Hustles From a Shell

Given that it can be difficult for these shell companies to consummate a merger, an early investor in a blank check could be holding dead money for a long time. Moreover, since blank checks trade on the OTC Bulletin Board, where markets in stocks are illiquid, it can be difficult for an investor to unload shares. Some of the small investment banks that underwrite blank-check offerings don't even make a market in the stocks they bring public.

The recent trading in Ardent Acquisition Corp.(AACQ), which raised $36 million in a March IPO, is typical of the uneven and sporadic trading in blank shells. In the first two weeks of trading, as many as 163,000 shares changed hands on a given day. But since then, there have been a number of days in which zero shares were traded in the stock.

On Tuesday, the stock opened at $4.95. In the IPO, the company sold a combination of 6 million shares and warrants to buy two additional shares for $6 apiece.

It's safe to say that the only investors likely to make out well in a blank-check offering are the insiders who put the deal together. Since the company has no operations, the founders don't have to invest a lot of their money as seed capital. And the sliver of money they do pony up often buys a bushel of stock at a deeply discounted price.

A few months before Fortress America filed its registration statement, the company sold 1.2 million shares to McMillen and other insiders at the bargain basement price of less then 2 cents a share. The company, meanwhile, hopes to price its stock at $6 a share.

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