OTC Markets Public Companies Charged With Failing to Comply With Form 10-Q Requirements

The Securities and Exchange Commission announced charges against five public companies for failing to provide financial statements that were reviewed by their independent external auditor when they filed quarterly reports with the Commission on Form 10-Q.

Regulation S-X provides that interim financial statements must be subject to a review conducted by an independent external auditor prior to the statements being included in quarterly reports filed with the Commission.  This requirement helps to ensure that investors are provided timely, accurate, and reliable interim financial information on a periodic basis.

According to the SEC’s orders, each of the five companies filed one or more Forms 10-Q with interim financial statements where a review was not conducted prior to filing, as required by Regulation S-X.  These actions are the Commission’s first enforcement proceedings against an issuer for violating the Regulation S-X interim review requirement and resulted from a review of filings, staff comment letters and other metrics that indicated potential violations.  Each company agreed to settle the SEC’s charges, and the agency assessed a total of $250,000 in penalties.

“The Commission’s reporting rules are designed to help ensure that investors are provided timely access to reliable interim financial information about public companies in quarterly reports,” said Anita B. Bandy, an Associate Director in the SEC’s Enforcement Division. “Our data-driven investigative techniques led us to identify these companies, who had deprived investors of the benefit of the external auditor’s involvement by including financial statements in Forms 10-Q that had not been reviewed in accordance with Regulation S-X.”

The SEC’s orders find that the companies violated their reporting obligations under the Securities Exchange Act of 1934 by failing to comply with Regulation S-X.  Without admitting or denying the findings, the five companies agreed to a cease and desist order that made the following findings and requires payment of the following penalties:

• Cardiff Lexington Corporation – Filed one Form 10-Q with unreviewed financial statements.  The Florida-based company agreed to pay a penalty of $25,000.
• Cool Technologies Inc. – Filed three Forms 10-Q with unreviewed financial statements.  The Florida-based company agreed to pay a penalty of $75,000.
• Dasan Zhone Solutions Inc. – Filed two Forms 10-Q with unreviewed financial statements.  The California-based company agreed to pay a penalty of $50,000.
• First Hartford Corporation – Filed two Forms 10-Q with unreviewed financial statements.  The Connecticut-based company agreed to pay a penalty of $50,000.
• Infrax Systems Inc. – Filed two Forms 10-Q with unreviewed financial statements.  The Florida-based company agreed to pay a penalty of $50,000.

The SEC’s investigation, which is continuing, has been conducted by Kendra Kinnaird and Kristin Dieter and supervised by Fuad Rana.  The SEC appreciates the assistance of the Public Company Accounting Oversight Board.

https://www.sec.gov/news/press-release/2018-207

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 and compliance 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 Law Group, P.A provides ongoing corporate and securities counsel to private companies and public companies listed and publicly traded on the Frankfurt Stock Exchange, London Stock Exchange, NASDAQ Stock Market, the NYSE MKT and OTC Markets. For two decades the Firm has served private and public companies and other market participants in corporate law matters, securities law and going public matters. The firm’s practice areas include, but are not limited to, forensic law and investigations, SEC investigations and SEC defense, corporate law matters, compliance with the Securities Act of 1933 securities offer and sale and registration statement requirements, including Regulation A/ Regulation A+ , private placement offerings under Regulation D including Rule 504 and Rule 506 and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, Form F-1, Form S-8 and Form S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including Form 8-A and Form 10 registration statements, reporting on Forms 10-Q, Form 10-K and Form 8-K, Form 6-K and SEC Schedule 14CInformation and SEC Schedule 14A Proxy Statements; Regulation A / Regulation A+ offerings; all forms of going public transactions; mergers and acquisitions; applications to and compliance with the corporate governance requirements of national securities exchanges including NASDAQ and NYSE MKT and foreign listings; crowdfunding; corporate; and general contract and business transactions. The firm provides preparation of corporate documents and other transaction documents such as share purchase and exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The firm prepares the necessary documentation and assists in completing the requirements of federal and state securities laws such as FINRA and DTC for Rule 15c2-11 / Form 211 trading applications, corporate name changes, reverse and forward splits, changes of domicile and other transactions. The firm represents clients in London, Dubai, India, Germany, India, France, Israel, Canada and throughout the U.S.