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'It's funny but it's not funny': Trading executive warns about pivots to blockchain

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  • Business Insider spoke to Jason Paltrowitz, executive vice president at OTC Markets, about the ongoing cryptocurrency and blockchain craze.
  • He says the company has beefed up its oversight and warnings to investors about potential fraud as it continues to see companies boost their stock price by pivoting to crypto. 
  • "It's funny but it's not funny," he told Business Insider. "This is the latest avenue for potential fraud and things that will harm investors, and so we need to take it seriously."
  • A swath of publicly traded companies — from iced tea bottlers to biotech firms — have found good fortune by slipping things like blockchain or cryptocurrency into their names.

    While some of those pivots have occurred on major exchanges, many have occurred on alternative trading systems (ATS), and the craze has led perhaps the most well-known of these, OTC Markets Group, to beef up its oversight to protect investors from fraud.

    "Some of its kind of funny, companies that one day were making lawnmowers and the next day they're in bitcoin or a cryptocurrency," said Jason Paltrowitz, the group's Executive Vice President of Corporate Service told Business insider in an interview. "It's funny but it's not funny."

    "This is the latest avenue for potential fraud and things that will harm investors, and so we need to take it seriously," he added.

    The company on Wednesday launched new stock promotion flags on its website that will warn investors that may be the subject of promotional activity. OTC says these illegal promotions "harms investors, impedes capital formation and disrupts efficient pricing mechanisms."

    Paltrowitz wants to make clear, however, that the group wants to provide a marketplace for blockchain and cryptocurrencies — so long as they follow all applicable laws and regulations. He points specifically to the Grayscale Bitcoin Investment Trust, which trades on the group's top OTCQX market, as an example of a successful crypto company listing on the marketplace.

    He also said that the OTC marketplace provides an easier way for companies to access public markets, without the deluge of regulatory work national exchanges require.

    "Our market, as an ATS, can be a little bit more flexible, specifically to the needs of two very distinct types of companies: the first is the large 'Blue Chip' global names that are already listed on their national exchange and don't need or require duplicative reporting standards to the US," explained Paltrowitz. These include companies like Heineken and Adidas, both listed on OTC. 

    "The second would be the the small- and micro-cap companies where being on a National Exchange is incredibly expensive both from a dollar perspective and a time perspective," he said.

    But there are also companies who end up on OTC markets less-than-willingly.

    Take Long Blockchain, for instance. The company, known until late 2017 as the Long Island Iced Tea Company, saved itself from being delisted by Nasdaq with the trendy name change, but said in a regulatory filing last week that it is considering moving its listing to OTC as it struggles to keep its stock price above the minimum market cap for the Nasdaq exchange.

    Between 30 and 50 companies leave the national exchanges — both willingly and unwillingly — each year in favor of OTC markets, Paltrowitz said, most of which end up on the group's pink market, "which is not one of our premium markets."

    It's not clear where Long Blockchain will end up if it does move its listing — neither the company nor OTC Markets could comment on any ongoing proceedings. But Paltrowitz remains optimistic for new companies on OTC going forward.

    "IPOs and new companies coming to market have been strong going back to 2015 and last year was one of our best years ever" Paltrowitz said. "I think that this year that momentum continues."

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