Are You Ready? T+1 Trade Settlement Begins Next Week
On May 21, 2024, Securities and Exchange Commission Chair Gary Gensler formally announced the U.S. securities market’s switch to a T+1 standard settlement cycle. “T+1” means all trades in all U.S. markets will be settled the day after execution. The change will become effective on Tuesday, May 28. Gensler explained briefly:
For everyday investors who sell their stock on a Monday, shortening the settlement cycle will allow them to get their money on Tuesday. Shortening the settlement cycle also will help the markets because time is money and time is risk. It will make our market plumbing more resilient, timely, and orderly. Further, it addresses one of the four areas the staff recommended the Commission address in response to the GameStop stock events of 2021. Read More
PCAOB Imposes a $400,000 Fine and Sanctions MaloneBailey, LLP for Pervasive Quality Control Violations
Less than a month after one of the biggest auditing firms in the public markets, BF Borgers, and its owner, Benjamin Borgers, were permanently banned and fined a combined $14 million by the Securities and Exchange Commission (the “SEC”) for massive quality control issues, another large auditing firm involved in the public markets is facing fines and sanctions, this time from the Public Company Accounting Oversight Board (PCAOB). On May 21, 2024, the PCAOB announced it was imposing a $400,000 fine and sanctions against MaloneBailey LLP (“MaloneBailey” or the “Firm”) for violations of PCAOB rules and quality control standards.
MaloneBailey is a public accounting firm headquartered in Houston, Texas. It is licensed to practice public accounting by the Texas State Board of Public Accountancy (License No. P05522), among other states.
According to the Disciplinary Order issued by the PCAOB, from 2018 to 2021, PCAOB inspection staff conducted three inspections of MaloneBailey. During each of these inspections, the PCAOB notified the firm of significant audit deficiencies that raised concerns about the firm’s engagement performance. Despite the firm’s awareness of these deficiencies and concerns, it failed to make effective changes to improve its system of quality control. Read More
SEC Issues BF Borgers Exemptive Order For SEC Reporting Companies
On May 20, 2024, the Securities and Exchange Commission (“SEC”) provided exemptive relief to certain SEC reporting companies affected by the SEC’s permanent suspension of BF Borgers CPA PC and its owner, Benjamin F. Borgers (together, “BF Borgers”), from appearing and practicing before the SEC as an accountant. It is expected that public companies that previously retained BF Borgers will need to engage a new, qualified, independent, PCAOB-registered public accountant to audit or review the financial information included in their SEC filings to comply with SEC Reporting Requirements. Read More
CAT’s Cradle – Ongoing Problems with the SEC’s Consolidated Audit Trail
In July 2012, the SEC adopted a new Rule 613 under Section 11A(a)(3)(B) of the Securities Exchange Act of 1934 (“Exchange Act”). It would require national securities exchanges and national Self-Regulatory Organizations (“SROs’) “to act jointly in developing a national market system (‘NMS’) plan to develop, implement, and maintain a consolidated order tracking system, or consolidated audit trail, with respect to the trading of NMS securities.” While the Financial Industry Regulatory Authority (“FINRA”) and the SROs did have their own audit trail systems, they were “limited in their scope in varying ways.” The answer was to create a new, truly comprehensive system:
A consolidated audit trail would significantly aid in SRO efforts to detect and deter fraudulent and manipulative acts and practices in the marketplace, and generally to regulate their markets and members. In addition, such an audit trail would benefit the Commission in its market analysis efforts, such as investigating and preparing market reconstructions and understanding causes of unusual market activity. Read More
Trump Media’s auditing firm, BF Borgers, busted for “massive fraud”
On May 3, 2024, the Securities and Exchange Commission announced an enforcement action against auditing firm BF Borgers CPA PC and its principal, Benjamin F. Borgers. The regulator charged the firm with “deliberate and systemic failures to comply with Public Company Accounting Oversight Board (PCAOB) standards in its audits and reviews incorporated in more than 1,500 SEC filings from January 2021 through June 2023.” Moreover, Borgers assured its many clients that their work was compliant with PCAOB standards when that was not the case, and went so far as to fabricate documentation to make it look as if PCAOB standards had been met.
Gurbir S. Grewal, director of the SEC’s Division of Enforcement, called the matter “one of the largest wholesale failures by gatekeepers in our financial markets,” adding that:
As a result of their fraudulent conduct, they not only put investors and markets at risk by causing public companies to incorporate non-compliant audits and reviews into more than 1,500 filings with the Commission but also undermined trust and confidence in our markets. Because investors rely on the audited financial statements of public companies when making their investment decisions, the accountants and accounting firms that audit those statements play a critical role in our financial markets. Borgers and his firm completely abandoned that role, but thanks to the painstaking work of the SEC staff, Borgers and his sham audit mill have been permanently shut down.
Benjamin Borgers and the firm agreed to settle the charges. BF Borgers will pay a $12 million civil penalty and Benjamin Borgers will pay a $2 million civil penalty. Both are immediately suspended from appearing or practicing before the Commission. Read More
SEC permanently bans BF Borgers and its owner Benjamin Borgers and fines them a combined $14 million for accounting fraud
On May 3, 2024, the Securities and Exchange Commission (the “SEC“) charged audit firm BF Borgers and Its owner, Benjamin F. Borgers (together, “Respondents”), with Massive Fraud affecting more than 1,500 SEC filings. The SEC found that Borgers committed deliberate and systemic failures to comply with Public Company Accounting Oversight Board (PCAOB) standards in its audits and reviews incorporated in more than 1,500 SEC filings from January 2021 through June 2023.
The SEC also charged the Respondents with falsely representing to their clients that the firm’s work would comply with PCAOB standards; fabricating audit documentation to make it appear that the firm’s work did comply with PCAOB standards; and falsely stating in audit reports included in more than 500 public company SEC filings that the firm’s audits complied with PCAOB standards.
According to the Order against the Respondents, from January 2021 through June 2023, BF Borgers had 350 clients who were required under the SEC’s rules and regulations to have their financial statements audited and/or reviewed by a PCAOB-registered accounting firm in accordance with PCAOB standards and to incorporate those financial statements into filings made with the SEC. Read More
SEC Nails BF Borgers and Ben Borgers – Issuers Must Obtain New Auditors
On May 3, 2024, the Securities and Exchange Commission provided a statement for issuers impacted by its enforcement action against BF Bofgers CPA PC. According to the SEC Action against BF Borgers, approximately 500 issuers used the services of BF Borgers for their audits between January 2021 through June 2023.
On May 3, 2024, the SEC entered an order instituting settled administrative and cease-and-desist proceedings[2] against BF Borgers CPA PC and its sole audit partner Benjamin F. Borgers CPA (individually and together, “BF Borgers”), finding that, among other things, BF Borgers:
- deliberately and systematically failed to conduct audits and quarterly reviews in accordance with applicable Public Company Accounting Oversight Board (“PCAOB”) standards;
- fraudulently issued audit reports that falsely represented that audits had been performed in accordance with PCAOB standards; and
- caused audit clients to violate certain provisions of the Exchange Act and rules thereunder, including Exchange Act Sections 13(a) and 15(d).
The Order denies BF Borgers the privilege of appearing or practicing before the Commission as an accountant. As a result, BF Borgers may not participate in or perform the audit or review of financial information included in Commission filings, issue audit reports included in Commission filings, provide consents with respect to audit reports, or otherwise appear or practice before the Commission.
A significant number of issuers will be impacted by the Order against Borgers. The SEC statement was issued to assist issuers in complying with their disclosure and reporting obligations in light of the Order involving BF Borgers. We encourage all issuers that have previously engaged BF Borgers as their independent auditor to consider the findings and sanctions discussed in the Order, taking into account their disclosure obligations under the federal securities laws. Read More
SEC Charges Convertible Note Dealer Tri-Bridge Ventures, LLC and John Francis Forsythe, III for Failure to Register
On April 29, 2024, the Securities and Exchange Commission (the “SEC“) charged John Francis Forsythe, III (“Forsythe”), a resident of New Jersey, and Tri-Bridge Ventures, LLC (“Tri-Bridge”), an entity he owns and controls, with failing to register with the SEC as securities dealers. As part of their business, Forsythe and Tri-Bridge allegedly engaged in convertible note financing and sold billions of shares of penny stock converted from such notes, generating millions of dollars in gross sales.
The SEC’s complaint, filed in the U.S. District Court for the District of New Jersey, alleges that, from at least February 2017 through at least November 2022, Forsythe and Tri-Bridge engaged in the business of entering into convertible notes with penny stock issuers or purchasing convertible notes or shares already converted from such notes from unaffiliated third parties, converting the notes into shares of stock at large discounts from market prices, and selling those newly issued shares into the public market at a significant profit. Forsythe and Tri-Bridge allegedly obtained convertible notes or shares already converted from such notes with respect to at least 31 separate issuers.
From approximately May 2019 to November 2022, with respect to at least 25 of those issuers, Forsythe and Tri-Bridge sold at least 10 billion shares of penny stock into the market, generating more than $18 million in gross sales (See Exhibit of Tri-Bridge Convertible Note Business). During their misconduct, Forsythe and Tri-Bridge were not registered with the Commission, and Forsythe was not associated with a registered broker-dealer. Read More
SEC obtains final judgment against relief defendant in George Stubos case
On April 15, 2024, the U.S. District Court for the Southern District of New York entered a final judgment against relief defendant Dori-Ann Stubos, ordering her to pay more than $2.3 million in disgorgement and prejudgment interest. In June 2022, the Securities and Exchange Commission (the “Commission”) charged George Stubos for engaging in a deceptive scheme involving several microcap companies. Dori-Ann Stubos, George Stubos’ wife, allegedly received illicit proceeds from George Stubos’ fraudulent scheme for no legitimate purpose or consideration, including for the purchase of a house in California in the name of Dori-Ann Stubos.
The court previously entered a final judgment against George Stubos by consent. George Stubos’ judgment ordered him, among other relief, to pay disgorgement of $5,367,926 and prejudgment interest of $806,108. This concludes the litigation in this matter. Read More
Ross Mandell Begins a New Life
Ross Mandell, a former broker and the owner of Sky Capital LLC and Sky Capital Holdings Ltd. was released from federal home confinement in early January of this year. He isn’t letting grass grow under his feet: he began working on plans for his new life well before his release. A cheerful and energetic Mandell plans to start new ventures, putting his lengthy struggles with the legal system behind him, though he still insists he committed no crimes.
We’ve written several times about his long journey through the courts. It all began back in 1998 when Mandell became involved with a broker-dealer called The Thornwater Company, L.P., and, after the dissolution of Thornwater, carried on with his own creation, Sky Capital, a brokerage that was active primarily in the U.K. and operated under the Sky Capital Holdings umbrella.
Sky specialized in offering private placements, most of them involving the stock of two related companies, Sky Holdings, which traded as “SKH” on the Alternative Investment Market (“AIM”) of the London Stock Exchange, and in a sister company called Sky Enterprises, which traded on the AIM as “SKE.” Both companies were incorporated in Delaware in 2001 and 2002; branches of both were incorporated in New York at the same time. The stock they offered was not registered with the SEC but issued pursuant to Regulation S, which requires that it cannot originally be sold to U.S. residents. As the holding period that comes with Reg S placements expired for investors, the stocks could trade freely on the AIM. Sky Capital Holdings was the sales agent for the stock in SKH and SKE. Read More
What are SEC Periodic Reporting Requirements? Securities Lawyer 101
Companies become subject to the SEC’s periodic reporting requirements in several ways, including by filing a registration under the Securities Act of 1933, as amended or pursuant to the Securities Exchange Act of 1934. The SEC’s periodic reporting rules require that publicly traded companies disclose a wealth of information to the public. Periodic reporting also requires that these reports be written in plain English. Understanding these reports helps investors make informed decisions regarding whether to buy, sell or hold a company’s securities.
Periodic reports serve as a platform for issuers to provide shareholders with transparency by sharing their stories. However, it’s important to note that companies that provide materially false or misleading statements or omit material information necessary to render a report not misleading in their periodic reports can face serious liabilities under federal and state securities laws. Investors can access a company’s Form 10-K, Form 10-Q and Form 8-K filings on the SEC’s EDGAR database to ensure they are well-informed. Read More
Reg A+ Securities Offerings and FAST Act
Prospective For Underwriters & Broker-Dealers: Due Diligence Considerations
Unlike traditional Initial Public Offerings (“IPOs”), there is no potential liability for issuers under Section 11 of the Securities Act in connection with Regulation A+ offerings. Sellers in Regulation A+ offerings are potentially liable under Section 12(a)(2) of the Securities Act for materially misleading statements in the offering circular or in oral communications. Accordingly, the potential Securities Act liability of issuers under a Regulation A+ offering is less than in connection with a Rule 506 offering but greater than in connection with an IPO.
As such, underwriters and broker-dealers participating in a Regulation A+ offering should require a level of due diligence and disclosure comparable to that of offerings registered with the Securities & Exchange Commission (“SEC”).
Tier I and Tier II offerings will be subject to review by the Financial Industry Regulatory Authority (“FINRA”) if broker-dealers participate in the Regulation A+ offering. Read More
Investor Relations 101 – The Securities Laws & Stock Promotion
What Is Investor Relations?
Investor relations or stock promotion involves disseminating information about a public company to increase its stock price and/or trading volume. The person who publishes this information is sometimes referred to as a “Stock Promoter”, “Investor Relations Provider” or “Stock Tout”.
How Do Investor Relations Firms Promote A Stock?
Stock Promoters use many techniques, including newsletters, email advertisements, internet postings, direct mail newsletters, stock websites and message boards, press releases and phone rooms to generate interest in the securities they are hired to promote. Read More
SEC Obtains Final Judgment Against Kevin Dills – Joseph Padilla Sentenced in Criminal Case
On March 19, 2024, the U.S. District Court for the District of Massachusetts entered final judgments against California resident Kevin C. Dills and two entities that Dills controlled, Bright Star International, Inc. and Life Sciences Journeys, Inc. In June 2023, the SEC charged Dills and Joseph A. Padilla for their roles in a fraudulent stock-selling scheme.
According to the complaint, Padilla engaged in a fraudulent scheme for his own benefit and also on behalf of individuals who paid Padilla to arrange illegal stock sales. The complaint alleges that those individuals hid their identities by selling stock through offshore accounts in different names that Padilla arranged. Read More
Going Public & Exchange Act Registration For Foreign Issuers
Foreign companies going public in the United States must file a registration statement covering a class of securities pursuant to the Securities Exchange Act of 1934, as amended (“Exchange Act”) if the class of securities will be listed on a United States national securities exchange such as NASDAQ. A foreign private issuer must register a class of equity securities under the Exchange Act unless the exemption provided by Exchange Act Rule 12g3-2(b) is available. If the foreign private issuer has assets in excess of $10 million and the class of securities is held of record by either (i) 2,000 persons or (ii) 500 persons who are not AIs (in both cases, of whom at least 300 are residents in the United States).
- Foreign private issuers are automatically eligible to rely upon the Rule 12g3-2 exemption if they satisfy the following conditions: A foreign private issuer must not be an SEC reporting company. That is, they must not be required to file or furnish reports under Sections 13(a) or 15(d) of the Exchange Act.
- The foreign private issuer must maintain a listing of its securities on a “Primary Trading Market” outside the United States. A Primary Trading Market is a foreign market that, either alone or together with another foreign market, accounted for at least 55% of the trading of the issuer’s securities on a worldwide basis during the foreign private issuer’s last fiscal year.
- If trading of the securities in two foreign markets is combined to meet the 55% threshold, then trading on at least one of the foreign exchanges must be greater than the trading in the U.S. markets.
OTC Markets 101 – The Basics of Listing – OTCQB
OTC Markets Group (“OTC Markets”) requires companies seeking quotation of their securities on the OTCQB® Venture Stage Marketplace (“OTCQB”) to have an initial and ongoing $0.01 per share minimum bid price, submit an initial OTCQB application, pay annual fees, and submit annual certifications to the OTC Markets. Companies that do not meet all of these requirements are demoted to the OTC Markets Pink® Marketplace (“OTC Pink”). OTCQB companies must also be reporting with the Securities & Exchange Commission (“SEC”). OTC Markets offers companies seeking public company status new alternatives for listing while ensuring transparency for investors. Read More
DTC Eligibility Q&A
The Depository Trust and Clearing Corporation (“DTCC”), through its subsidiaries, provides clearing, settlement and information services for securities. DTCC’s subsidiary, the Depository Trust Company (“DTC”), was created to improve efficiencies and reduce risk in the clearance and settlement of securities transactions. Not all securities are eligible to be settled through DTC. DTC eligibility has often become an unexpected burden for companies in going public transactions.
Issuers must satisfy the criteria set by DTCC to be settled through DTC. All companies must satisfy this criteria in order to be DTC eligible, including both Securities and Exchange Commission (“SEC”) reporting and non-reporting issuers. This presentation discusses the most common questions we receive about DTC eligibility has become a growing concern in going public transactions. Read More
Direct Public Offerings Q&A By Securities Lawyer 101
Going public transactions can be structured in numerous ways. The going public process is complicated and intricate, and it is important to have an experienced securities attorney to help your company navigate it and deal with the Securities & Exchange Commission (“SEC”), Financial Regulatory Authority (“FINRA”), and 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”). Read More
Form S-1 Registration, Filing and Requirements, Form S-1 and Going Public Lawyers
Private companies going public should consider Form S-1 filing requirements when contemplating their securities offering. Private companies seeking to raise capital often file a registration statement on SEC Form S-1 to meet certain requirements of the Financial Industry Regulatory Authority when going public. Upon filing, a Form S-1 is reviewed by the Securities and Exchange Commission, who may render SEC Comments. Once a Form S-1 is declared effective by the SEC, the company becomes subject to SEC reporting requirements.
All companies qualify to use and must comply with Form S-1 registration statement requirements. Unlike a Form 10 registration statement, which registers a class of securities, Form S-1 registers specific securities offerings or transactions and it does not become effective until all SEC comments have been resolved. Read More
Form 10 Registration Statements Q & A
Form 10 is a Registration Statement used to register a class of securities pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”). This article addresses common questions we receive from clients about Form 10 registration statements. Read More
Hamilton & Associates Law Group: Regulation A+ White Paper
Regulation A+
White Paper
www.securitieslawyer101.com
This publication is intended to provide information of general interest to the public and is not intended to offer legal advice about specific situations or problems. Hamilton & Associates Law Group, P.A. does not intend to create an attorney-client relationship by offering this information about Regulation A+, and your reliance on the information presented in this publication does not create such a relationship. You should consult a lawyer if you need legal advice regarding a specific situation or problem. © 2024 Hamilton & Associates Law Group, P.A.
A copy of this White Paper can be found at the following link:
https://www.securitieslawyer101.com/wp-content/uploads/2024/03/Reg-A-White-Paper-.pdf Read More
Form S-1 Registration Statement Attorneys – Going Public Lawyers
Private companies going public should consider Form S-1 filing requirements when contemplating their securities offering. Private companies seeking to raise capital often file a registration statement on SEC Form S-1 to meet certain requirements of the Financial Industry Regulatory Authority when going public. Upon filing, a Form S-1 is reviewed by the Securities and Exchange Commission, which may render SEC Comments. Once a Form S-1 is declared effective by the SEC, the company becomes subject to SEC reporting requirements. All companies qualify to use and must comply with Form S-1 registration statement requirements. 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. Companies conducting securities offerings should also be familiar with the Form S-1 quiet period.
A registration statement on Form S-1 can be used to register various types of securities offerings and transactions with the SEC. Form S-1 provides issuers with flexibility in the types of securities that can be registered. Hiring the right Form S-1 Registration Statement Lawyer can help the company structure its transaction in the most effective manner. Form S-1 is used more often by issuers than any other type of registration statement form and as a result, it provides flexibility. Form S-1 registration statements can be used by existing public companies or companies in connection with going public transactions.
Regardless of whether the company is public or private, Form S-1 can be used to register various types of transactions. This blog post addresses the most common questions we receive about going public using Form S-1 and the SEC registration statement process. Read More
Toxic Funders: Unregistered Dealers, Short Sellers, or Both?
We’ve often written about “toxic” promissory notes or preferred stock and the unregistered dealers who purchase them. These dealers are not the broker-dealers ordinary retail investors have accounts with. They are individuals with companies of their own that they use to provide financing to mostly microcap companies desperate for cash. In the long run, these financings almost always prove deadly for the issuers because of the way they are structured.
Initially, the company turns to a “toxic funder” or “dilution funder” for money. The company may even be solicited by a boiler room set up by one or more of these people. Like payday loan sharks, they seek out vulnerable CEOs whose companies aren’t gaining the traction they need to survive and offer them deals.
The deals are not good for the company or for the investors it already has. The funder will sometimes have done research in advance. If not, he’ll ask company management how much money is needed, and then he’ll draw up a stock purchase agreement or securities purchase agreement. He won’t be buying actual stock; instead, he’ll purchase a promissory note, preferred stock, or even a debenture. Whatever the instrument, it will be convertible to the issuer’s common stock. The terms of conversion will be explained in the securities purchase agreement and in the note itself. Read More
2024 Form 10K and 10-K Deadlines Chart
| Periodic Report | Large Accelerated Filers | Accelerated Filers | Non-Accelerated Filers |
| Form 10-K for Fiscal Year Ended December 31, 2023 | February 29, 2024 | March 15, 2024 | April 1, 2024 |
| Form 10-Q for Fiscal Quarter Ended March 31, 2024 | May 10, 2024 | May 10, 2024 | May 15, 2024 |
| Form 10-Q for Fiscal Quarter Ended June 30, 2024 | August 9, 2024 | August 9, 2024 | August 14, 2024 |
| Form 10-Q for Fiscal Quarter Ended June 30, 2024 | November 12, 2024 | November 12, 2024 | November 14, 2024 |
Ibrahim Almagarby Loses Unregistered Dealer Appeal
On February 14, 2024, the United States Court of Appeals for the Southern District of Florida made its ruling in the case of the Securities and Exchange Commission versus Ibrahim Almagarby and Microcap Equity Group, LLC, ruling in favor of the Commission that Almagarby was an unregistered “dealer” under the Exchange Act.
Almagarby was appealing a lower district court ruling in favor of the Commission from September 29, 2021, which ordered Almagarby to disgorge $885,126.30 in total net profits and $182,150.69 in prejudgment interest for a total of $1,067,276.99. The district court also permanently enjoined Almagarby from selling unregistered securities and from any future participation in penny-stock offerings. Read More
SEC Obtains Final Judgment against Jeffrey Auerbach for Role in Bribery Scheme
On February 5, 2024, the Securities and Exchange Commission (the “Commission”) obtained a final judgment against defendant Jeffrey Auerbach, whom the SEC previously charged for his role in a fraudulent scheme to bribe a stockbroker to buy a company’s stock in his customers’ accounts without the customers’ knowledge.
The SEC’s complaint was filed on October 4, 2019, in the federal district court in the Eastern District of New York.
According to the Complaint, from approximately July 2014 through October 2015 (the “Relevant Period”), Auerbach, a former registered representative (i.e., a stockbroker) and purported investor-relations professional; Jarid Mitchell, a purported investor-relations professional recently imprisoned for a previous securities fraud conviction; Richard Brown, a then-registered stockbroker; and Gino M. Pereira, the then-CEO of Nxt-ID, Inc. (“NXTD”), a “security technology” company and public issuer with common stock traded on the Nasdaq Capital Market, defrauded investors by knowingly or recklessly engaging in a stockbroker bribery scheme. NXTD now trades as LogicMark, Inc. (LGMK). Read More
Rule 144 Legal Opinions and Legend Removal Q&A
Section 5 of the Securities Act of 1933, as amended, (the “Securities Act”) requires the offer and sale of securities to be registered under the Securities Act, unless the security or transaction qualifies for an exemption from registration. Rule 144 of the Securities Act provides a safe harbor that permits holders of “restricted securities” to resell their securities in the public market if specific conditions are met. To resell restricted securities, the Company’s transfer agent will require a legal opinion as to the tradability of the shares. The legal opinion will discuss the resell exemption relied upon for the resale of the shares. Most often, this will be Rule 144.
This blog post discusses the most common questions we receive about Rule 144’s Safe Harbor. Read More
SEC Consent Judgments: Speak Now, or Forever Hold Your Peace
Most investors are likely unaware that they can petition the SEC for new rules or changes to old ones. They can even ask that rules be entirely repealed. All that’s needed is to send a proposal to the secretary of the SEC—now Vanessa Countryman—and wait for results. Petitioners come from wildly different backgrounds. Most are lawyers (often representing individuals or entities that have been sued by the Commission) or people who more broadly object to rules they believe to be unfair or even unconstitutional. For ordinary investors, objections to the “pattern day trading” rule, which is administered by FINRA, not the SEC, have long been popular—and even students occasionally weigh in. See the petition of Atticus Wong, a high school student in California, who wrote in connection with a class project about civic engagement.
The SEC explains the submission process simply:
Petitions must contain the text or substance of any proposed rule or amendment or specify the rule or portion of a rule requested to be repealed. Persons submitting petitions must also include a statement of their interest and/or reasons for requesting Commission action.
All petitions will be forwarded to the appropriate division or office of the Commission for consideration and recommendation. Following submission of the staff’s recommendation to the Commission, petitioners will be notified of any action taken by the Commission.
The agency will then post the petition on the appropriate page on its website, which is likely the last the petitioner will ever hear of it. Apparently, the Commission is not obliged to give serious consideration to any of the petitions it receives. When it responds at all, it usually does so only after years of delay, and the petitions graced by its acknowledgment are almost always denied. Read More
SEC Rules Affecting Rule 144 Legal Opinions and Shell Companies
The Securities and Exchange Commission (“SEC”) has published releases relating to Shell Companies that affect the use of Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), by shareholders of Shell Companies. In addition, the rules limit registration of securities on Form S-8 of the Securities Act and affect disclosures required in Form 8-K under the Securities Exchange Act of 1934, (the “Exchange Act”).
What is a Shell Company?
Securities Act Rule 405 and Exchange Act Rule 12b-2 define a Shell Company as a company, other than an asset-backed issuer, with no or nominal operations; and either:
- no or nominal assets;
- assets consisting of cash and cash equivalents; or
- assets consisting of any amount of cash and cash equivalents and nominal other assets.
FORM S-1 REGISTRATION STATEMENTS – WHAT COMPANIES NEED TO KNOW ABOUT FORM S-1 & GOING PUBLIC
Form S-1 Benefits & Going Public
When a company sells shares, the shares must be covered by an effective registration statement or exempt from the Securities & Exchange Commission’s registration statement requirements.
Form S-1 is the most commonly used registration statement form. The form offers flexibility to issuers allowing issuers to structure their securities offerings in a variety of ways, depending upon their particular needs.
All companies qualify to use Form S-1 regardless of their size, line of business and type of security being registered.
Even after The Jumpstart Our Business Startups Act (“JOBS Act”), Form S-1 is the most commonly used method of raising capital and going public. The form can be used to register shares for seed stockholders or larger accredited investors. Form S-1 provides transparency to investors and is a cost and time-effective solution for companies seeking to raise capital and go public. Read More