“Shorting Against the Box”by InsidersA big loophole insiders of an OTC company can drive a truck through. Any OTC company does not require to register or report to SEC under the Exchange Act.
Shorting the stock they owned to lock in profits obviating insider reporting requirements. Short Sales
In general, Section 16(c) of the Exchange Act makes it unlawful for an insider to make “short sales” or “sales against the box” when the securities sold are not delivered within the time periods set forth in Section 16(c). A “short sale” is any sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by, or for the account of, the seller. A “sale against the box” is the type of short sale in which the seller actually owns sufficient shares to make delivery but chooses to borrow shares to cover the sale. The seller subsequently can either buy securities or use his own securities to repay the lender to complete the transaction.