SEC Order Imposes Fine On Ditto Holdings For $3.7 Million Unlawful Offering
On September 8, 2015, the Securities and Exchange Commission (“SEC”) initiated public cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) against Ditto Holdings, Inc. (“Ditto Holdings”). In anticipation of the institution of these proceedings, Ditto Holdings submitted an Offer of Settlement (the “Offer”) which the SEC accepted.
Ditto Holdings owns 100% of Ditto Trade, Inc. (“Ditto Trade”), which purports to be a “first-of-its-kind social brokerage firm.” Since July of 2010, Ditto Trade has been registered with the SEC as a broker-dealer pursuant to Section 15 of the Exchange Act.
From April 2009 to September 2013, Ditto Holdings raised approximately $10 million from more than two hundred investors located throughout the United States through a series of common and preferred stock offerings which were purportedly exempt from the SEC’s registration provisions.
SEC Charges Florida Based CPA For Bogus Audit Opinions
On September 17, 2015 the SEC imposed sanctions against a Florida based CPA for producing deficient and fraudulent audits and quarterly reviews for eight publicly traded companies, issuing false and misleading audit opinions on the companies’ annual financial statements.
Terry L. Johnson, of Casselberry, Florida, agreed to settle the SEC charges on fraud and will be suspended from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC.
During the investigation, the Commission discovered that following his release from prison, convicted felon and former certified public accountant Stephen P. Corso, of Encinitas, California, served as the Chief Financial Officer of several publicly-traded companies, including Primco Management, Inc., one of Johnson’s audit clients. Corso signed Primco’s annual and quarterly financial reports and certifications filed with the SEC using the alias names “Steven J. Corso” or “Steven John Corso”. Corso was barred in 2009 from appearing and practicing before the SEC as an accountant due to his felony conviction for wire fraud and attempted tax evasion. Corso is also alleged to have solicited business on the false pretense that he was an “SEC Consultant and Attorney.” Corso acquired more than $460,000 in illegal profits generated from his violation of the prior SEC order.
U3 Halt of SWK Holdings Explained by FINRA, and Lifted Quickly
We recently wrote about a bungled dividend distribution made by Calissio Resources Group, Inc. (CRGP) that resulted in the imposition of a U3 “extraordinary event” trading halt by the Financial Industry Regulatory Authority (“FINRA”). The halt was lifted two weeks later. FINRA offered no explanation for the action. U3 halts are rare for domestic issuers, and usually have to do with problems, actual or potential, with clearance and settlement.
On September 16, 2015, FINRA applied a U3 halt to another OTC issuer, SWK Holdings Corporation (SWKH). The action came a little more than 20 minutes into the trading session, at 9:53 a.m. Once again, shareholders were left wondering what had happened, but they didn’t have to wonder for long: FINRA quickly furnished a UPC advisory addressing the reasons for the halt. The regulator stated that it had been brought “because of issues related to perceived post-split trading and subsequent price adjustments,” adding that “members are reminded to observe Ex-Dividend dates announced by FINRA on the Daily List.”
While that may have seemed opaque to some, a quick look at recent SEC filings made by SWKH clarified what the regulator meant. More than two hours before the bell, the company posted a Form 8-K to Edgar, in which it explained that “the previously disclosed 1-for-100 reverse stock split of its common stock, immediately followed by a 10-for-1 forward stock split of its common stock was executed effective as of 5:00 p.m. on September 15, 2015. Beginning with the opening of trading on September 16, 2015, the Company’s common stock will trade on OTC Markets on a post-split basis…” Read More
FINRA’s Disclosure Requirements In EB-5 Offerings
FINRA Rule 2040 became effective late last month and has the potential to provide increased transparency in EB-5 Offerings. Rule 2040 requires broker-dealers who sell securities in EB-5 offerings to disclose finder’s fees paid to non-registered foreign persons and receive written acknowledgement from the investors that such fees were disclosed to them. FINRA Rule 2040 also limits the circumstances under which a foreign person may be paid a finder’s fee.
FINRA only permits broker-dealers to pay transaction based compensation to non-registered foreign finder if the finders’ activity is limited to an initial referral, and the broker-dealer complies with the following requirements:
- the broker-dealers has assured itself that the finder who will receive the compensation is not required to register in the U.S. as a broker-dealer nor is subject to a disqualification as defined in Article III, Section 4 of FINRA’s By-Laws, and has further assured itself that the compensation arrangement does not violate applicable foreign law;
- the finder is non U.S. citizen or foreign entity domiciled outside the U.S.;
- the investors are non U.S. citizens or foreign entities domiciled abroad transacting business in either foreign or U.S. securities;
- investors are given a disclosures, similar to those required by Rule 206(4)-3(b) of the Investment Advisers Act of 1940, that disclose what compensation is paid to finders;
- investors provide written acknowledgment to the broker-dealers of the existence of the finder’s fee agreement and the acknowledgment is retained by the broker-dealer and made available for inspection by FINRA;
- records reflecting payments made to finders are maintained on the broker-dealer’s books, and written agreements between the broker-dealers and the finder are available for inspection by FINRA; and
- the confirmation of each investment indicates that a finders fee is being paid pursuant to the written agreement between the finder and the broker-dealer.
Investor Alert – Messaging Apps & Pump and Dump Scams
On September 2, 2015, the Financial Industry Regulatory Authority (FINRA) issued an investor alert warning about investor relations activity and stock promotions sent through popular messaging applications (Apps) such as WhatsApp. These messaging Apps allow users to almost instantly exchange messages which makes them appealing tools for scammers engaged in pump and dump schemes seeking to trick investors.
According to FINRA’s investor alert, scammers use messaging apps to transmit spam messages that promote penny stocks or microcap stocks. They used spam activity disseminated over WhatsApp as an example. Recently, WhatsApp users were flooded with text messages touting Avra, Inc. (AVRN), a penny stock. The App messages appeared to be sent from individuals at well-known brokerage firms. Using only a first name (“Hi it’s Will at XYZ firm…”), the text would talk up the stock. One WhatsApp message claimed AVRN was “going to double in the next few days.” Another said it “is going up 300% next week.”
MusclePharm Charged In SEC Investigation
On September 8, 2015, the Securities and Exchange Commission (SEC) charged a sports supplements and nutrition company with committing a series of accounting and disclosure violations, including the failure to properly report perks provided to its executives as compensation. MusclePharm Corporation agreed to settle the charges along with three current or former executives and the company’s former audit committee chair who were found to have been involved in various aspects of the company’s misconduct.
An SEC investigation found that MusclePharm omitted or understated nearly a half-million dollars’ worth of perks bestowed upon its executives, including approximately $244,000 paid to CEO Brad Pyatt related to automobiles, apparel, meals, golf club memberships, and his personal tax and legal services. Even after the company began an internal review of undisclosed executive perks and then-audit committee chair Donald Prosser became directly involved in the process, MusclePharm continued filing financial statements that failed to disclose private jet use, vehicles, and golf club memberships for its executives. Read More
SEC Charges Bankrate and Former Executives with Securities Fraud
On September 8, 2015, the Securities and Exchange Commission (“SEC”) announced that Bankrate Inc. has agreed to pay $15 million to settle accounting and securities fraud charges. Three former executives also are charged in the case that involves fraudulent manipulation of the company’s financial results to meet analyst expectations.
The Commission alleges that Bankrate’s then-CFO Edward DiMaria, then-director of accounting Matthew Gamsey, and then-vice president of finance Hyunjin Lerner engaged in a scheme to fabricate revenues and avoid booking certain expenses in order to meet analyst estimates for two key financial metrics: adjusted earnings per share as well as adjusted earnings before interest, taxes, depreciation, and amortization. Bankrate consequently overstated its second quarter 2012 net income. Bankrate’s stock rose when the company announced the inflated financial results, and DiMaria allegedly proceeded to sell more than $2 million in company stock.
Lerner agreed to pay more than $180,000 to settle the Commission’s charges, while the litigation continues against DiMaria and Gamsey.
SEC Brings Charges In Reverse Merger Scam – Going Public Attorneys
On September 10, 2015, the Securities and Exchange Commission (SEC) announced fraud charges against a Wall Street CEO and his company, family members, and business associates accused of secretly obtaining control and manipulating the stock of Chinese companies they were purportedly guiding through the going public process and raising capital.
The SEC’s complaint described four issuers.
SmartHeat, Inc. (“SmartHeat”), a China-based manufacturer of heating panel technology, became a publicly-traded, U.S. issuer through an NYGG-facilitated reverse merger with a shell company, Pacific Goldrim Resources, Inc., on April 14, 2008. The shares of Pacific Goldrim Resources, Inc. became registered pursuant to Section 12 of the Exchange Act on January 30, 2008. At various times, SmartHeat traded on the NASDAQ under the ticker symbol, “HEAT.”
Deer Consumer Products, Inc. (“Deer”), a China-based manufacturer of kitchen appliances, became a publicly-traded, U.S. issuer through an NYGG-facilitated reverse merger with a shell company, Tag Events Corporation, on September 3, 2008. The shares of Tag Events Corporation became registered pursuant to Section 12 of the Exchange Act on April 29, 2009. At various times, Deer traded on the NASDAQ under the ticker symbol, “DEER.” Read More
SEC Charges Ross Shapiro, Michael Gramis, and Tyler Peters With Fraud
On September 9, 2015, the Securities and Exchange Commission (SEC) announced fraud charges against three traders accused of repeatedly lying to customers relying on them for honest and accurate pricing information about residential mortgage-backed securities (RMBS).
The SEC alleges that Ross Shapiro, Michael Gramins, and Tyler Peters defrauded customers to illicitly generate millions of dollars in additional revenue for Nomura Securities International, the New York-based brokerage firm where they worked. They misrepresented the bids and offers being provided to Nomura for RMBS as well as the prices at which Nomura bought and sold RMBS and the spreads the firm earned intermediating RMBS trades. They also trained, coached, and directed junior traders at the firm to engage in the same misconduct.
In a parallel action, the U.S. Attorney’s Office for the District of Connecticut announced criminal charges against Shapiro, Gramins, and Peters, who no longer work at Nomura.
Regulation A+ DPO Attorneys – Going Public Attorneys
Most private companies are unable to locate an underwriter prior to going public. Regulation A+ provides a new option for issuers seeking to raise capital without an underwriter. A direct public offering (“Direct Public Offering”) provides a viable solution to this dilemma. A Direct Public Offering allows a company to sell its shares directly to investors without the use of an underwriter. With a Direct Public Offering, the company files a registration statement with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”).
Typically, in going public transaction Form S-1 (”S-1”) registration statements are used. Regulation A+ is a viable alternative to Form S-1 with scaled down disclosure requirements. Tier 1 offerings allow the issuer to offer and sell up to $20 million in a 12-month period. Tier 1 offerings do not preempt state Blue Sky laws. Tier 2 offerings allow the issuer to raise up to $50 million in a 12-month period. A notable advantage of Tier 2 over Tier 1 offerings is preemption of state Blue Sky laws. Tier 2 offerings require the issuer to provide audited financial statements and comply with ongoing reporting obligations.
A company can use Regulation A+ like a Form S-1 registration statement to register securities on its own behalf in an initial public offering, register securities on behalf of its selling security holders in a secondary offering or register securities on its own behalf as well as for selling security holders. Read More
SEC Charges Manny Shulman and David Hirschman
On September 3, 2015, the Securities and Exchange Commission (“SEC”) charged Manny J. Shulman and David Hirschman for their involvement in the fraudulent, unregistered sale of securities of Caribbean Pacific Marketing, Inc. (“Caribbean Pacific”), a now-defunct Florida corporation that purported to be a sun-care and skin-care products start-up company. The Commission also charged Shulman for making misstatements and omissions in Caribbean Pacific’s registration statement.
According to the SEC’s complaint, Caribbean Pacific’s Form S-1 registration statement filed with the SEC, failed to disclose that Manny Shulman, a securities fraud recidivist, controlled the company’s day-to-day operations. According to the SEC charges, the Form S-1 registration statement failed to disclose the managerial role in the company of a securities attorney, William J. Reilly, who is also a securities fraud recidivist and a disbarred attorney. According to the SEC Charges, although two other individuals were listed in the Form S-1 registration statement as the corporate officers and directors of Caribbean Pacific, Shulman and Reilly actually controlled the company and ran it on a day-to-day basis. The SEC subsequently issued a trading suspension of Caribbean Pacific’s registration statement based on findings that it was materially misleading and deficient.
In addition, the SEC complaint alleges that from June 2012 through October 2012, Shulman and Hirschman engaged in a private, unregistered offering of Caribbean Pacific stock, raising $271,500 from 18 investors located in various states. The complaint also alleges that Shulman and Hirschman told investors that Caribbean Pacific would serve as a public shell that would later engage in a reverse merger with another company called Dreamscapes International Properties, Inc. (“Dreamscapes”). Instead of using investors’ money for expenses related to Caribbean Pacific’s Initial Public Offering (IPO) and the business development of Dreamscapes, the complaint alleges that Shulman and Hirschman misappropriated most of their money.
The Commission’s complaint alleges that Shulman and Hirschman both violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder and that Hirschman also violated Section 15(a) of the Exchange Act. The Commission is seeking financial penalties, disgorgement of ill-gotten gains plus prejudgment interest, and permanent injunctions against both Shulman and Hirschman and a penny stock bar against Hirschman. Shulman has consented, without admitting or denying the allegations of the complaint, to the entry of judgment ordering permanent injunctive relief against him and requiring him to pay disgorgement and a civil penalty, in amounts to be determined by the Court at a later date.
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, or to [email protected]. 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. For more information about going public and the rules and regulations affecting the use of Rule 144, Form 8K, crowdfunding, FINRA Rule 6490, Rule 506 private placement offerings and memorandums, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration statements on Form S-1 , IPO’s, OTC Pink Sheet listings, Form 10 and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, direct public offerings and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or [email protected]. 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
SEC Halts Harrison Schumacher In California-Based Oil and Gas Investment Fraud
On August 27th, 2015, the Securities and Exchange Commission (SEC) announced fraud charges and an emergency asset freeze to halt a California-based scheme involving purported investments in oil and gas projects.
According to the SEC’s complaint filed under seal last week in federal court in Los Angeles and unsealed on August 26th, Harrison Schumacher and his two companies Quantum Energy LLC and Quaneco LLC allegedly raised approximately $12.3 million from more than 300 investors nationwide in connection with five exempt offerings that were not registered with the SEC. For each of the offerings, Schumacher and Quantum diverted investor funds from the stated purpose of exploration and development of oil and gas resources to instead cover undisclosed corporate business overhead expenses and Schumacher’s compensation. Contrary to representations that investor funds would be segregated in separate trust or escrow accounts, Schumacher and his companies commingled funds in Quantum’s operating accounts, which was then used to pay Schumacher’s lavish personal expenses including a Porsche. The defendants also concealed diversion of investor funds through phony “turnkey drilling” contracts in which Quantum claimed to pay Quaneco to drill wells. Schumacher and his companies have recently been soliciting funds for a new Utah-based oil-and-gas investment program and planning to raise another $2 million.
SEC Charges Bank Analyst Ashish Aggarwal With Insider Trading
On August 25th, 2015, the Securities and Exchange Commission (SEC) charged a former investment bank analyst with illegally tipping his close friend with confidential information about clients involved in impending mergers and acquisitions of technology companies. The SEC also charged his friend and another individual with insider trading.
The SEC alleges that Ashish Aggarwal, who worked in J.P. Morgan’s San Francisco office, gleaned sensitive nonpublic information about two acquisition deals from colleagues who were working on them. Aggarwal tipped Shahriyar Bolandian, who traded on the basis of the illegal tips in his own accounts as well as accounts belonging to his father and sister. Bolandian also tipped his friend Kevan Sadigh so he could trade on the confidential information. Bolandian worked at Sadigh’s e-commerce company, and together they made more than $672,000 in combined profits from their insider trading.
SEC Obtains Summary Judgment Against Xytos In Securities Fraud
The Securities and Exchange Commission (SEC) announced that on August 24th, 2015, the Honorable Sarah Evans Barker of the United States District Court for the Southern District of Indiana granted the SEC’s motion for summary judgment against Defendant Timothy E. Cook, a resident of Indianapolis, Indiana. The Court found that Cook violated the antifraud provisions of the federal securities laws by making false and misleading statements about Xytos, Inc. (“Xytos”), a company he controlled. The Court also found that Cook made unregistered sales of Xytos shares.
In August 2013, the SEC filed this action against Cook, Xytos, and Asia Equities, Inc. (“Asia Equities”), which was another entity that Cook controlled. The SEC alleged that Cook committed securities fraud in connection with materially misleading statements during 2010-2013 regarding cancer treatments that Xytos, a purported biomedical company, supposedly was providing to patients.
SEC Announces Asset Freeze In EB-5 Offering Scheme
On August 25, 2015, the Securities and Exchange Commission (SEC) announced an asset freeze obtained against a man in Bellevue, Wash., accused of defrauding Chinese investors seeking U.S. residency through the EB-5 Immigrant Investor Pilot Program by investing in his companies.
The SEC alleges that Lobsang Dargey and his “Path America” companies have raised at least $125 million in EB-5 Offerings for two real estate projects: a skyscraper in downtown Seattle and a mixed-use commercial and residential development containing a farmers’ market in Everett, Wash. But Dargey diverted $14 million for unrelated real estate projects and $3 million for personal use including the purchase of his $2.5 million home and cash withdrawals at casinos. Read More
What is a Penny Stock Email Campaign ?
In our digital age, sensible people know they should be wary of unsolicited financial advice, but there are still many who can’t resist the allure of the “guaranteed profits” that will be generated by a “once in a lifetime opportunity” received in a penny stock email campaign. There are different kinds of scams involving penny stock email. Some may present what appears to be an analysis of a specific penny stock company, and offer recommendations as well as price predictions or opportunities to get in on the ground floor of an investment. Most penny stock email campaigns are in the form of an investment newsletter. Read More
SEC Charges Vincente Garcia Under FCPA
On August 12, the Securities and Exchange Commission (SEC) announced that a former executive at a worldwide software manufacturer has agreed to settle charges that he violated the Foreign Corrupt Practices Act (FCPA) by bribing Panamanian government officials through an intermediary to procure software license sales.
An SEC investigation found that Vicente Garcia, the former vice president of global and strategic accounts for SAP SE, orchestrated a scheme that violated the FCPA. According to the allegations, Garcia paid $145,000 in bribes to one government official and promised to pay two others in order to obtain four contracts to sell SAP software to the Panamanian government.
He essentially caused SAP, which is headquartered in Germany and executes most of its sales through a network of worldwide corporate partners, to sell software to a partner in Panama at discounts of up to 82 percent. Read More
SEC Charges Microcap Stock Promoters
Last month, the Securities & Exchange Commission (SEC) charged a trio of alleged microcap stock promoters with defrauding investors by disseminating promotional investor relations e-mails and newsletters exhorting readers to immediately buy purportedly hot stocks so they could secretly sell their own holdings at a substantial profit.
The SEC alleges that the three men, who live in Israel, obtained shares in several penny stock companies and pumped the prices as high as 1,800 percent before dumping the shares for at least $2.8 million in illicit proceeds. Read More
Regulation D and PPM Lawyers – Going Public
A private placement memorandum (“PPM”) is also referred to as a confidential offering circular or memorandum. PPM’s are used by private companies in going public transactions and by existing public companies to raise capital by selling either debt or equity in an exempt offering. In registered direct public offerings, the resale of these shares are often registered on Form S-1. These exempt offerings are usually private placements. PPM disclosures vary depending on a couple of factors including whether the investor is accredited or non-accredited and whether the Company is subject to the SEC’s reporting requirements, and a few other factors.
When a Company sells equity, it most often offers common shares to investors who then become shareholders of the Company. Read More
Signator Investors Settles SEC Charges
On August 13, 2015, the Securities & Exchange Commission (SEC) announced that three Maryland men have agreed to settle charges that they defrauded investors in a company that owns and operates residential and commercial real estate. Boston-based Signator Investors Inc. and one of its supervisors agreed to settle separate charges that they failed to supervise two of the men who worked in Signator’s Maryland office.
The SEC alleges that James R. Glover orchestrated the fraud by enticing family, friends, and fellow church members to become his clients at Signator and invest in Colonial Tidewater Realty Income Partners, which he co-managed. Most of Glover’s clients were financially unsophisticated and relied on him for investment guidance. Read More
What Are Fiduciary Duties? Going Public Attorneys
A fiduciary duty exists where trust and confidence is placed in another. Fiduciary duties arise in many different contexts in securities matters and the going public process. Fiduciary duties also arise from a written agreement that authorizes another to act as the grantor’s agent. The existence and scope of a fiduciary duty is based on the nature of the relationship between the parties. Securities attorneys, auditors, brokers and investment advisors, investment companies and public companies are fiduciaries. Breach of fiduciary duty claims in securities matters most often arise from broker-dealer activity.
When a broker recommends an investment, the broker-dealer has a duty to:
- Understand the nature of the investment’s risks, rewards, and strategy before recommending the investment to its client;
- Make only suitable recommendations to its client based upon the investor’s objectives, needs, and circumstances;
- Furnish information to the client that would be material to the client’s decision about the recommendation; and
- Be truthful and not misrepresent or omit material information.
Aegis Capital Corporation fined $950,000 By FINRA
Aegis Capital Corporation has been fined $950,000 by the Financial Industry Regulatory Authority over allegations of improper sales of unregistered penny stocks of five issuers and anti-money laundering supervisory failures. As a result, Aegis is also required to retain an independent consultant to review its supervisory and AML systems and procedures. In addition, Charles D. Smulevitz and Kevin C. McKenna, who served successively as Chief Compliance and AML Compliance Officers at the time of the violations, agreed to 30- and 60-day principal suspensions, and fines of $5,000 and $10,000, respectively, for their supervisory and AML failures. In a separate proceeding, Robert Eide, Aegis’s President and CEO, was suspended for 15 days and fined $15,000 for failing to disclose more than $640,000 in outstanding liens.
The unregistered penny stock issuers are China Crescent Enterprises, Inc., TAO Minerals Ltd., New Market Technology, Inc., Numobile, Inc., and AlterNet Systems, Inc. All five issues were listed on the OTC Markets.
Brad Bennett, Executive Vice President and Chief of Enforcement, said, “Firms who open their doors to penny stock liquidators must have robust systems and procedures to ensure strict adherence to the registration and AML rules given the significant risk of investor fraud and market manipulation. The compliance officers sanctioned in this case were directly responsible for supervising sales of restricted securities but failed to conduct a meaningful inquiry in the presence of significant red flags indicating the sales could be illicit distributions of unregistered stocks.” Read More
Going Public Shareholder Requirements l Going Public Lawyers
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 a Securities and Exchange Commission (“SEC”) reporting company. All companies seeking public company status must meet certain requirements in order for their securities to be publicly traded. This holds true for both reporting and non-reporting companies. An experienced going public lawyer can assist the company in complying with the SEC’s stringent 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 Financial 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. Read More
Disclosure Obligations in Regulation A+ Offerings
The Anti-Fraud Provisions And Regulation A+
On March 25, 2015, the Securities and Exchange Commission adopted final rules amending Regulation A. The new rules are often referred to as Regulation A+. These rules are designed to facilitate smaller companies’ access to capital. Regulation A+’s new rules provide investors with more investment choices and issuers with more capital raising options during their going public transactions. The rules adopting Regulation A+ are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act.
Regulation A+ can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction. The exemption simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority while allowing the issuer to raise initial capital.
Form 1- A sets forth line item disclosures that must be provided in Regulation A+ offerings. These line item disclosures are the minimum disclosures required. In addition to these line item disclosures, the anti-fraud provisions mandate disclosure of certain information to investors. Section 10(b) of the Securities Exchange Act of 1934, (the “Exchange Act”) prohibits the use of any manipulative or deceptive device in contravention of the Securities & Exchange Commission’s rules and regulations. Rule 10b-5, was adopted pursuant to Section 10(b), and prohibits fraudulent devices and schemes, material misstatements and omissions of any material facts, and acts and practices that operate as a fraud or deceit on any person in connection with the purchase or sale of a security.
This means that each participant in a company’s offering, including the company, itself and its officers, directors, consultants, advisors, underwriters, accountants and others are potentially liable under this provision. Section 20(a) of the Exchange Act imposes liability on any person who directly or indirectly controls any person liable under Section 10(b) or Rule 10b-5, to the same extent as the controlled person. Persons conducting Regulation A+ Offerings can mitigate their risk exposure by completing a comprehensive due diligence review and making appropriate disclosures to investors. Read More
What In The World Is A Security? Going Public Lawyers
A company going public must understand which capital raising methods involve a “security”. A company is only subject to federal and state securities laws if it is selling what is defined as a “security.” If you are selling stock in your initial public offering or a direct public offering, you know you are selling a security. But Section 3(a)1 of the Securities Act of 1933 tells you all kinds of other instruments you sell may also be securities, as follows:
The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, …, or, in general, any interest or instrument commonly known as a “security.” Read More
SEC Charges Phillip Kueber – Going Public Attorneys
On July 31, 2015, the Securities and Exchange Commission (the “SEC”) announced it had charged Phillip Kueber, Canadian citizen with conducting a scheme to conceal his control and ownership of penny stock, Cynk Technology Corp. On July 11, 2014, the SEC suspended trading in the stock, Cynk Technology Corp., rose to more than $21 from less than 10 cents per share. According to its SEC filings, CYNK’s assets never exceeded $1,400.
The SEC alleges that Kueber was behind a false and misleading registration statement filed by Cynk and enlisted a small group of straw shareholders and sham CEOs to conceal his control of purportedly non-restricted shares in Cynk stock. The complaint alleges that the straw shareholders – mainly Kuber’s family members and associates in British Columbia and California – never received the shares they “purchased.” Read More
Securities Law & Going Public Attorneys
Going public is a big step for any company. The process of “going public” is complex and at times precarious. While going public offers many benefits it also comes with risks and quantities of regulations with which issuers must become familiar. Despite the risks even in a down economy, the U.S. market remains one of the most attractive sources of capital in the world for companies seeking capital. Going public is a complicated process, and it is important to have an experienced securities attorney to help your company navigate through the process and deal with the Securities & Exchange Commission the (“SEC”), Financial Regulatory Industry Authority (“FINRA”) & Depository Trust Company (“DTC”).
Upon completion of a going public transaction, most companies are subject to the regulations that apply to public companies, including those of the Securities Act of 1933, as amended (the “Securities Act”) and Securities Exchange Act of 1934, as amended (the “Exchange Act”). Hamilton & Associates will design your going public transaction in the most beneficial manner.
Common questions the firm receives about the going public process from its clients are set forth below.
Q. What does it mean for a company to Go Public? Read More
How Do I Use Regulation A+ to Go Public? Sponsoring Market Maker Attorneys
Do I Need A Sponsoring Market Maker To Get A Ticker After My Regulation A+ Offering Is Qualified?
Regulation A+’s new rules provide investors with more investment choices and issuers with more capital raising options during their going public transactions. Some confusion has arisen about whether SEC qualification of a Regulation A+ offering will result in the assignment of a stock ticker or trading symbol. Companies conducting Regulation A+ offerings must submit Form 1-A to to the Securities and Exchange Commission (SEC). Form 1-A is subject to SEC review and the SEC may issue comments to the filing. Once the SEC is satisfied that the required disclosures comply with the securities laws, it will qualify the offering and the company can offer and sell the securities covered by the Form 1-A. The Regulation A+ qualification process is similar to the SEC comment process that applies to registration of securities offerings on Form S-1.
Regulation A+ expands existing Regulation A, dramatically, opening new doors for capital raising for smaller issuers. Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction. The exemption simplifies the process of obtaining the seed stockholder required by the Financial Industry Regulatory Authority (FINRA) while allowing the issuer to raise initial capital. Upon qualification of a Regulation A+ offering, companies seeking to obtain a stock trading symbol must locate a sponsoring market maker to file a Form 211 with FINRA.
Oppenheimer Employees Settle Penny Stock Charges
