Eager to Unwind That AremisSoft Position? Don't Hold Your Breath

Unloading your AremisSoft (AREM) stock is sort of like doing synchronized diving off the Golden Gate Bridge.

Fleeing AremisSoft

In the Clear? Don't Exhale Yet -- Your Funds May Own AremisSoft

In theory, anyone can do it. The trick is finding a willing partner.

That's the quandary facing shareholders in the bullish-on-Bulgaria software company for which the Nasdaq issued a trading halt on July 30. Legally, it appears that shareholders who want to sell their stock (or speculators who want to buy it) are able to effect a transaction with a willing third party. The problem is that regulatory and practical considerations make it hard for common shareholders to find someone with whom to do the deal. And there's no way of knowing when the trading halt will be lifted, or where the stock might trade when it does resume. (Note: You can exercise options in AremisSoft without finding a counterparty -- that's the beauty of the options world.)

AremisSoft, which last changed hands at $11.19 late last month, announced July 31 that its chief executive and chief financial officer had resigned, and admitted that the Securities and Exchange Commission was investigating, among other things, a Bulgarian software contract on its books. The company has denied there is anything untoward about the software contract. It has also sued TheStreet.com and other parties, alleging a conspiracy to drive down its stock price. The defendants have denied the allegations.

"There is no federal law preventing a willing buyer from buying or a willing seller from selling securities in the vacuum of an organized trading market," says Michael L. Zuppone, a securities lawyer and partner with the firm Paul Hastings Janofsky & Walker. Zuppone says he's not aware of any state laws preventing such a transaction, either.

Zuppone says he believes such transactions have taken place during trading halts, though he is not personally aware of any. "Knowing how Wall Street works," he says, "generally at the right price, there's a willing seller and a willing buyer."

Silence Is Deafening AremisSoft shares halted since July

Finding that buyer or seller, though, is harder than you might think. One trader with four decades of experience on Wall Street says he's never heard of such a transaction taking place during a trading halt.

"If it's held by the Nasdaq, it's held," says the trader, speaking on condition of anonymity. "You can't do any transaction one way or another."

Actually, there is one set of transactions that is still possible: The exercise of options already held by investors before the trading halt began. Although the trading of AremisSoft options has been suspended, the Options Clearing Corporation issued a note Thursday reminding members that it is still possible to exercise unexpired AremisSoft put and call options.

In addition, it doesn't appear you can get a bid or ask quotation from the pink sheets, in which shares in companies delisted by exchanges commonly show up. An employee of the firm says that broker/dealers are blocked from listing stocks affected by trading halts.

These trading halts are relatively common, though the longer they drag on, the more investors begin to fear the worst. AremisSoft's trading halt was originally related, the Nasdaq said, to pending news; it was reclassified as "additional information requested," which apparently hasn't yet been supplied.

Aside from the legality question, trading a halted stock can involve substantial risk. Trading in the Belgian speech recognition software firm Lernout & Hauspie was halted last November after the company admitted errors and irregularities in its financial reports. The stock, trading above $6 at the time, never resumed trading on the Nasdaq and was formally delisted in May. It last changed hands at 20 cents in over-the-counter trading, according to the pink sheets.

But Zuppone says it's not the buying and selling of a halted stock that's problematic, but listing of the stock on an organized exchange. If the trader isn't trading halted stocks, that's because of company policy, not any legal prohibition. Furthermore, the pink sheets policy doesn't forbid one broker from calling another to buy or sell a stock, he says. "Or one investor from calling another investor, for that matter," he adds.

In fact, it appears that brokers don't have as free a hand as investors do. A Nasdaq spokesman says that members of the National Association of Securities Dealers -- that is, the U.S. securities industry's self-regulatory organization -- may not participate in the trade of any Nasdaq-suspended stock in any manner, whether it is on the Nasdaq, a proprietary network or over the phone.

If you do manage to sell, you'll still be able to sue, says Samuel Rudman, a partner at Milberg Weiss Bershad Hynes & Lerach, one of the many law firms that have filed lawsuits against AremisSoft alleging misrepresentations by the company. "It's not going to impact your participation in a class action suit in any meaningful way," he says.

Or if you've been on the receiving end personally of what you feel are company misrepresentations, you might want to forward this information to the SEC, says Ron S. Geffner, a former SEC enforcement attorney now with Sadis & Goldberg. For example, he says, a former industrious client of his had regular one-on-one phone conversations with the chief financial officer and chief operating officer of a company that later got into trouble with the SEC. That client forwarded the information to the SEC. (To register a complaint, go to the complaint section of the SEC's Web site.)

But if you want to sell your shares, don't try listing them on eBay(EBAY). The auctioneer prohibits the sale of securities on its site.

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