SEC Charges Dr. Loretta Itri with Insider Trading of Genta
Brenda Hamilton, Securities Attorney
On April 21, 2014, the Securities and Exchange Commission (the “SEC”) charged a former biopharmaceutical company executive and two others with insider trading on confidential information about the company’s key developmental drug. The company’s stock price fell sharply when it announced clinical trial results for the drug. Read More
SEC Guidance on Rule 147 Intrastate Offerings & Crowdfunding
On April 10, 2014, the Securities and Exchange Commission (“SEC”) issued a revised compliance and disclosure interpretation (“C&DIs”) and provided two new questions concerning crowdfunding under the JOBS Act and the intrastate exemption provided by Rule 147 under the Securities Act of 1933, as amended (the “Securities Act”). Section 3(a)(11) of the Securities Act provides an exemption from the registration statement requirements for any securities offering that is offered and sold only to persons who reside in a single state, where the issuer of the securities is incorporated in and doing business within, the single state.
Rule 147 under the Securities Act (“Rule 147”) provides a safe harbor for offerings conducted in compliance with the requirements of Section 3(a)(11).
Rule 147 requires that the issuer be a resident of, and do business in, the same state in which all offers and sales of securities are made. Additionally, the securities offering may not be offered or sold to any person who is not a resident of such state.
General Solicitation & Advertising In Rule 147 Intrastate Offerings (Question 141.03)
The SEC stated that Rule 147 does not prohibit an issuer from using general advertising or general solicitation in their securities offering; however, any general solicitation or advertising must consistent with Rule 147’s requirement that offers be made only to persons who reside in the state or territory of where the issuer is domiciled and conducts its business.
Issuer Websites to Offer Securities In Reliance Upon Rule 147 (Question 141.05)
This SEC states that issuers generally communicate through their company websites and social media in a broad and indiscriminate manner to the general public. While the specific facts and circumstances of the particular offering would determine if a communication is an offer of securities, the SEC stated that using an established internet presence to disseminate information about a specific offering would likely involve offers to residents outside the state in which the issuer is domiciled and conducts business.
The Use of Internet Portals In Rule 147 Offerings (Question 141.04)
This SEC states that an issuer claiming an exemption under Rule 147 from the registration statement requirements may use an internet portal to promote its offering to residents of a single state in accordance with a state statute or regulation intended to enable crowdfunding within that state if the portal implements safeguards to ensure that offers of securities are made only to persons residing in the relevant state. These safeguards must include, at a minimum:
● Disclaimers and restrictive legends setting forth that the offering is limited to residents of the relevant state under applicable law; and
● Limiting access to the offering information to persons who confirm they are residents of the relevant state.
For more information on Smaller Reporting Company Requirements in Going Public Transactions please visit our blog at http://www.gopublic101.com/blog.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com
Contemporaneous Private & Public Offerings l Going Public Lawyers
Issuers often require capital during the going public process for their operations until their registration statement on Form S-1 is declared effective. The SEC’s integration doctrine addresses the circumstances under which an issuer can raise capital privately while a registration statement is pending for a public offering. The integration doctrine under was created to prevent companies from improperly avoiding registration by dividing a single securities offering into multiple offerings to take advantage of Securities Act exemptions that would not be available for the combined offering. Read More
Smaller Reporting Companies In Going Public Transactions
The Securities Act of 1933, as amended (“Securities Act”) and the Securities Exchange Act of 1934, as amended (“Exchange Act”), establish different levels of disclosure and reporting requirements based upon the size of the issuer. Issuers who qualify as a smaller reporting company enjoy numerous benefitsin going public transactions including reduced disclosure and reporting obligations.
By streamlining their disclosures small businesses are able to focus their efforts on capital raising activities.
An issuer with Smaller Reporting Company status during its going public transaction may apply the Smaller Reporting Company disclosure rules to its registration statement on Form S-1. This reduces an issuer’s financial statement obligations to two years instead of the three years required for larger reporting companies.
If a company does not qualify as a Smaller Reporting Company at the time of its initial Form S-1 registration statement, it must provide three years of audited financial statements. Read More
SEC Brings Insider Trading Charges in Connection With Deepwater Horizon Oil Spill
On April 17, 2014, the Securities and Exchange Commission charged a former employee of BP p.l.c. and a senior responder during the 2010 Deepwater Horizon oil spill with insider trading in BP securities based on confidential information about the magnitude of the disaster. The price of BP securities fell significantly after the April 20, 2010 explosion on the Deepwater Horizon rig, and the subsequent oil spill in the Gulf of Mexico, resulted in an extensive clean-up effort.
SEC Charges Telexfree in Pyramid Scheme Immigrants l By Brenda Hamilton Attorney
On April 17, 2014, the Securities and Exchange Commission (the “SEC”) announced it filed charges against the Massachusetts-based operators of a large pyramid scheme that mainly targeted Dominican and Brazilian immigrants in the U.S. The charges were filed under seal, in connection with the Commission’s request for an immediate asset freeze. Read More
The Use of Testimonials in Social Media by Investment Advisers
Generally, SEC rules prohibit investment advisers from using testimonials in their advertisements. In the past several years, the SEC has encountered a number of questions concerning investment advisers’ use of social media. Social media has facilitated consumers’ ability to research and conduct their own due diligence on current or prospective service providers. The use of social media has increased the demand by consumers for independent, third-party commentary or review of any manner of service providers, including investment advisers. Read More
Forex Scams 101 l Brenda Hamilton, Attorney
The Commodity Futures Trading Commission (CFTC) and the North American Securities Administrators Association (NASAA) warn that off-exchange forex trading is at best extremely risky, and at worst, outright fraud. Forex scams are on the rise and a hot new target for the Justice Department and state regulators. Forex scammers often operate multiple businesses and it is common for these fraudsters to operate other types of scams domestically and internationally including boiler rooms, pay day loan stores, credit repair services and penny stock manipulation schemes.
Section 302 and 906 Certifications l Brenda Hamilton Attorney
Chief Executive Officers (“CEO”) and Chief Financial Officers (“CFO”) of public companies must certify the issuer’s annual report on Form 10-K and quarterly report on Form 10-Q. Each issuer must also have disclosure controls and procedures and internal control over financial reporting.
The issuer’s CEO and CFO are each required to make two certifications in the issuer’s Form 10-Q and 10-K reports. These are the “Section 302” and “Section 906” certification. Read More
The Laws That Apply to Finders l Securities Lawyer 101
Companies seeking capital are frequently approached by finders who offer to locate investors in exchange for a fee. This is particularly true in going public transactions. Most finders are not registered as broker-dealers with the Securities and Exchange Commission (“SEC”).
The possibility of receiving capital even through the efforts of a finder creates a tempting opportunity for issuers who need capital. Read More
U.S. Issues Indictment Against Caribbean Money Laundering Operators
Joshua Vandyk, a U.S. citizen, and Eric St-Cyr and Patrick Poulin, Canadian citizens, were indicted for conspiracy to launder monetary instruments, the Department of Justice and Internal Revenue Service (IRS) announced on March 24, 2014. Read More
Summary Financial Information in Form S-1 Registration Statements
Under the JOBS Act, an Emerging Growth Company may provide two years of summary financial information in its SEC registration statement or for the period from the date of the company’s inception, if shorter, and any interim periods that are included in the financial statements. Read More
Form S-1 Risk Factor Disclosures l Securities Lawyer 101
Form S-1 Risk Factor Disclosures l Securities Lawyer 101
The Securities Act of 1933 is often called the “truth in securities” law. It has two basic objectives: to require that investors receive financial and other important information about securities being offered for sale, and to prohibit deceit, misrepresentation, and other fraud in the sale of securities. Read More
SEC Suspends Grow Life l PHOT
On April 10, 2014, the U.S. 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 of the securities of GrowLife, Inc. (“PHOT”) of Woodland Hills, California.
The suspension commenced at 9:30 a.m. EDT on April 10, 2014, and terminates at 11:59 p.m. EDT on April 24, 2014.
Beware of False Claims About Registration Statements
Securities Lawyer 101
The SEC issued a recent investor alert to warn the public about potentially fraudulent investment schemes that involve individuals or firms misrepresenting that they have filed registration statements with the SEC. Investors should be careful to check the background, including license and registration statement status, of any person who tries to sell them an investment product or service, and should avoid investing with anyone who falsely represents that they are registered with the SEC. Read More
Criminal Prosecution in Corporate Hijackings
The Justice Department has selectively pursued criminal charges against fraudsters using corporate hijackings for illegal takeovers of publicly traded shell companies. In many instances, a transfer agent have been charged in connection with the schemes. Recent examples include the criminal conviction of Lawrence S. Hartman, a Florida securities lawyer. Hartman recently pled guilty to a charge of conspiracy to commit mail and wire fraud in connection for a scheme involving corporate hijackings and shell trafficking.
Hartman faces up to 20 years’ imprisonment and a maximum fine of $250,000.
According to the charges, the defendants in the case conspired to steal the identities of dormant, publicly-traded shell companies, use the corporate identities they had stolen to create fraudulent empty-shell companies which had the appearance of being publicly-traded, and sell those fraudulent empty-shell companies for use in reverse merger transactions. Read More
Corporate Hijackings & The Assault On Small Companies
Corporate hijackings, also known as corporate identity theft, of public shell companies has been around for more than a decade. It is a growing method used by fraudsters to acquire control of publicly traded shell companies to use in reverse merger transactions involving private companies seeking to go public.
Recent SEC cases against hijackers have unraveled a myriad of hijacking schemes varying in sophistication. Read More
SEC Charges Joseph Signore in Ponzi Scheme
On April 8, 2014, the Securities and Exchange Commission announced fraud charges and an asset freeze against the operators of a South Florida-based Ponzi scheme targeting investors through YouTube videos and selling them Read More
SEC Charges Empire Stock Transfer l Securities Lawyer 101 Blog
On April 8, 2014, the Securities and Exchange Commission announced enforcement actions against two leaders at a Las Vegas-based transfer agent firm who were responsible for disclosure failures in registration forms filed with the SEC. Empire Stock Transfer Inc. and the two individuals agreed to settle the SEC’s charges. Publicly traded companies typically use transfer agents to keep track of individuals and entities that own their stocks and bonds. Transfer agents generally act as an intermediary for the company, issue and cancel certificates upon changes in ownership, and handle certificates that are lost, destroyed, or stolen. Read More
SEC Settles Fictitious Offering Case Against Mia Baldassari
Securities Lawyer 101 Blog
The Securities and Exchange Commission (SEC) announced that on March 4, 2014, Judge Rosemary Collyer entered a final judgment against relief defendant Mia Baldassari. The SEC’s complaint alleged that Baldassari received $24,500 in investor funds to which she had no lawful claim.
Without admitting or denying the allegations of the complaint, Mia Baldassari consented to the entry of a final judgment that orders that she is liable for disgorgement of $24,500, and that such amount shall be deemed satisfied from funds she deposited into the court’s account. Read More
SEC Charges Firm with Spoofing & Layering
On April 4, 2014, the Securities and Exchange Commission charged Joseph Holmdel and others, including a New Jersey based brokerage firm, with manipulative trading of publicly traded stocks through an illegal practice known as “layering” or “spoofing.”
The SEC also charged the owner and others for registration violations. Two firms and five individuals agreed to pay a combined total of nearly $3 million to settle the case. Read More
SEC Charges Two Friends With Insider Trading of Chicago Bridge & Iron
On April 4, 2014, the Securities and Exchange Commission charged two friends with insider trading on confidential information from an investment banker about an impending transaction between engineering and construction companies. Read More
SEC Charges Two With Insider Trading
On March 31, 2014, the Securities and Exchange Commission (“SEC”) announced two separate cases against men who profited by insider trading on confidential information they learned from their wives about Silicon Valley-based tech companies.
“Spouses and other family members may gain access to highly confidential information about public companies as part of their relationship of trust,” said Jina L. Choi, director of the SEC’s San Francisco Regional Office. Read More
Promoters Indicted in Connection with Super Nova Resources
On April 1, 2014, United States Attorney Zane David Memeger announced an indictment charging a market manipulation scheme against six defendants in connection with the trading of stock in Super Nova Resources, Inc. (“SNRR”).
Charged with conspiracy, wire fraud, and securities fraud are: Carl Marciniak, 50, of California, Jeffrey Weinfurter, 46, of Yorba Linda, CA, James Wheeler, 54, of Corona, CA, Daniel Starczewski, 67, of Cornelius, NC, Danny Colon, 46, of Edgewater, NJ, and Louis Buonocore, 59, of Woburn, MA. Read More
SEC Director Keith Higgins Addresses Rule 506 (c)
On March 28, 2014, Keith Higgins, the Director of the SEC’s Division of Corporation Finance, delivered a speech at the closing session of the 2014 Angel Capital Association Summit. One focus of the speech was the elimination of the prohibition against general solicitation and investor verification procedures in Rule 506(c) offerings. Read More
Securities Lawyers Gone Wild l John Silvia Indicted
On March 28, 2014, the FBI announced that John Silvia, 55, purportedly the “managing member” of Richardson Consulting LLC, was charged with securities, mail, and wire fraud. He was arrested on February 7, 2014. Read More
What is a Wells Notice ? Securities Lawyer 101
After the staff of the Securities and Exchange Commission (“SEC”) Division of Enforcement staff has completed its investigation, it may send a notice (“Wells Notice”) to the party being investigated notifying them that it intends to recommend an SEC enforcement action. Under SEC Rules, in response to a Wells Notice, the recipient is entitled to reply by providing a “Wells Submission”. A Wells Submission presents facts and arguments to persuade the SEC’s staff to not pursue an enforcement action.
If the SEC staff proceeds with its recommendation the SEC’s Division of Enforcement will review the recommendation and the Wells Submission.
After its review it will decide whether to an enforcement proceeding should be pursued. Accordingly, the receipt of a Wells Notice does not necessarily indicate that charges will be filed. Recent data suggests that the SEC does not act on 20% of the wells notices issued.
Issuers must determine whether they should publicly disclose a Wells Notice in their SEC or OTC Markets filings.
Wells Notice Disclosure Obligations
The securities laws do not require disclosure of every fact. An issuer is under no duty to disclose a specific material fact except where disclosure:
(1) is dictated by a specific statute or regulation;
(2) would be necessary to render what the issuer previously disclosed is not misleading; or
(3) when the issuer is trading in its own stock.
Public companies are required to make disclosures necessary to prevent existing disclosures from being misleading. Thus, an issuer may have a duty to disclose the existence of the receipt of a Wells Notice if the issuer’s prior statements would be rendered inaccurate or incomplete without such a disclosure.
The Court in Richman v. Goldman Sachs Group, Inc., et al., No. 1:10-cv-03461-PAC, slip op. (S.D.N.Y. June 21, 2012) rejected the argument that the issuer had an affirmative duty to disclose the receipt of Wells Notices directed to it and to two of its employees, under Regulation S-K Item 103, FINRA Rules. The court held that under Regulation S-K, Item 103, a governmental investigation, even one in which a Wells Notice has been issued, does not rise to the level of a “pending legal proceeding.” The court explained that while a Wells Notice “may be considered an indication that the staff of a government agency is considering making a recommendation” to institute a legal proceeding, such a notice is “well short of litigation.” Until an SEC investigation “matures to the point where litigation is apparent and substantially certain to occur…disclosure is not required.” In its ruling, the court noted that “no court has ever held that Regulation S-K Item103 creates an implicit duty to disclose receipt of a Wells Notice.”
The court also rejected the plaintiffs’ argument that the issuer’s existing public disclosures triggered the duty to disclose its subsequent receipt of a Wells Notice. The issuer had disclosed that there were governmental investigations concerning certain of its business practices. The issuer did not, however, update its public disclosures when it received a Wells Notice from the SEC. The plaintiffs argued that by failing to disclose that the government inquiries resulted in a Wells Notice, the issuer’s public disclosures were misleading. The court noted that the plaintiffs did not, and could not, allege that the Wells Notice was an indication that litigation was substantially certain to occur. “At best,” the court noted, “a Wells Notice indicates not litigation but only the desire of the Enforcement staff to move forward, which it has no power to effectuate.” Thus, the issuer’s receipt of the Wells Notice merely indicated that “governmental investigations were indeed ongoing,” which was consistent with its disclosure of the existence of governmental investigations.
The court stated “a corporation is not required to disclose a fact merely because a reasonable investor would very much like to know that fact.” Issuers are “not obligated to predict and/or disclose their predictions regarding the likelihood of suit,” and a Wells Notice is a “contingency that need not be disclosed.”
For more information about the SEC investigations and responses to SEC subpoenas and Wells Notices, see:
http://www.sec.gov/divisions/enforce/enforcementmanual.pdf
Securities lawyer, Brenda Hamilton provides legal advice to market participants about securities matters including SEC investigations and testimony.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com
SEC Charges L&L Energy and Its Managment
On March 27, 2014, the Securities and Exchange Commission announced fraud charges against a Seattle-headquartered coal company, L&L Energy, and its founder for making false disclosures about who was running the company. Read More
SEC Suspends Advanced Cannabis Solutions
On March 27, 2014, the Securities and Exchange Commission (“Commission”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (“Exchange Act”), of trading in the securities of Advanced Cannabis Solutions, Inc. (“Advanced Cannabis”) of Colorado springs, Colorado, at 9:30 a.m. EDT on March 27, 2014, and terminating at 11:59 p.m.EDT on April 9, 2014. Read More
OTCQB Fees & Listing Requirements
OTC Markets Group has announced it is making significant changes to its OTCQB. Companies seeking to be quoted on the OTCQB will be required to meet eligibility standards and pay an initial listing fee of $2,500 to the OTC Markets if not listed on the OTCQB and pay annual fees of $10,000 per year. Issuers currently listed are exempt from the one-time applicationOTCQB fee and the annual fee for the first two years is $7,500. Read More
