OTC Markets Increases Disclosure Requirements for OTC Pink Issuers
On January 3, 2013, the OTC Markets revised its disclosure requirements for issuers quoted with an OTC Markets “OTC Pink Current” tier. These revisions increase current events disclosures for a laundry list of corporate events but reduce the obligations of issuers to provide quarterly legal opinion letters from their securities lawyers.
The OTC Markets Group operates an electronic inter-dealer quotation system for broker-dealers to trade securities not listed on a national securities exchange such as NASDQ, NYSE or AMEX. The OTC Markets Group categorizes issuers into tiers depending upon the amount of disclosure provided.
The “OTC Pink Current” is available to issuers who do not file reports with the Securities and Exchange Commission (“SEC”), but voluntarily provide specific disclosures required by the OTC Markets.
Issuers provide these disclosures to the public through the OTC Markets Website located at www.otcmarkets.com.
The OTC Markets established specific disclosure requirements for the Pink Sheet Current tier and requires that issuers use forms designated by the OTC Markets to provide much of the required disclosure.
As discussed below, the January 3, 2013 revisions modify the OTC Markets requirements pertaining to attorney opinion letters, as well as the reporting of material corporate events. The guidelines eliminate the requirement for issuers’ securities lawyers to provide the OTC Markets attorney opinion letter for quarterly periods.
Despite what some securities lawyers are reporting, the OTC Markets revised requirements for the OTC Markets Pink Current tier do not decrease the level of disclosure that issuers must provide.
In fact, on January 3, 2013, the OTC Markets significantly increased its disclosure requirements for the OTC Markets Pink Sheet Current disclosure tier because of the absolute requirement that issuers report a laundry list of corporate events within four days of their occurrence. This requirement is similar to the requirements imposed on SEC reporting issuers to report material events on Form 8-K.
OTCPink Current Reporting
Issuers quoted with the OTC Markets Pink Current tier, that the issuer must file an annual disclosure statement, which include unaudited financial statements for the most recent two fiscal years and quarterly reports for the interim periods. The January 3, 2013 revised OTC Pink Current requirements are set forth below.
● Issuers quoted with an OTC Pink Current tier must give notice of material corporate changes within four days of the occurrence of the event, a significant change from the prior ten day period.
● Issuers providing financial statements audited by an accounting firm registered with the Public Company Accounting Oversight Board (“PCAOB”) are not required to provide an attorney opinion letter.
● Issuers not providing audited financial statements must file an attorney opinion letter from its securities lawyer for its annual report.
The OTC Markets Pink Laundry List
Under OTC Markets Disclosure Guidelines, corporate events that must be reported include:
● Entry or termination of a material definitive agreement (this includes agreements involving convertible securities);
● Completion of acquisition or disposition of assets including, but not limited to transactions involving reverse mergers;
● Creation of a direct financial obligation or an obligation under an off-balance sheet arrangement of an issuer;
● Triggering events that accelerate or increase a direct financial obligation or an obligation under an off-balance sheet arrangement;
● Costs associated with exit or disposal activities;
● Material Impairments;
● Sales of equity securities;
● Material modification to rights of security holders;
● Changes in issuer’s certifying accountant;
● Non-reliance on previously issued financial statements or a related audit report or completed interim review;
● Changes in control of issuer;
● Departure of directors or principal officers; election of directors or appointment of principal officers;
● Amendments to the issuer’s articles of incorporation or bylaws;
● Changes in the issuer’s fiscal year end;
● Amendments to the issuer’s code of ethics, or waiver of a provision of the foregoing; and
● Other events the issuer considers to be of importance.
The Impact on OTC Markets Pink Current Issuers
This elimination of the requirement that issuers provide an attorney opinion letter from its securities lawyer for each quarterly period will reduce compliance costs for issuers seeking the OTC Markets OTC Pink Current tier.
The elimination of the obligation to provide an attorney opinion letter for issuers providing audited financial statements will likely have minimal impact for issuers seeking the OTC Pink Current tier. For a small number of issuers obtaining audits from PCAOB firms, this revision will have little impact on the investing public. As demonstrated by the string of recent SEC enforcement cases involving penny stock lawyers, many fail miserably in their role as the gatekeepers for OTC Markets disclosures. These recent cases demonstrate that many penny stock and/or securities lawyers not only fail to comply with the securities laws when rendering their services, but they also fail to comply with the OTC Markets Disclosure Guidelines and state bar rules when rendering opinions. Recent cases reveal securities lawyers rendering baseless legal opinions, engaging in forgery and lying about meeting with management of the issuer, as well as other matters.
OTC Markets disclosures should not be taken lightly because both civil and criminal penalties may be imposed for violations of the securities law disclosure requirements. On its website, the OTCMarkets cautions and reminds issuers and shareholders about the duties when providing information to the public. “Federal securities laws, such as Rules 10b-5 and 15c2-11 of the Securities Exchange Act of 1934 (“Exchange Act”) as well as Rule 144 of the Securities Act of 1933 (“Securities Act”), and state Blue Sky laws, require issuers to provide adequate current information to the public markets… Persons with knowledge of such events would be considered to be in possession of material nonpublic information and may not buy or sell the issuer’s securities until or unless such information is made public.”
Any issuer quoted on the OTC Markets should consult with qualified legal counsel concerning the disclosures required by federal and state securities laws and proceed with caution before engaging securities counsel who has been the subject of or associated with issuers subject to SEC enforcement proceedings.
More information about SEC Enforcement proceedings can be viewed at:
http://www.sec.gov/litigation/litreleases.shtml
http://www.sec.gov/litigation/admin.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
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com
