Bermuda-based Lines Overseas Management Ltd. will curtail client activity in the US bulletin board and pink sheet over-the-counter markets at the end of this month due to regulatory scrutiny and resulting negative publicity.

LOM said the decision will have an “adverse financial impact” on the company, but the change will enable other successful areas of its business to “flourish untarnished by the negative publicity trading in the over the counter market has attracted.”

LOM recently claimed to have spent US$2.75 million over the last two years on legal fees associated with US Securities and Exchange Commission investigations into alleged securities fraud involving bulletin board listed SHEP Technologies Inc., HiEnergy Technologies Inc. and Sedona Software Solutions Inc. The SEC is still engaged in a court battle with LOM and its managing director in this probe as it tries to force them to comply with four subpoenas for information.

LOM said in a Press statement yesterday that it the “increasing scrutiny and negative publicity” came particularly from the US OTC Bulletin Board market which trades the most junior US securities and involves micro cap stocks.

The company said that the OTC BB is “fraught with risks and has become very difficult from a risk management perspective.”

“The market is regulated in such a way that LOM, as agent in a transaction, is at risk from any wrongdoing or alleged wrongdoing by our customers, despite having met all the relevant regulations required of us in our jurisdictions,” the company said. “LOM recognises the need for change to ensure customers do not breach enormously complex regulations, which have become increasingly tough and excessively risky.”

On June 30, the brokerage subsidiaries of the LOM Group will restrict dealing in the US OTC Bulletin Board market and will only make exception in the case where the client is well known to the group and where the OTC portion of their transactions form only a small percentage of the whole portfolio. Even then there will be restrictions on the manner in which such transactions are executed.

As a general rule, customers will no longer be able to deliver OTC securities into their accounts at LOM, nor will they be able to deliver securities to any third party account internally or externally.

The company said that customers who hold OTC securities at LOM may sell those securities or alternatively “deliver them out to the organisation from which they were received in the same manner as such securities were delivered to us”.

The rest of LOM's business will continue as usual.

“LOM regrets withdrawing from any market and we will suffer an adverse financial impact as a result. However, we recognise that although we have been fighting regulatory battles on principle, it is a war that is being lost at significant cost to us - both from a financial and reputational perspective; and we respect this reality. We're rolling up our sleeves and working hard to get LOM firmly back on target,” the company said in its statement.