As the coronavirus pandemic rages on, forcing Americans to work from home on an unprecedented scale, there has been increased interest in teleworking technology, specifically videoconferencing software. As COVID-19 hammers the stock market, there is one company—and one stock—that everyone is talking about: Zoom Video Communications. Founded in 2011 by Eric Yuan, Zoom has become a market leader in the telecommunications space, but confusion over its stock ticker has led the Securities and Exchange Commission (SEC) to take action. Zoom Video Communications trades on the New York Stock Exchange (NYSE) as ZM, but Zoom Technologies, an unrelated Chinese company, has been trading as ZOOM. Now the SEC has suspended the trading of ZOOM, concerned that investors are confusing this obscure Chinese company for the American teleconferencing company that everyone’s talking about.
The Securities and Exchange Commission has halted trading of Zoom Technologies (ZOOM) until April 9, reports the New York Post. Zoom Technologies, a Beijing-based mobile telecommunications firm, is valued at $31.3 million. This pales in comparison to the market value of Zoom Video, which is valued at more than $39 billion—and which is expected to go up as more businesses and individuals worldwide turn to videoconferencing for their communication needs in the strange era of social distancing.
Over the past month, the Nasdaq has sunk more than 17%, but Zoom Video’s shares have surged nearly 29%. In the scramble to hold onto a strong piece of an otherwise-sinking economy, some investors have confused Zoom Video’s stock ticker with that of Zoom Technologies. This is not the first time that this confusion has occurred; when Zoom Video (ZM) went public last April, some investors bought shares of Zoom Technologies (ZOOM).
Why did the SEC decide to step in? This case of mistaken identity hurts more than individual investors. It is particularly problematic because Zoom Technologies has not filed any public disclosures since 2015, raising questions about the accuracy of public information surrounding the Chinese startup. In its litigation release dated March 25, 2020, the SEC announced that it had “temporarily suspended trading in the securities of ZOOM because of concerns about the adequacy and accuracy of publicly available information concerning ZOOM, including its financial condition and its operations, if any, in light of the absence of any public disclosure by the company since 2015; and concerns about investors confusing this issuer with a similarly named NASDAQ-listed issuer, providing communications services, which has seen a rise in share price during the ongoing COVID-19 pandemic.”
Before this suspension, Zoom Technologies was traded on the OTC Markets under the stock ticker ZOOM. Its share price spiked on March 20, 2020, coming in at $20.90, as opposed to just $2.70 back on January 13, 2020. Also on March 20, 2020, the price of Zoom Video (ticker: ZM) was $130.55. The share price of Zoom Video was only six times more than that of Zoom Technologies, even though Zoom Video is worth 1,000 times more than Zoom Technologies. Clearly, investors were confused.
Given that Zoom Technologies is traded on the OTC Market, it is worth explaining how the OTC Markets differ from mainstream stock exchanges, such as the NYSE. OTC equities are typically small startups and international companies that cannot put up the capital needed to join the NYSE. Investing in OTC equities can allow investors to “get in on the ground floor” and invest in a new venture that could prove to be profitable—but investing in OTC equities can also carry significant risk. As stated earlier, the SEC is unsure of the financial status of Zoom Technologies because the company has not filed a public disclosure since 2015. For more information on OTC equities, see our blog post “OTC Equity Securities: Understanding the Risk.”
In the midst of a crisis, it can seem like confusion reigns. Once again showcasing its commitment to investor protection, the SEC took an important step towards combating confusion by suspending the trading of Zoom Technologies, not to be confused with Zoom Video. If your broker bought shares of “the wrong Zoom,” don’t hesitate to contact a securities attorney for your free case consultation. Call the securities attorneys of Fitapelli Kurta at (877) 238-4175 or email firstname.lastname@example.org.