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Companies

Nasdaq eyes rule changes after loophole let company prematurely list itself, resulting in 3,750% price surge

February 13, 2019, 12:59PM EDT

A loophole in Nasdaq’s stock listing rules allowed a small software firm to go public despite lacking the requisite amount of shares required by the exchange, Wall Street Journal reports. Nasdaq requires companies to have own at least a million publicly held shares to go public; however, the number may include shares restricted from trading. Phunware Inc merged with a blank-check company already listed on Nasdaq and made only 144,000 shares available on Nasdaq. The result? A 3,750 per cent rise in its share price in a mere six trading days.

“If you have a supply-demand imbalance because all the other shares are locked up for six months and the warrants are un-exercisable, you can see these kinds of things happen,” said Alan Knitowski, Phunware Chief Executive.

Following the controversy, Nasdaq’s spokesman Joe Christinat has announced a proposed update to the exchange’s rules which would prevent restricted shares from counting into the number of held shares which qualify firms for a listing. Once approved by the SEC, the change would close the loophole Phunware had used.

Meanwhile, Phunware’s plans are rooted in cryptocurrencies—the company wants to launch its own token dedicated to social media. The currency would be used to compensate users who share their personal information with online marketers.