PSE plan to list small-business offerings delayed.

It awaits SEC approval for offerings up to $1 million

Officials at the Pacific Stock Exchange Inc. had hoped next week to begin listing new stock offerings from very small companies, but the Securities and Exchange Commission still has not approved the plan.

Earlier this year, the stock exchange filed a request for SEC approval to begin listing up to $1 million in securities from small companies. The offerings are possible under a new state law.

"We'd expected to begin listing the securities by the end of December," said Dale A. Carlson, spokesman for the PSE. "These things always take longer than you'd like. It's frustrating. We're just waiting."

The Small Corporate Offering Registration, or SCOR, program approved by state lawmakers this year allows small companies to sell up to $1 million in securities during a 12-month period without filing the lengthy reporting documents usually associated with a public offering.

The program is designed to help small businesses tap into the equity markets and make it easier and cheaper for cash-starved entrepreneurs to raise money.

John Heine, a spokesman with the SEC in Washington, D.C., said the stock exchange's request is "pending," and added that he could not say when action would be taken. When asked if there were problems or questions regarding the PSE proposal, Heine said, "none that have been announced publicly."

Signed by Gov. Pete Wilson on Sept. 22, AB 3763 allows the state Department of Corporations to qualify small California companies to begin offering securities to the public without being listed on the New York, American or NASDAQ stock exchanges.

However, critics worry that unsophisticated investors may encounter new risks in such very small companies, possibly high-yield stocks. Others are concerned that the market could attract scam artists.

"We are working together with the Pacific Stock Exchange to see if a reasonable and appropriate listing can be developed for the SCOR securities," said William Kenefick, assistant commissioner in the state Department of Corporations in Sacramento. "Nobody wants to create a market that will abuse investors."

To avoid problems, under the law offerings are limited to common stock and must be sold with a minimum price of $5 per share. State officials hope this will prohibit scams associated with so-called "penny stocks," which are typically sold for less than $1 and over-the-counter by companies with a short or erratic revenue histories.

Under the law, to qualify for a state listing, a California company must meet various conditions, such as not being a blind pool or engaged in the oil or mining industries.

Under the program, small offerings are exempt from SEC registration. SCOR is available in at least 20 other states, and is also known as Uniform Limited Offering Registration, ULOR, and as U-7 securities.

The program allows small companies to make offerings directly to investors, which provides issuers with greater control over their stockholder base.

Lee Korins, PSE chairman, said in a release that the exchange hopes to provide a well-regulated secondary auction market for the SCOR securities.

"By listing these securities, we'll be offering a liquid, visible marketplace for companies that could otherwise only be quoted in the NASD's (National Association of Securities Dealers) 'Pink Sheets,'" said Korins. "This project is another step forward in our continuing effort to strengthen our role as a regional exchange."

However, the PSE's efforts have been stymied by the SEC's delay in approving the plan.

"We're waiting and intensifying our efforts," said Peter Bloom, director of the listing department with the stock exchange in San Francisco. "Basically, we badger them (the SEC) with phone calls, but we know they are relatively understaffed."

Before a final approval from the SEC, the proposal is subject to a 35-day public comment period, which has not yet occurred, Bloom said.

At least one source, who did not wish to be named, questioned whether a vibrant market could be created for SCOR securities, even if the PSE's plan receives SEC approval.

"It's uncertain whether any type of market could ever be created," because of the small size of the offerings, said the source, pointing out that in other states, such as Washington or Arizona, typical SCOR offerings range from $200,000 to $500,000.