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Effingham County entertainment company Medient Studios is working to get its stock in acceptable shape as a temporary suspension by the Securities and Exchange Commission is due to be lifted later this week, according to its investor relations firm.
Natalya Rudman of Crescendo Communications said Monday the company’s legal team and investment bank Merriman Capital are working to relist the stock, which is not traded on an exchange but through an over-the-counter broker-dealer network. Such networks work on a quotation system that does not have to meet minimum financial standards.
Without elaborating, Rudman said the company still plans to remain in business and continue with its plans.
The Securities and Exchange Commission temporarily suspended trading of Medient, ticker symbol MDNT, on June 25 because of questions surrounding the accuracy of the company’s public disclosures.
Before soliciting or resuming quotations, the company must provide information to satisfy broker-dealers and FINRA, the non-governmental organization that regulates the brokerage industry.
Yet trading does not automatically resume at the end of a 10-day
suspension for over-the-counter stock. A broker-dealer has to review and maintain “specific information about the company,” including its outstanding shares, certain names of control affiliates and the company’s most recent balance sheet.
According to the SEC’s website: “If a broker-dealer does not have confidence that a company’s financial statements are reasonably current and accurate in all material respects, especially in light of the questions that may have been raised by the SEC suspension, then a broker-dealer may not publish a quote for the company’s stock.”
The SEC tells investors to contact the broker who sold them the stock to ask whether they intend to resume publishing a quote.
Medient launched an abrupt restructuring in early June after ousting its founder and former CEO Manu Kumaran, bringing public attention to the company’s financial health amid massive stock dilution. As of June 25, the stock was trading below .0015 with roughly 2.3 billion outstanding shares.
Problems with the company’s stock were apparent much earlier, however, and reflect the lure of high-risk penny stocks. According to an Atlanta Journal-Constitution piece published in May 2013, a Medient shareholder paid a research firm to release an email touting the company’s plan to streamline the movie-making process and boost profits using state tax incentives, causing the stock’s share price to climb 80 cents.
Such tactics are consistent with so-called pump-and-dump schemes that involve the promotion of a company’s stock through false and misleading statements to investors, usually through the Internet. Once the stock price has been inflated, the perpetrators of the scheme dump their shares into the market causing the price to plummet and investors to lose their money.
On Monday, the Wall Street Journal published an article on recent sting operations by the FBI targeting small penny stock companies amid a surge of fraudulent activity. The paper said trading data showed investors are buying these volatile stocks at record pace despite the risk.
Although uncertainty remains, Medient’s current board and new CEO Jake Shapiro have pledged to move forward with a scaled-down version of a proposed multi-million dollar studioplex on land owned by the Effingham County Industrial Development Authority.
Meanwhile, ex-CEO Kumaran has filed a lawsuit seeking to dissolve the company and on Friday filed a temporary restraining order in addition to an order asking why a preliminary injunction and appointment of receiver should not be issued. The court has not ruled on the request for a restraining order, and no date for the motion has been set.