Investing

Before the Bell: SEC, New York Takes Aim at Crypto Exchange Paxos; Little Biotech Merger Punches Above Its Weight

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Premarket action on Monday had the three major U.S. indexes trading mixed. The Dow Jones industrials were down 0.05%, while the S&P 500 was up 0.12% and the Nasdaq 0.42% higher.

Eight of 11 market sectors closed higher Friday, with energy (3.92%) and utilities (2.00%) posting the day’s best gains. Consumer cyclicals (−1.22%) and communications services (−0.89%) gave up the most. The Dow closed up 0.5%, the S&P 500 up 0.22% and the Nasdaq down 0.61%. Two-year Treasuries added 2=two basis points to close at 4.5%, and 10-year notes rose by seven basis points to close at 3.74%. Oil gained 2.1% and traded down by about 1.3% early Monday at $78.64.

Friday’s trading volume was below the five-day average. New York Stock Exchange winners led losers by 1,611 to 1,460, while Nasdaq decliners led advancers by about 5 to 4.

This week’s most closely watched economic data release comes before markets open on Tuesday. The consumer price index (CPI) is expected to increase by 0.5% month over month for January, compared to a December-to-January decline of 0.1%. Core CPI, which excludes food and energy prices, is expected to rise by 0.3% month over month, equal to its gain in January. The more important number is the CPI 12-month all-item index. Last month, the Bureau of Labor Statistics reported a 12-month increase of 6.5% for December, down from a 7.1% increase in the 12 months to November. At its peak in July, the 12-month inflation rate reached 8.5%.

On Wednesday, the Bureau of Labor Statistics reports retail sales for January. Economists expect an uptick of 2%, stopping the two-month run of declines. Housing starts and the producer price index (PPI) are due Thursday.

Among S&P 500 stocks, DexCom Inc. (NASDAQ: DXCM) added 9.93% Friday, after beating earnings and revenue estimates. The company makes continuous glucose monitoring devices and, though it pays no dividend, Dexcom has posted a total return to shareholders of 6.6% over the past 12 months and nearly 100% over the past three years. News Corp. (NASDAQ: NWS) dropped by 9.78% after reporting profits and revenue that fell below expectations. The Murdoch-controlled firm also said it will cut its workforce by 5% (approximately 1,250 jobs).

The Wall Street Journal (WSJ) reported Sunday that the U.S. Securities and Exchange Commission has issued a Wells notice to stablecoin issuer Paxos. The SEC did not comment on the report, which the WSJ attributed to people familiar with the matter.

A Wells notice is an official communication from the SEC informing a company that the agency is considering an enforcement action against it. In this case, the SEC reportedly alleges that the Binance stablecoin, BUSD, that Paxos issues and lists on its itBit exchange, is an unregistered security. BUSD tokens issued by Paxos are backed on a one-to-one basis with U.S. dollar deposits, according to the company, which links to this list of U.S. Treasury bills and debt as proof.

Early Monday morning, Paxos announced that it will end its relationship with Binance. According to the announcement, Paxos will cease issuing new BUSD tokens on February 21 “as directed by” the New York Department of Financial Services. Paxos customers who own BUSD will be able “to redeem their funds in US dollars or convert their BUSD tokens to Pax Dollar (USDP),” a registered stablecoin issued by the company.

We ordinarily do not cover penny stocks, but here is an exception. Shares of Philadelphia-based Vallon Pharmaceuticals Inc. (NASDAQ: VLON) jumped by 72.6% on Friday to close at $0.4625 and traded up another 33.2% at around $0.60 in Monday’s premarket. That is double its opening price on Friday.

The company has filed a preliminary prospectus on SEC Form S-4 spelling out the details of a merger with privately held GRI Biotechnology that was announced in December. Under the terms of the reverse merger, in which GRI Bio will be the surviving company. Vallon will effect a reverse split of the stock in a range that has not yet been set just prior to the merger. The common stock of GRI Bio will be converted into warrants for the newly split Vallon shares. Then it gets complicated.

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