On March 25, 2015, the Securities and Exchange Commission (“SEC”) adopted amendments to Regulation A pursuant to the mandate of Section 401(a) of the JOBS Act. These amendments included revamping Form 1-A for Regulation A offerings.

Amended A+ was adopted to facilitate capital-raising by smaller companies. Regulation A+ expands existing Regulation A.  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 stockholders required by the Financial Industry Regulatory Authority (“FINRA”) while allowing the issuer to raise initial capital. Regulation A also provides issuers with the opportunity to test the waters using social media or their preliminary offering circular prior to qualification of their offering.

Form 1-A Offering Statements

Issuers using Regulation A+ to conduct their offerings must file and qualify an offering statement with the SEC. The offering statement is intended to be a disclosure document that is similar to Form S-1 with scaled down disclosures.  A notice of “qualification” is similar to a notice of effectiveness for a Form S-1 registration Statement. Read More

The Massachusetts Division of Securities has adopted an emergency intrastate crowdfunding exemption. The new exemption was developed to stimulate job growth for small Massachusetts companies by removing restrictions and allowing greater access to capital with fewer restrictions.

The Massachusetts Emergency Crowdfunding Exemption

The new exemption is available to entities formed and operating in Massachusetts, and allows the issuers to: Read More

FINRA is proposing new rules that will impact algorithic trading strategies. If an individual performs a trade on another person’s behalf, that associated person is required to register with FINRA as an equity trader. The Financial Industry Regulatory Authority (FINRA) believes that certain associated persons who are involved in creating automated systems should also be registered. FINRA recently issued Regulatory Notice 15-06 requesting comments on a new proposal that would require associated persons involved in the design, development or modification of algorithmic trading strategies to register with FINRA. This, says FINRA, will help ensure that trading programs comply with applicable securities laws.

The proposals are designed to increase the scope of trading information FINRA receives, provide market participants and investors with more transparency into trading activities, and require employees at firms engaged in electronic trading to be trained, educated, and accountable for their role in algorithmic trading strategies. Read More

On April 14, 2015, the operator of a website at Cashflowbot.com was charged in a ponzi scheme. According to the SEC charges, the perpetrator of the ponzi scheme raised money from more than 3,000 investors between January 2012 and April 2014. According to the SEC’s complaint, James A. Evans, Jr.,operated a website at “Cashflowbot.com,” and operated under the business name “DollarMonster”. According to the SEC action, Evans falsely promoted DollarMonster as a “private fund” with an “opaque investment strategy” where investors could make “big profits.”

According to the SEC’s Division of Enforcement, Evans was running a ponzi scheme. Among other things, Evans misrepresented to investors that DollarMonster: (a) paid out investment returns that exceeded the amount of money investors had contributed to the fund; (b) was a “financial advisor” with more than 120 management teams and $38 million in assets under management; (c) managed a hedge fund that purchased stocks on behalf of investors in the fund; (d) was a “Private Holding Company” that invested in assets such as gold, silver, real estate, stocks and bonds, and (e) had used investor funds to profitably invest in stocks with a market value of $3.2 million. Read More

On April 10, 2015, the Securities and Exchange Commission (“SEC”) announced the temporary suspension of trading in the securities of the following issuers, commencing at 9:30 a.m. EDT on April 10, 2015, and terminating at 11:59 p.m. EDT on April 23, 2015: Read More

On March 25, 2015, the Securities and Exchange Commission (“SEC”) adopted amendments to Regulation A pursuant to the mandate of Section 401(a) of the JOBS Act. Amended Regulation A known as “Regulation A+”, expands and modernizes former Regulation A, creating a manageable capital raising solution for small businesses. Prior to the amendments, Regulation A, offerings by an issuer could not exceed $5 million in any 12-month period. Unlike shares offered and/or sold in offerings exempt under Rule 506 of Regulation D, securities issued in Regulation A offerings were not “covered securities” under the National Securities Markets Improvement Act (“NSMIA”).   Read More

On April 9, 2015, the U.S. Court of Appeals for the Eleventh Circuit upheld a lower court’s ruling in the U.S. Securities and Exchange Commission v. Big Apple Consulting USA Inc., MJMM Investments, LLC, Marc Jablon and Mark Kaley, case number 13-11976.

The appellate panel affirmed the district court’s ruling in its entirety.

In 2009, the SEC filed suit against Big Apple, MJMM, a Big Apple subsidiary, Marc Jablon, Mark Kaley, Keith Jablon, and Matthew Maguire, alleging fraud, registration violations, and, with respect to Big Apple and MJMM, acting as unregistered broker-dealers.  The agency further charged Marc Jablon, Maguire, and Kaley, an attorney, with aiding and abetting the two entities’ violations.  Read More

The Securities and Exchange Commission (the “SEC”) announced that on April 7, 2015, the U.S. District Court for the Southern District of New York entered a final judgment against Jonathan E. Bryant which ordered him to pay $3,168,184.70 in connection with his role as the Chief Executive Officer of 8000, Inc., a defunct former penny stock issuer. The SEC Action alleges that, in 2009 and 2010, Bryant directed a scheme to inflate 8000, Inc.’s stock price while secretly controlling a majority of the company’s shares and directing its operations.

In addition to Bryant, the SEC action also charged 8000, Inc’s former Chief Executive Officer, Thomas Kelly, and its securities attorney, Carl N. Duncan. The SEC action alleged that Jonathan Bryant, Carl Duncan and Thomas  Kelly took part in a scheme to manipulate the trading volume and price of 8000 Inc.’s common stock by disseminating false information about the company and simultaneously selling or facilitating the sale of its securities which were not supposed to be for sale to the general public. Read More

On April 10, 2015, the Securities and Exchange Commission (“SEC”) charged Mieka Energy Corporation, and its founder and president Daro Ray Blankenship, with fraudulently offering oil and gas investments. Two of Mieka’s salesmen, Robert William Myers, Jr. and Stephen Romo, were charged with acting as unregistered brokers.

The SEC action also charged Mieka’s publicly traded parent company, Vadda Energy Corporation, with fraud and reporting violations for deceptively touting the success of Mieka’s investments. The SEC action alleges that, between September 2010 and October 2011, Blankenship and Mieka raised $4.4 million from approximately 60 investors by selling interests in joint ventures that were to drill and complete two gas wells. Read More

On March 6, 2015, the Securities and Exchange Commission (“SEC”) announced that the United States District Court of New Jersey entered a judgment against Michael M. Cohen. Cohen received a lifetime officer-director bar, lifetime penny stock bar and an injunction prohibiting him from violating certain provisions of the federal securities laws.

The District Court’s judgment, which was entered by consent, permanently enjoined Cohen from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933; Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (the “Exchange Act”); Rules 10b-5, 13a-14, and 13b2-1 thereunder; and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. Read More

On April 10, 2015, the Securities and Exchange Commission (“SEC”) announced the trading suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (“Exchange Act”), of trading in the securities of Triumph Ventures Corp. (“Triumph Ventures”) of Jerusalem, Israel, at 9:30 a.m. EDT on April 10, 2015 and terminating at 11:59 p.m. EDT on April 23, 2015.

Triumph Ventures’ securities are quoted under the trading symbol “TRVX” quoted on OTC Link operated by OTC Markets Group, Inc. The Commission temporarily suspended trading in the securities of Triumph Ventures due to a lack of current and accurate information concerning, the company’s control persons, officers, directors, and the ownership of its stock. Read More

The Securities and Exchange Commission (“SEC”) recently approved Rule 2040 proposed by the Financial Industry Regulatory Authority (“FINRA”) which applies to the payment of transaction based compensation to unregistered persons by member firms.  Rule 2040 will allow member firms to pay fees, concessions, discounts, commissions or other allowances to unregistered persons if the member firm determines the unregistered person’s activities do not require registration as a broker-dealer.

Support for the determination of whether registration is required can be derived by reasonably relying on previously published releases, no-action letters or SEC staff interpretations, seeking a no-action letter from the SEC, or obtaining a legal opinion from an independent securities attorney. Read More

On April 8, 2014, the Securities and Exchange Commission (“SEC”) announced the temporary trading suspension of eCareer Holdings, Inc. of Boca Raton Florida. The trading suspension was issued pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”). The trading suspension will terminate at 11:59 p.m. EDT on April 21, 2015.

The trading suspension in the securities of eCareer was issued because of concerns about the accuracy and adequacy of publicly disseminated information concerning its SEC filings, among other things. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act). Read More

The Securities and Exchange Commission (“SEC”) Division of Enforcement filed suit against GC Resources, LLC and Brian J. Polito for oil and gas fraud.  According to the allegations, Polito defrauded investors through the sale of interests in oil and gas wells in a company he did not own. Through GC Resources, Polito solicited investors using cold calls and sent potential investors a package that included an accredited investor survey, joint venture agreement, operating agreement, and limited power of attorney. Despite using accredited investor questionnaires borrowed from another entity, GC Resources still sold investments to approximately thirty-five non-accredited investors. According to the allegations, Brian J. Polito had a falling out with his former colleagues, and then bought out their interests in GC Resources. GC Resources continued to conduct legitimate business until December 2011, selling interests in approximately twenty-five wells, some of which are still producing.

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The Financial Industry Regulatory Authority (“FINRA”) and the Securities and Exchange Commission (“SEC”) regularly discipline errant brokers and financial advisers, but Leonard Eric Burd’s case is unusual by any standard.  On March 31, the SEC announced that it had settled an administrative proceeding it had brought against Burd, a former stockbroker.  Burd agreed to accept a permanent penny stock bar; he’d earlier been sanctioned by FINRA. 
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Short sale conspiracy theorists will be pleased to learn that on March 25, 2015, The Financial Industry Regulatory Authority (FINRA) announced sanctions of $916,000 against Short Seller, First New York Securities L.L.C. for short selling ahead 14 public offerings of securities, of which it was participating, in violation of Rule 105 of Regulation M. First New York Securities was also sanction for related supervisory violations. FINRA ordered First New York to pay disgorgement of more than $516,000, plus interest, and fined the firm $400,000. Additionally, the firm is prohibited from participating in secondary or follow-on offerings for six months.

Rule 105 of Regulation M under the Securities Exchange Act of 1934 generally prohibits buying securities in secondary offerings when the purchaser sold short the security that is the subject of the offering during a specific restricted period – typically five business days – before the secondary offering is priced. Read More

The Securities and Exchange Commission (SEC) Division of Enforcement is pursuing unregistered broker-dealer activity which runs rampant in the penny stock markets.  With a reduction of the number of small broker-dealers, there have been limited sources of capital available to small business issuers. As such, many have turned to finders and intermediaries. Recent enforcement actions demonstrate there are serious consequences for those who engage in unregistered broker-dealer activity. We expect the regulatory focus on unregistered broker-dealer activity to increase with the use of general solicitation and general advertising in Accredited Crowdfunding Offerings under Rule 506(c) offerings and Regulation A+.  Read More

The Securities and Exchange Commission (SEC) announced the temporary trading suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (“Exchange Act”), of trading in the securities of Winsonic Digital Media Group, Ltd. (WDMB), commencing at 9:30 a.m. EDT on March 24, 2015 and terminating at 11:59 p.m. EDT on April 7, 2015.

The SEC temporarily suspended trading in WDMG due to a lack of current and accurate information concerning WDMB’s securities because it has not filed any periodic reports since the period ending September 30, 2008, or any reports since June 2011.

The SEC cautions brokers, dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company. Read More

Recently, the FINRA Investor Education Foundation issued a new research report about the impact of financial fraud on its victims. FINRA’s report revealed that nearly two thirds of self-reported financial fraud victims experienced at least one non-financial cost of fraud to a serious degree—including severe stress, anxiety, difficulty sleeping, and depression. FINRA Foundation’s research examines the broader psychological and emotional impact of securities and other forms of financial fraud.

“Financial Fraud’s effects linger and cause distress well after the scam is over. For the first time, we have data on the deep toll that fraud exerts on its victims, and the results are sobering. This new research underscores the importance of the FINRA Foundation’s work with an array of national, state and local partners to help Americans avoid fraud, and assist consumers who have been defrauded,” said FINRA Foundation President Gerri Walsh. Read More

When a company is involved in bankruptcy proceedings, the letter “Q” is added to the end of the company’s stock ticker/trading symbol.

More often than not, bankruptcy is the kiss of death for a public company.

In most cases, when a company emerges from bankruptcy, the bankruptcy reorganization plan will involve reverse stock splits or other acts which dilute or cancel the existing common shares and the old shares will be worthless. Given that risk, before investing in the shares of a bankrupt company, investors should read the company’s proposed plan of reorganization.  Read More

When a person or group of persons acquires beneficial ownership of more than 5% of a voting class of a company’s equity securities registered under Section 12 of the Securities Exchange Act of 1934 (“Exchange Act”), they are required to file a Schedule 13D with the SEC.

Once a company completes its going public transaction and the staff of the Securities and Exchange Commission (SEC) declares its Form registration statement effective under the Securities Act of 1933, as amended (Securities Act), the  company will become subject to the SEC’s periodic reporting requirements.  Companies can also become subject to the SEC’s reporting requirements by filing a registration statement under the Securities Exchange Act of 1934, as amended such as a Form 10 for Form 8-A.

These requirements stipulate that the company must file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K on an ongoing basis.  Holders of 5% or more of a company that registers a class of securities under the Exchange Act become obligated to file certain beneficial ownership reports including Schedule 13D. Read More