The SEC Issues Trading Suspension of Southridge Enterprises
On Dec 28, 2012, the Securities and Exchange Commission (“SEC”) announced a trading suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of the securities of Southridge Enterprises, Inc. (SRGE), a Nevada corporation (“Southridge”).
The SEC’s Order of Suspension of informs the public that, “It appears … that there is a lack of current and accurate information concerning the securities of Southridge because of questions regarding the accuracy of statements made by Southridge.
These statements were allegedly made in press releases about the company’s business operations, purported joint partnership and funding arrangements and to change the listing venue for Southridge stock.
At the time of the trading suspension, Southridge was quoted on OTCMarkets on the Pink Sheets Current Information tier, which is to say that it was a non-SEC filer that voluntarily submitted unaudited quarterly and annual reports to OTCMarkets. The most recent attorney opinion posted on the OTCMarkets website for Southridge is dated October 26, 2012, and provides that Southridge had provided “adequate current public information.”
In its release announcing the Southridge trading suspension, the SEC cautioned broker-dealers, shareholders, and prospective investors to carefully consider the suspension along with all other currently available information and any information subsequently issued by the issuer.
About SEC Trading Suspensions
SEC trading suspensions should not be confused with exchange trading halts. Suspensions are a far more serious matter than halts. They are invoked for two chief reasons: because the SEC suspects wrongdoing on the part of the company, or because the company is seriously delinquent with required financial reports. Suspensions for delinquency are far more common than suspensions for suspected fraud.
Section 12(k) allows the SEC to suspend trading in a public company’s securities when it believes it is required to protect investors and the public interest. Prior to initiating an SEC trading suspension, the SEC investigates certain factors and circumstances surrounding the issuer and its securities. The SEC does not, however, warn the company or investors of the impending action; it is announced just before the opening bell. In many instances, an SEC trading suspension results in a subsequent enforcement action.
Factors that frequently lead to an SEC trading suspension include:
♦ A lack of current, accurate, or adequate information about an issuer;
♦ Questions about the accuracy of publicly available information about an issuer disseminated in press releases and reports, questions about the issuer’s current operational status, financial condition, or business transactions; and
♦ Questions about trading in a security, including trading by insiders; potential market manipulation; and the ability to clear and settle transactions in the stock.
Compliance with Rule 15c2-11 After an SEC Trading Suspension
Suspensions last for ten trading days; contrary to what some investors invariably hope, they are never shortened. After four days without any quotation activity, the stock will be demoted to the Grey Market.
Pursuant to Rule 15c2-11 under the 1934 Act, upon the termination of the SEC trading suspension, no broker or dealer may enter a quotation for an issuer’s common shares unless and until they have strictly complied with all of the provisions of the rule. If any broker or dealer is uncertain as to what is required, he should refrain from entering quotations relating to an issuer’s securities until such time as he is certain that all provisions of 15c2-11 have been complied with. If a broker or dealer enters a quotation in violation of 15c2-11, the SEC may determine enforcement action against the broker is warranted.
The day a stock resumes trading on the Grey Market, it typically loses 60-80% of its value. On the Greys, no market makers are permitted to make a market, through they may facilitate trades. Investors can see trades as they occur, but can only hope that whatever offer they may make will be accepted; no one is obliged to fill orders. Generally speaking, action is initially volatile, with large price swings, but as weeks pass, stock price subsides and volume dries up.
Issuers whose stocks have been suspended and dumped to the Greys often declare their intention to return to the Pinks by finding a sponsoring market maker willing to submit a Form 211 to FINRA. Good luck to them. With a suspension comes the presumption that an SEC investigation continues; in those circumstances, not market maker is likely to assume the liability associated with the submission of a 211. There’s a faint possibility that one day the issuer will secure a no-action letter–an assurance that no further action will be taken–from the SEC, but those are very rare. Chances are the stock will languish on the Greys forever. If it eventually ceases trading altogether, after a few years FINRA will delete it as an “inactive issue.”
In nearly all cases, trading suspension are a death sentence for a stock. The SEC is well aware of that, and does not suspend lightly. Issuers should do everything possible to avoid a suspension, and investors should be aware of red flags suggesting that it could happen to “their” stock.
A list of companies with SEC trading suspensions can be found at:
http://www.sec.gov/litigation/suspensions.shtml
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
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www.SecuritiesLawyer101.com
