Private Placements dumped on Market

A hodgepodge of public companies with private placement exposure really took a beating on Friday after new Securities and Exchange Commission rules took effect.
On Friday the SEC eased restrictions on private placements and other restricted securities, which hedge fund managers and other institutional investors buy directly from corporations. The new rule allows holders of restricted securities to sell those securities as soon as six months after the placement, instead of the old regulations that only allowed them to sell between one and two years after striking the deal.
The result, according to Barry Silbert, CEO at Restricted Stock Partners in New York, any private placements sold or issued between Feb. 15 and Aug. 15 became salable on Friday. And while Silbert says he's not certain exactly how many private placements were put up for sale Friday, he points to the action surrounded the universe of small capitalization companies -- those most likely to use a private placement -- to get a feel for the impact of the new regulations.
What to look for? A downward pressure on the stock value of many companies as large amounts of stock becomes available for sale without a sufficient number of buyers.
One example, Terra Nostra Resources Corp.'s stock was down between 10% and 12% on high volume late Friday, dropping from $2.58 a share on Thursday to close at $2.33 on Friday. Other small-capitalization companies appeared to have a difficult time on Friday, Silbert says, because investors dumped private placements and other restricted securities on the open market. He cited Airtrax Inc., Power Air Corp., WorldWater & Solar Technologies Corp., ANTs software Inc., Echo Therapeutics Inc. and Lightspace Corp. as examples.
In observing the small-cap space, Silbert said he identified many companies with unusually high volume of shares coming on the market. "If these stocks on average trade 100,000 to 200,000 a day and they see 500,000 shares come on the market, there aren't enough buyers to absorb the selling pressure," Silbert said.
But he added that Friday's sale pressure could have been worse. "A number of hedge fund managers, anticipating the large amount of equity coming on the market, waited until Friday to buy," Silbert said. - Ron Orol