Steve Crane desperately wants to lift his company's stock above the miserably low price of 2 cents a share.

The way the chief executive of CorpHQ sees it, raising his firm's stock price is his best chance of attracting investors, analysts and much-needed capital from Wall Street.

The problem is, how?

The Redondo Beach firm has languished, along with some 4,800 other small, micro-cap firms on the Pink Sheets LLC, an unregulated electronic quotation system that has long been considered the Wild West of public companies.

With a reputation for fraud, shell corporations, and "pump and dump" stock schemes, the Pink Sheets is about as far from the Old Boys Club of the New York Stock Exchange as a company can get and still be considered "public."

"It's one of the great frustrations of being a small company and being traded on the Pink Sheets," Crane said. "We see the Pink Sheets as a stepping stone, as though we're playing in the Minor Leagues, but we don't get the best exposure."

But that may be changing fast.

On the heels of NYSE's initial public offering last week, the Pinks, a privately-owned company based in New York, has come up with its own proposal to beef up its business, which lists 500 California firms.

Next month, it will offer issuers a new service, called OTCQX, that will give stronger companies a chance to stand out from the pack by filing audited financial statements voluntarily just the kind of mechanism that could help executives like Crane get legitimacy and visibility for their companies.

The result could be a bifurcated trading system with a top tier of micro-cap firms aimed at attracting a wider pool of investors, including institutions.

"What we're trying to do is increase the quality and quantity of OTC issuers, and create a premium tier of power sellers," said R. Cromwell Coulson, the Pink Sheet's chief executive and a former Wall Street trader.

Coulson, who bought the Pink Sheets in 1997 with a group of investors, said he wants to separate "real companies from the dreck and schlock."

More affordable
The Pink Sheets derives its name from an earlier quotation system that was printed on pink paper and distributed to over-the-counter traders on Wall Street. It transformed to a Web-based quotation system in 1999 under the new ownership.

Its latest service isn't up-and-running yet, but already 700 firms have expressed interest in filing financial reports, material event disclosures and an opinion letter from a designated advisor.

There are nearly 8,000 companies listed on the Pink Sheets, but 3,100 of them are over-the-counter bulletin board stocks that fully report financials to the Securities and Exchange Commission. Those stocks are dually listed on Pink Sheets and the OTC Bulletin Board, another electronic quotation service operated by the Nasdaq exchange that requires regular SEC filings as a criterion for being listed.

The cost for small companies for the Pink Sheet's new service isn't prohibitive: $5,000 a year, plus $900 a month in fees. In exchange, Pink Sheets will offer issuers a choice between two tiers of service to better market their securities.

Companies in the highest tier, PremierQX, must maintain a listing price higher than $1 a share, hold annual meetings, and file audited financial statements as if they were qualifying for a national exchange. The lower tier service is similar but does not require a stock price above $1 a share.

"The fact is that institutional money is reluctant to invest in companies who are not regularly reporting," said Lance Kimmel, a veteran securities attorney who specializes in smaller public companies. "If you give investors quality disclosure, they will take on a little more risk."

Still, the Pink Sheets are a haven for many companies. They include big names such as bankrupt Delta Air Lines, Adelphia Communications Corp. and commodities broker Refco Inc.

It also includes the American depository receipts of companies such as Nestle SA, French banking giant BNP Paribas and German beer company Heineken N.V.

And the Pinks are far from the only quotation service with lower reporting requirements.

A handful of growing U.S. firms have said they will move to the London Stock Exchange's AIM market, an over-the-counter quotation service that started in 1995 to avoid the cost of compliance. AIM has attracted venture capital-backed firms that want the benefits of liquidity without the strict regulations of large companies.

Indeed, there appears to be greater interest in the quotation service since the enactment of Sarbanes-Oxley requirements, the corporate-fraud law passed in 2002 after the Enron scandal. To comply, companies have to hire both internal and external auditors to ensure the accuracy of their financial statements; many companies claim the law is a burden.

Currently, the SEC is considering whether to apply the stiffer Sarbanes-Oxley requirements to smaller companies, and is expected to issue new regulations. Some are pushing for a scenario in which small companies would be exempt from the regulations, and could then self-regulate by voluntarily reporting their financials on the Pink Sheets.

"One of the fundamental ways to eliminate the perception of fraud is to draw bright lines between fully-compliant companies and everyone else," said James "Drew" Connolly III, executive director of the CEO Council and a member of the SEC's Advisory Committee on Smaller Public Companies. "We're looking for more clarity and transparency."

Reverse mergers
One of the most vocal opponents of exemptions for small firms is former SEC chairman Arthur Levitt. He has warned that it would be a "terrible mistake" to exempt 80 percent of companies from the external audit requirements of Sarbanes-Oxley, even if they are costly.

Alain Delongchamp, chief executive of Clearant Inc., a Los Angeles biotech firm that trades on the OTC Bulletin Board and is listed on the Pink Sheets, said he can live with the regulations. "The filing of all this information is absolutely critical to demonstrate credibility with investors," he said.

Kimmel and a handful of securities lawyers disagree.

"A one-size-fits-all approach doesn't work," Kimmel said.

A big problem is that many Pink Sheet and Bulletin Board stocks have no analyst coverage. Some end up the subject of speculation on Internet chat rooms or blast press releases aimed at penny stock investors.

Much of those problems arise from the fact that many go public not through an initial public offering but by self-underwriting through a reverse merger, in which they buy into a shell corporation that is already public traded.

There is a simple reason for this approach it's much cheaper.

The cost of a buying a shell company on the OTC Bulletin Board is roughly $600,000, while a Pink Sheet shell can go for roughly $150,000, said Nimish Patel, a partner at Richardson & Patel, in Los Angeles.

"There are some companies who say it just doesn't make sense because of Sarbanes-Oxley and higher fees to go to a higher exchange, so they end up going to the Pink Sheets and hibernating for a while," he said.

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