dot com boom when the internet trading was in its infancy.

In it, for the first time, I saw the "stock symbol" ABCD being mentioned: "Amalgamated Baloney and Consolidated Drivel". The wildlife of the internet stock trading is described and characters such as Tokyo Joe, Anthony@Pacific (short seller) and Steve Pluvia (short seller) are profiled. But most importantly, I read an explanation about reverse mergers.

A lot of companies went through the time-consuming and expensive SEC process to be listed as public companies. Many of these fail but still exist legally with (most likely worthless) shares in the market. Some private firms looking to go public contact these failed public companies and merge with them. The shell company "acquires" (sort of) the private company and the "owners" give the majority of the public company stock in exchange, effectively transfering the control to the owners of the private firm. Frequently, the new owners change the public company name to match the formerly private firm name.

That is a reverse merger. It is legal and used by legitimate business owners, but can also be used by crooks to avoid the government's attention.

The writer John R Emshwiller also is co-author of "24 Days", a book about the Enron crash.