Going Public Using a Form S-1 Registration Statement
Going Public Using a Form S-1- 2018
Private companies going public commonly use a registration statement (“Registration Statement”) on Form S-1 under the Securities Act of 1933, as amended (the “Securities Act”). When a Form S-1 Registration Statement is used, the company files it with the SEC, registering securities it plans to sell or securities held by its shareholders (“Selling Shareholders”).
SEC Comments on Form S-1 Registration Statements
Smaller reporting companies going public should anticipate SEC comments to the Registration Statement. The SEC reviews and often comments on the disclosures provided in the Registration Statement. Upon confirmation that the SEC is satisfied that the disclosures satisfy the disclosure requirements of the securities laws, it will declare the Registration Statement effective and the securities may be sold. Read More
OTCQB Listing, OTCQB Requirements, OTCQB Reporting
The OTC Markets created the OTCQB Venture Market early-stage and developing U.S. and international companies. To be eligible for quotation on the OTCQB Venture Market, companies must be current in their reporting obligations, have a minimum bid price of $0.01 for their shares, may not be in bankruptcy and must undergo an annual verification and management certification process. These standards are designated to provide transparency and improve the information and trading experience for investors.
The OTC Markets OTCQB Standards for quotation consist of certain regulations adopted by OTC Markets Group to prescribe the rights, privileges and obligations of companies with securities quoted on the OTCQB market. The OTCQB Standards outline for companies and investors the standards that a company must meet to be eligible to be traded on the OTCQB market and describe the initial and ongoing disclosure OTCQB companies must provide to the investing public. Read More
FINRA Enforcement of Non-Members and Penny Stock Issuers
FINRA & Penny Stocks
When the subject of penny stock enforcement actions arises, most people think first of the Securities and Exchange Commission (SEC), or erroneously, of OTC Markets Group (OTCM). The SEC has ultimate authority to deal with violations of the securities laws. It has jurisdiction of penny stocks that are SEC registrants that trade over-the-counter, and of non-registrant Pinks and Greys as well. It does not, however, subject non-registrants to any kind of reporting regime, and many abuses go unnoticed by it. It’s empowered to impose 10 day trading suspensions to protect potential investors from falling for blatant scams. Generally speaking, OTC issuers may be suspended for three reasons: suspected fraud, shell status that makes them vulnerable to corporate hijackers, and delinquent filings. Needless to say, only registrants can be suspended for delinquency; when they are, the regulator initiates a simultaneous action to revoke registration. When registration is revoked, the stock’s ticker is killed, and the company effectively becomes a private entity. If it wishes to trade again, it must file an initial registration statement to become a registrant once more, and in the future keep current with its required periodic filings.
If a company or its management has engaged in fraud that’s particularly outrageous, or that resulted in massive losses to investors, the SEC may litigate. Often the litigation follows a suspension, though by no means immediately. The agency will extend the investigation it made to warrant the suspension, and when it’s satisfied it can make a case, it will file a civil complaint in federal district court. The federal statute of limitations for fraud is five years; the regulator can, and often does, wait that long, or almost that long, to bring charges. The SEC is not a criminal prosecutor; it can only bring civil actions. But if a case is particularly serious, it may ask for assistance from the Department of Justice (DOJ). Often the DOJ and the SEC will file against the company in question and/or its management at the same time. The advantage of that approach is that the SEC, with its securities expertise, will conduct the investigation that ensures the DOJ can prove its charges beyond a reasonable doubt. Read More
Regulation A+ Testing the Waters – Regulation A Going Public Attorneys
Issuers utilizing Regulation A+ are permitted to test the waters with all potential investors and use solicitation materials both before and after the offering statement is filed, subject to issuer compliance with the rules on filing and disclaimers. Using Regulation A+, you can advertise everywhere you want, including all over social media in places where you think you’ll find potential investors. You can put together a formal ad campaign costing tens of thousands of dollars or just do it yourself. Of course, all you get are non-binding indications of interest so you can’t hold people to their indication of interest in investing in your company. However, it gives you the opportunity before spending hundreds of thousands of dollars on the actual filing itself, to see if there’s sufficient interest to spend the money to move forward with preparing and qualifying the offering. Read More
Regulation A+ Q&A
Regulation A+ expands existing Regulation A. Existing Regulation A provides an existing exemption from registration for smaller issuers of securities. Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction allowing the issuer to avoid the risks of reverse merger transactions. Regulation A+ simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority while allowing the issuer to raise initial capital. This blog post addresses the most common questions we receive about Regulation A+.
Can All Companies Use Regulation A+?
No. Regulation A+ offerings can only be conducted by companies that are domiciled in and have their principal place of business in the United States or Canada. As such, foreign issuers may not conduct Regulation A+ offerings and must locate an alternative exemption for their unregistered offering.
What Securities Can Be Registered on Form 1-A Under Regulation A+?
Regulation A+ is limited to shares, warrants and convertible equity securities.
How Much Can I Raise with Regulation A+?
Tier 1 of Regulation A+ is available for offerings of securities of up to $20 million in a 12- month period, with no more than $6 million in offers by selling security- holders that are affiliates of the issuer. Tier 2 is available, for offerings of securities of up to $50 million in a 12-month period, with no more than $15 million in offers by selling security-holders that are affiliates of the issuer. Read More
Investment Banker, Woojae “Steve” Jung, Chaerged in Insider Trading Scheme
According to the The Securities and Exchange Commission (“SEC”), Woojae “Steve” Jung, an investment banker at Goldman Sachs, used confidential client information to trade in the securities of 12 different companies prior to the announcement of market-changing events. He used his access to highly confidential information, to place illegitimate and highly profitable trades in advance of deal negotiations in which the bank was providing investment banking services. He placed illegal trades and generate profits of approximately $140,000.
On May 31, 2018, The SEC charged an employee of a well-known bank with frequently using his access to highly confidential information in order to place illegitimate and highly profitable trades in advance of deal negotiations in which the bank was providing investment banking services. Read More
Steven Pagartanis Charged for Defrauding Customers
On May 30, 2018, the Securities and Exchange Commission (“SEC”) charged a former Long Island registered representative with defrauding long-standing brokerage customers in an $8 million investment scam. According to the SEC, Steven Pagartanis, who was an associate with a broker-dealer in Long Island, NY, defrauded investor and retiree customers, that he would invest their funds in either a public or private land development company. The SEC’s complaint, charges Pagartanis with violating the anti-fraud provisions of the federal securities laws.
The SEC alleges, Steven Pagartanis, who was an associate with a registered broker-dealer in Long Island, NY, falsely told investor and retiree customers that he would invest their funds in either a public or private land development company. He assured that the funds would be safe and promised guaranteed monthly interest payments on the investments. Pagartanis’s directed his customers to write checks payable to an entity that Pagartanis secretly controlled. As a result, the customers invested approximately $8 million to Pagaratanis. Pagartanis used the funds to pay personal expenses and make the promised “interest” payments to his customers. To defraud customers, Pagartanis created fake account statements reflecting ownership interests in the land development companies. The scheme became public earlier this year when Pagartanis quit making the phony interest payments to customers. Read More
Form S-1 Filing Requirements, Filing Form S-1, S-1 Offering, S-1 …
Going public using Form S-1 or Form 1-A allows issuers to chose from a variety of offering structures. Private companies seeking to raise capital often file a registration statement on SEC Form S-1 or Form 1-A of Regulation in connection with their going public transaction. Once a Form S-1 is effective, the company becomes subject to the SEC reporting requirements. The most commonly used registration statement form is Form S-1.
All companies qualify to register securities on a Form S-1 registration statement. Private companies going public should be aware of the expansive disclosure required in registration statements filed with the SEC prior to making the decision to go public.
A Form S-1 registration statement on Form S-1 has two principal parts which require line item disclosures. Part I of the registration statement is the prospectus, which requires that the company provide certain disclosures about its business operations, financial condition, and management. Part II contains information that doesn’t have to be delivered to investors. Read More
Constellation Healthcare Technologies Executives Charged with Fraud
On May 16th, 2018, the Securities and Exchange Commission (“SEC”) charged three former executives for Constellation Healthcare Technologies Inc. (Constellation), a Houston- based company, who falsified financial and other information they provided to a private firm while negotiating the private firm’s acquisition of a majority stake in Constellation. A little more than a year after the January acquisition, Constellation filed for bankruptcy in March.
According to the SEC, the executives persuaded a private firm to acquire a majority of Constellation’s equity and provided fake information, including financial statements for three fictitious subsidiaries supposedly acquired for more than $62 million. The complaint alleges that the former executives funded the bogus acquisitions with stock sales in London and then pocketed the proceeds for themselves. The complaint charges former Constellation chief executive Parmjit (Paul) Parmar, former chief financial officer Sotirios (Sam) Zaharis, and former company secretary Ravi Chivukula. In September 2017, amid doubts about Constellation’s financial condition, Parmar resigned and Zaharis and Chivukula were put on administrative leave. Similarly, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Parmar, Zaharis, and Chivukula.
Chardan Capital Charged by SEC
On May 16, 2018, the Securities and Exchange Commission (“SEC”) charged Chardan Capital Markets LLC (Chardan Capital) and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), a New York City based brokerage firm, alleging the report of suspicious sales of 12.5 billions in penny stock shares.
According to the SEC, from October 2013 to June 2014, Chardan, an introducing broker, liquidated more than 12.5 billion penny stock shares for seven of its customers and ICBCFS cleared the transactions. Chardan failed to file any SARs even though the transactions raised red flags, including similar trading patterns and sales in issuers who lacked revenues and products. The SEC found that ICBCFS similarly failed to file any SARs for the transactions despite ultimately prohibiting trading in penny stocks by some of the seven customers. As noted in the complaint, guidance for preparing SARs from the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) clearly states that “[e]xplaining why the transaction is suspicious is critical.” To help detect potential securities law and anti-money laundering practices, broker-dealers are required to file Suspicious Activity Reports (SARs) that describe suspicious transactions that take place through their firms. Read More
SEC Charges Gregory Bercowy with Market Manipulation Scheme
On April 4, 2018, the Securities and Exchange Commission (“SEC”) charged Gregory Bercowy with a fraudulent scheme to manipulate the stock price of Aureus, Inc., a penny stock company incorporated in Nevada.
The SEC alleges that between August 4 and August 15, 2016, Gregory Bercowy, who is associated with a state-registered investment adviser, sold shares of certain Fortune 500 companies, including Abbott and Apple, in his relative’s brokerage account in order to buy over three million shares of Aureus at a total cost of more than $2.8 million. According to the SEC’s complaint, while Gregory Bercowy was accumulating these shares of Aureus, he entered (and later cancelled) a large number of orders to buy Aureus shares at prices higher than the then-current price of the stock. The orders allegedly were intended solely to maintain or boost the stock’s price. The price per share of Aureus securities increased from $0.52 on August 4, 2016, to $1.62 on August 16, 2016. According to the SEC’s complaint, Gregory Bercowy stated in recorded phone calls with a representative of a brokerage firm that he and others were trying to boost Aureus’s stock price. Read More
Resales of Restricted Stock l Securities Lawyer 101
It is routine for public companies and private companies seeking to go public to place restrictive legends (“Restrictive Legends” on the certificates representing their Restricted Stock not covered by a registration statement under the Securities Act of 1933, as amended (the “Securities Act”). The Securities Act does not require that issuers place restrictive legends (“Restrictive Legends”) on certificates representing restricted stock. It is also a routine matter for an issuer’s transfer agent to require that Restrictive Legends be prominently placed on stock certificates representing restricted securities. Read More
SEC Charges Andrew Kandelapas in Penny Stock Fraud Scheme
On April 13, 2018, the Securities and Exchange Commission charged Andrew Kandelapas with making false and misleading statements in the company’s SEC filings and press releases and with manipulating the company’s stock.
The SEC’s complaint against Andrew Kandalepas, the CEO of Wellness Center USA, Inc. (Wellness), filed in the U.S. District Court for the Northern District of Illinois, alleges that Andrew Kandelapas took $450,000 in unauthorized withdrawals from the company and then concealed his actions by causing Wellness to characterize his withdrawals as salary, prepayments, or loans in false and misleading Forms 10-K and 10-Q. The complaint further alleges that Andrew Kandelapas caused the company to issue false and misleading press releases touting non-existent sales of medical devices by a Wellness subsidiary.
According to the complaint, Andrew Kandelapas also manipulated the market for Wellness stock through secret trading in a friend’s brokerage account and pocketed more than $130,000 from his secret trading. According to the complaint, Andrew Kandelapas coordinated trading with Matthew Mushlin, who Andrew Kandelapas hired as an unregistered broker to solicit investments in Wellness through private placement agreements.
John Milne Sentenced to Two Years Imprisonment for Failing to Pay Millions to SEC
On April 17, 2018, a federal district court sentenced the John Milne to two years imprisonment for violating the conditions of his supervised release by failing to pay court-ordered disgorgement in a civil action brought by the Securities and Exchange Commission.
In 2008, the SEC charged John Milne and others with fraud for engaging in a series of fraudulent transactions to meet URI’s forecasts and analyst expectations. A federal grand jury in the District of Connecticut also indicted John Milne in a parallel criminal action. John Milne subsequently pleaded guilty and agreed to settle the SEC’s charges. The judgment entered against John Milne in the SEC’s action ordered him, among other things, to pay disgorgement and interest of $6.25 million. Before John Milne was sentenced, he paid $1 million to the SEC. As part of John Milne’s criminal sentence, the court ordered him to pay the remaining $5.25 million to the SEC as a condition of his supervised release.
SEC Charges Clifton Stanley in Multimillion Dollar Ponzi Scheme Targeting Seniors
On April 6, 2018, the Securities and Exchange Commission charged Clifton Stanley in a $2.4 million Ponzi scheme and in a related, $1.4 million offering fraud targeting retirees.
The SEC’s complaint alleges that, from 2010 to 2017, Clifton Stanley ran a Ponzi scheme through his retirement planning and real estate investment business, The Lifepay Group, LLC. Clifton Stanley is alleged to have lured at least thirty elderly victims to invest approximately $2.4 million of their retirement savings with baseless promises and claims of outsized investment returns. He kept the scheme afloat for years by paying early investors with later investors’ funds and by convincing investors to roll over their investments. The SEC further alleges that Clifton Stanley pilfered from the estate of an elderly woman’s family trust, diverting nearly $100,000 to fund the Lifepay Ponzi scheme. In addition, the SEC’s complaint alleges that, beginning in 2015, Clifton Stanley and Michael E. Watts orchestrated a second offering fraud through a company they controlled, SMDRE, LLC. Clifton Stanley and Watts allegedly used a collection of misrepresentations and empty promises to convince a group of predominantly elderly victims to invest roughly $1.4 million in SMDRE. Read More
Capital Cove Bancorp LLC and Christopher Lee aka Rashid Khalfani Charged with Defrauding Investors to Pay Over $3.8 Million
On April 11, 2018, a federal district court has ordered Christopher Lee aka Rashid Khalfani, whom the Securities and Exchange Commission charged in 2015 with pocketing money raised from investors, to pay over $3.8 million in disgorgement and civil penalties.
The SEC charged Christopher Lee, who operated under an alias Rashid Khalfani, and hid his past criminal convictions with raising nearly $2 million through his firm Capital Cove Bancorp LLC, for purported investments in two private funds that invested in distressed real estate. Rashid Khalfani allegedly enticed investors by falsely boasting that REO Opportunities Fund II LLC and Rittenhouse Square Trust LLC were “vetted, qualified, and registered” with the SEC and several other government agencies. Rashid Khalfani allegedly stole investor money from both funds, and in some instances used it to purchase his own real estate. Read More
SEC Charges Saverio Barbera with Insider Trading
On April 5, 2018, the Securities and Exchange Commission charged Saverio Barbera with tipping his brother and father with material nonpublic information about an upcoming corporate acquisition.
The SEC’s complaint, filed in the United States District Court for the Eastern District of New York, alleges that, in 2014, Saverio Barbera (“Barbera”), learned that Owens & Minor, Inc., a Virginia-based healthcare logistics company, was going to acquire all of the outstanding shares of Medical Action Industries, Inc. (“Medical Action”), a Brentwood, New York, medical products supplier. According to the complaint, Saverio Barbera then told his father and brother that they should purchase Medical Action stock in advance of the acquisition so that they could profit from the deal. The SEC alleges that Saverio Barbera obtained the information that he tipped to his father and brother from his close friend, the Chief Executive Officer and a member of the Board of Directors of Medical Action. According to the SEC’s complaint, soon after receiving this tip and less than a week before the public announcement of the deal, Saverio Barbera’s father and brother purchased a combined total of 22,000 shares of Medical Action common stock, which they then sold at a profit following the deal’s announcement. The SEC alleges that, as a result of their trading, Saverio Barbera’s father and brother realized combined trading profits of approximately $145,000. Read More
SEC Obtains Final Judgment Against Merrill Robertson Charged With Running $10 Million Fraud
On April 5, 2018, a federal district court in Richmond, Virginia has entered a final judgment against Merrill Robertson, Jr., a former football player charged by the Securities and Exchange Commission with defrauding investors, including coaches he knew from his time playing football for the Fork Union Military Academy and the University of Virginia.
The SEC alleged that Merrill Robertson and the company they co-owned, Cavalier Union Investments LLC, promised to invest in diversified holdings but stole nearly $6 million of the more than $10 million they raised from investors. They spent the stolen $6 million on personal expenses such as cars, family vacations, repayment of mortgage and credit-card debt, luxury goods, clothing, entertainment, educational expenses for family members, and a luxury suite at a football stadium. They also used the stolen money to make various donations and gifts to alma maters, churches, and other third parties. Merrill Robertson, who was criminally charged based on the conduct alleged by the SEC, was sentenced to 40 years’ imprisonment. Read More
SEC Charges John Jumper with Stealing Millions from a Pension Plan
On April 18, 2018 the Securities and Exchange Commission charged John Jumper with stealing approximately $5.7 million from a Pennsylvania company’s pension plan.
According to the SEC’s complaint filed in federal court in Memphis, Tennessee, on three separate occasions between March 2015 and February 2016, John Jumper stole millions of dollars from Snow Shoe Refractories, LLC’s pension plan. John Jumper allegedly forged documents, including fake Board of Directors resolutions, to steal the funds. John Jumper allegedly used the stolen funds to capitalize other businesses he owned, to repay personal debts and, in one instance, to invest in another business that paid a significant fee to a broker-dealer that John Jumper co-owned. Read More
Shane Fleming Charged with Insider Trading
On September 29, 2017, the Securities and Exchange Commission charged Shane Fleming, a middleman tipper, and six traders with insider trading ahead of the announcement that the company would be purchased and taken private.
In a complaint filed in U.S. District Court in the Northern District of Illinois, the SEC alleges that Shane Fleming a former vice president of sales at Life Time Fitness, learned of the merger discussions on or before Feb. 23, 2015 and tipped his friend and business partner Bret J. Beshey with the understanding that Beshey would use the information to make a profit and split those profits with Shane Fleming. The SEC alleges that rather than trade in his own name, Beshey tipped his friends Christopher M. Bonvissuto and Peter A. Kourtis with the understanding that both men would kick back a portion of their trading proceeds to Beshey. According to the SEC’s complaint, Kourtis tipped his friends Alexander T. Carlucci, Dimitri A. Kandalepas, Austin C. Mansur, and Eric L. Weller, and asked Carlucci, Mansur, and Weller to give him a portion of any profits they made from trading on the information, which they agreed to do. Read More
SEC Charges Michael Scronic with Engaging in Ponzi-like Scheme
On April 4, 2018, the Securities and Exchange Commission charged Michael Scronic with fraud stemming from lies to retail investors about the value of their investments in a Ponzi-like scheme.
The SEC alleges that, starting in approximately 2010, Michael Scronic began to raise money from at least 42 friends and acquaintances, many of whom were from his suburban community, in order to invest in a risky options trading strategy. He allegedly lured investors by informing them that he had a long and impressive track record of proven returns. He also allegedly lied to investors about the liquidity of investments, telling one investor that “what’s cool about my fund is that i’m [sic] only in publicly traded options and cash so any redemptions are met within 2 business days so if you do need to withdraw for your business needs it will be quick and painless.” However, the SEC alleges that Michael Scronic was actually hemorrhaging investor money through massive trading losses, with at least $15 million in investment losses since April 2010. For the period ending June 30, 2017, Michael Scronic allegedly reported to investors total assets of at least $21,837,475. However, the balance in his brokerage account on June 30, 2017 was just under $27,500. Read More
SEC Charges Michael Liberty with Fraudulent Scheme to Defraud Investors and Misappropriate Funds
On April 4, 2018, the Securities and Exchange Commission charged Michael Liberty, the founder of the fintech startup now known as Mozido, Inc., with a fraudulent scheme to trick hundreds of investors into investing in his shell companies instead of Mozido. Michael Liberty and his accomplices then stole most of the more than $48 million raised to fund a lavish lifestyle that included private jet flights, multi-million dollar residences, expensive cars, and movie production ventures.
The SEC’s complaint, filed March 30, 2018, alleges that Michael Liberty, his wife, Brittany Liberty, his cousin, Richard Liberty, Paul Hess, and attorney George Marcus induced investors to purchase unregistered interests in shell companies controlled by Michael Liberty that supposedly owned transferable interests in Mozido. In reality, the shell companies either did not own, or were not permitted to transfer, interests in the company. The SEC also alleges that Michael Liberty and his accomplices lied to investors about Mozido’s valuation and finances, the amount Michael Liberty had personally invested in Mozido, and the use of their funds. According to the complaint, Michael Liberty and his accomplices later orchestrated a series of transactions in which they used the investors’ own money to heavily dilute their interests and duped investors into trading securities for those worth more than 90% less. Read More
Court Grants Summary Judgment Motion against Iftikar Ahmed
On March 29, 2018, a federal district court in Connecticut granted the SEC’s motion for summary judgment as to the liability of Iftikar Ahmed alleged to have fraudulently diverted money from the venture capital funds he advised.
The SEC’s action alleges that Iftikar Ahmed, formerly a general partner at a venture capital firm with offices in Connecticut, used fraudulent and deceptive means to divert into his personal bank accounts more than $67 million from ten different venture capital investments. In its ruling on the SEC’s summary judgment motion, the court found that, with respect to each of the ten investment deals, Iftikar Ahmed violated certain anti-fraud provisions and related rules of the Investment Advisers Act of 1940, the Securities Exchange Act of 1934 and/or the Securities Act of 1933. In the same ruling, the court also denied summary judgment motions filed by Iftikar Ahmed and relief defendants. Read More
SEC Charges Amrit Chahal with Fraud
On April 16, 2018, the Securities and Exchange Commission charged Amrit Chahal with orchestrating an investment scheme over several years.
The SEC’s complaint alleges that, from at least February 2015, Amrit Chahal, of Fairfax, Va., used his company, Kane Capital Investment Group, LLC, to fraudulently solicit approximately $1.4 million from about 50 individuals, including friends and family members. According to the complaint, Amrit Chahallured investors by falsely claiming to be an experienced and successful trader who could generate above-market returns for clients through a low-risk trading strategy. The SEC alleges that, in reality, Amrit Chahal had substantially no experience working in the financial or securities industry or trading securities on behalf of clients. The complaint further alleges Amrit Chahal initially invested client funds in a variety of investments, but suffered significant trading losses. According to the complaint, instead of disclosing the losses, Amrit Chahal lied to his clients about their investment returns, continued raising funds, then used the money for his personal benefit, including to pay for his luxury car, rent, travel, dining, and other living expenses, and to make Ponzi-like payments to earlier investors. Read More
SEC Detects William Gennity and Rocco Roveccio Defrauding Customers
On September 28, 2017, the Securities and Exchange Commission charged William Gennity and Rocco Roveccio with making unsuitable recommendations that resulted in substantial losses to customers and hefty commissions for the brokers. One of the brokers agreed to pay more than $400,000 to settle the charges.
Brokers must make recommendations that are compatible with their customers’ financial needs, investment objectives, and risk tolerances. An SEC examination of the firm Alexander Capital L.P. detected potential misconduct among certain brokers, and the ensuing investigation has led to the filing of an SEC complaint against William Gennity and Rocco Roveccio. The SEC also issued an order against Laurence Torres.
The SEC’s complaint alleges that William Gennity and Rocco Roveccio recommended investments that involved frequent buying and selling of securities without any reasonable basis to believe their customers would profit. According to the complaint, since customers incur costs with every transaction, the price of the security must increase significantly during the brief period it is held in an account for even a minimal profit to be realized. Read More
Christopher Lollar Settles Charges of Insider Trading Ahead of Oil Discovery Announcement
On April 4, 2018, Christopher Lollar has agreed to settle SEC charges that he conducted insider trading ahead of a market-moving announcement about the company’s discovery of a significant new oil source.
The SEC alleges in its complaint, filed on November 1, 2017, that Christopher Lollar traded on nonpublic information while working in the company’s San Antonio office that was performing the geologic and geophysical work to explore and develop the newly-discovered resource play called Alpine High. Christopher Lollar allegedly conducted trades in Apache shares and call options in the days and weeks leading up to the company’s Alpine High announcement on Sept. 7, 2016. The value of Christopher Lollar ‘s brokerage account skyrocketed approximately 2,700 percent after the announcement, and his alleged profits from insider trading totaled $214,295.07. Read More
Beware of Custodianship Shells and Reverse Mergers
The Securities and Exchange Commission (“SEC”) says it doesn’t like over-the-counter shell companies especially when reverse mergers are involved, and would like to see them gone from the marketplace. To that end, its Enforcement Division cooked up an initiative it called “Operation Shell-Expel”. It began with a bang on May 14, 2012, when the agency coupled an announcement of Operation Shell-Expel with the suspension of trading in the stock of 379 dormant penny companies. It was, the SEC said, the largest such action in agency history. If Operations Shell Expel was such a priority to the SEC why is that we were able to locate more than 700 dormant public companies in the state of Nevada with minimal effort? What danger do these sorry companies present and if they are so dangerous why are there so many dormant shell companies still out there being fraudulently taken over?
The existence of empty shell companies can be a financial boon to stock manipulators who will pay as much as $750,000 to assume control of the company in order to pump and dump the stock for illegal proceeds to the detriment of investors. But with this trading suspension’s obligation to provide updated financial information, these shell companies have been rendered essentially worthless and useless to scam artists.
The shells were “rendered essentially worthless” because the suspension meant they’d be delisted to the Grey Market, the graveyard of bad pennies, in which market makers are forbidden to publish quotes.
Critics of rampant abuse in the OTC market cheered the SEC on, hoping Operation Shell-Expel signaled a new, and far less tolerant, attitude toward dormant shells that were often serially pumped and dumped. The following June, the agency suspended trading in another 61 issuers, and in February 2014, it followed up by shutting down another 255 shells. The hammer came down on 128 more in March 2015. There’s been no similar action in 2016. At the time of the 2015 suspensions, Enforcement director Andrew J. Ceresney remarked, “We are getting increasingly aggressive and adept at ridding the microcap marketplace of dormant shells within a year of the companies becoming inactive.” Many market participants see the SEC’s failure to pursue corporate hijackers of dormant shells as one of the greatest enforcement failures of the penny stock markets in the last decade. We have identified hundreds of hijacked tickers and/or companies involving fraudulent state court actions such as with minimal effort yet these types of shell companies continue to be hijacked by two or three penny stock law firms who assist the hijackers or sell the vehicles to unsuspecting companies seeking public company status. Our research reveals these shells have been used as the vehicles for many of the largest and most publicized securities fraud cases pursued by the Department of Justice and SEC. Yet there are at least 740 of these companies domiciled in the state of Nevada alone.
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Going Public Bootcamp – Going Public Attorneys – Securities Lawyer 101
The going public process involves a number of steps that vary depending on the characteristics of the private company wishing to go public, and whether it will become subject to the Securities and Exchange Commission (“SEC”) reporting requirements. Companies seeking public company status must meet certain SEC requirements before its securities can be publicly traded. This applies to reporting and non-reporting issuers. A going public lawyer can assist the issuer in complying with the SEC’s requirements.
Shareholder Requirements in Going Public Transactions
The first step in a going public transaction is most often obtaining the number of shareholders required by the Financials Industry Regulatory Authority (FINRA). The shares issued to them must be unrestricted at the time of the filing of the Form 211 with FINRA, so that a public float will exist when the company’s stock begins trading.
SEC Obtains Final Judgment Against Vincent Cassano Charged with Fraudulent Stock Promotion Scheme
On April 10, 2018, the U.S. District Court for the Western District of Washington entered a final judgment against Vincent Cassano for his role in a fraudulent stock promotion scheme. According to the SEC’s complaint, Lidingo Holdings, LLC hired writers like Vincent Cassano to publish hundreds of bullish articles on its clients, which appeared to be independent research pieces but, in fact, were paid advertisements.
The final judgment permanently enjoins Vincent Cassano from violating Sections 17(a) and 17(b) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Vincent Cassano consented to the entry of the final judgment, and neither admitted nor denied the allegations in the SEC’s complaint. Read More
JH Darbie Charged in Calissio Resources Scam – Securities Lawyer 101
On March 27, 2018, the Securities and Exchange Commission (SEC) announced a settled administrative proceeding against broker-dealer J.H. Darbie & Co., Inc., and Robert Y. Rabinowitz, Darbie’s majority owner and CEO. On its surface, the suit is both simple and unexciting: between September 2015 and July 2016, Darbie operated with a net capital deficiency, and failed to record it properly. It therefore violated Section 15(c)(3) of the Securities Exchange Act of 1934, which provides that broker-dealers “at all times have and maintain net capital” no less than the greatest of the minimum requirement applicable to its business. But the legal action is related to several others involving a variety of unsavory players in the penny stock world.
Darbie is a small New York firm that’s been sanctioned by its regulator, the Financial Industry Regulatory Authority (FINRA), a number of times. In 2015, it and Wolf A. Popper, Inc., a brokerage controlled by Rabinowitz and Wolf Popper, were the subjects of a complex FINRA enforcement action involving violations that had taken place between 2008 and early 2014. According to FINRA, the violations were mostly Darbie’s; the firm had, the regulator said, “facilitated the deposit and liquidation of billions of shares of low-priced, microcap stocks for customers without having in place adequate procedures to assure that such liquidation transactions were scrutinized sufficiently.” Read More
