OTC Markets 101 l Going Public Attorneys

SEC Chairman Clayton Announces Additional Investor Roundtable in Baltimore for Main Street Investors to ‘Tell Us’ About Their Investor Experience

SEC Chairman Clayton Announces Additional Investor Roundtable in Baltimore for Main Street Investors to ‘Tell Us’ About Their Investor Experience Securities and Exchange Commission Chairman Jay Clayton announced that an additional investor roundtable to discuss the Commission’s recently proposed rules regarding the obligations of financial professionals to investors will be held in Baltimore on the evening of Sept. 20, 2018. Commissioners Kara Stein and Robert Jackson are expected to join Chairman Clayton and senior SEC staff at this event.

Six roundtable discussions already have taken place in Houston, Atlanta, Miami, Washington, D.C., Philadelphia, and Denver. In these roundtables, Main Street investors have had the opportunity to speak directly with Chairman Clayton and senior staff about the SEC’s efforts to enhance retail investor protection and promote choice and access to a variety of investment services and products.

“These investor roundtables have been incredibly valuable, and I have enjoyed engaging directly with our Main Street investors. It is important to me that we hear retail investors’ perspectives on how our proposed rules can better align standards of conduct with what they expect of their investment professionals,” said Chairman Clayton. “We have had many insightful discussions and received some great ideas. I look forward to speaking with more investors in Baltimore about their experiences.” Read More

SEC Charges Endurance International Group Holdings Inc. Executives With Inflating Operating Metrics

SEC Charges Former Online Marketing Company Executives With Inflating Operating Metrics

The Securities and Exchange Commission announced settled charges with two former top officers of Endurance International Group Holdings Inc. for overstating the company’s subscriber base, and charged a former executive of Constant Contact Inc. for making similar misrepresentations.

The SEC’s orders find that Endurance’s former chief executive Hari Ravichandran and former chief financial officer Waruna Ellawala knowingly provided inflated subscriber figures for the Massachusetts-based online marketing company. The SEC also filed a complaint in U.S. District Court in Massachusetts alleging that former Constant Contact CFO Harpreet Grewal hid its slowing customer growth from investors and inflated its publicly reported subscriber numbers. Constant Contact became a subsidiary of Endurance after it was acquired by it in 2016.

The SEC filed a settled enforcement action in June against Endurance and Constant Contact in which Endurance agreed to pay an $8 million penalty. In the latest action, Ravichandran and Ellawala agreed to settle the charges without admitting or denying them and pay $1.38 million and $34,000 respectively in disgorgement, interest, and penalties. They also agreed to cease and desist from further violations of various antifraud, reporting, books and records, and internal controls provisions of the federal securities laws. Read More

Barry Miller, Associate Director in Division of Investment Management, to Leave SEC After More Than 40 Years of Public Service

The Securities and Exchange Commission announced that Barry D. Miller, Associate Director of Disclosure Review and Accounting in the Division of Investment Management, will retire from the SEC at the end of this month after more than 40 years of public service, including more than 30 years of service at the SEC.

As an associate director overseeing the division’s disclosure and accounting review programs, Mr. Miller has been primarily responsible for the implementation of disclosure and accounting policy that impacts nearly 16,000 investment companies, including open-end, closed-end, exchange-traded funds, unit investment trusts, and business development companies. His work included overseeing the review of many novel funds involving new and unique structures and strategies, including some of the first exchange-traded funds. Mr. Miller also provided key counsel on all rules that impact or include disclosure and accounting requirements, from managing the overhaul of mutual fund disclosures following the 2009 “summary prospectus” reforms to building a new review system for fund annual reports as required by the Sarbanes-Oxley Act. Mr. Miller also has overseen the modernization of how the Division reviews fund disclosures, including incorporating the use of data to target key issues and increase the efficiency of the review process. Read More

SEC Files Charges Gannon Giguiere in Busted Microcap Schemes

SEC Files Charges in Busted Microcap Schemes

On July 13, 2018 The Securities and Exchange Commission charged a stock promoter and four others involved in an alleged series of microcap fraud schemes that were foiled by FBI undercover work and an SEC trading suspension.

According to the SEC’s complaint filed in federal court in southern California on July 6, stock promoter Gannon Giguiere took control of a purported medical device company. Giguiere, together with a Cayman Islands-based broker, then allegedly engaged in a matched trading scheme that caused the company’s share price to rise from zero to $1.20 per share.

Giguiere and the brokerage owner, Oliver-Barret Lindsay, allegedly coordinated their matched trading through an individual who turned out to be an FBI cooperating witness. According to the complaint, despite extensive encrypted communications, the defendants were caught by an undercover FBI operation that recorded their communications, with Lindsay going so far as to tell an individual cooperating with the FBI, “I’m a little hesitant about typing all of these details into this app. … You can just imagine if it finds its way somewhere it’s fairly incriminating.” According to the complaint, the pair’s plan to dump millions of shares in the purported medical device company was thwarted when, this past March, the SEC suspended trading in the securities of the purported medical device company.

Former CEO Kevin Modany and CFO Daniel Fitzpatrick of ITT Barred and Ordered to Pay Penalties

Former CEO and CFO of ITT Barred and Ordered to Pay Penalties

The Securities and Exchange Commission announced on July 6, 2018 settlements with two former senior executives of ITT Educational Services Inc., which the SEC charged hid its true financial condition from investors. This resolution successfully concludes the SEC’s case, which was scheduled to begin trial on July 9.

Former CEO Kevin Modany and former CFO Daniel Fitzpatrick are barred from holding senior positions at public companies and ordered to pay penalties in the settlements filed in federal court in Indiana. “Holding individuals accountable – particularly senior executives – is a critical focus of our enforcement program,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. “These settlements, entered into on the eve of trial after years of litigation, reflect our commitment to this accountability.”

SEC Files Additional Charges in Fitbit Stock Manipulation Scheme Against Mark Burns And Robert Murray

On July 11, 2018 The Securities and Exchange Commission filed fraud charges against a second defendant in connection with a scheme to manipulate the price of Fitbit securities through false regulatory filings.

According to the SEC’s complaint, Mark E. Burns purchased Fitbit call options just minutes before he and his co-conspirator, Robert W. Murray, filed a fake tender offer on the SEC’s EDGAR system purporting to acquire Fitbit’s shares at a substantial premium. The SEC charged Murray last year and he recently was sentenced to prison in a parallel criminal case. The false tender offer was made in the name of ABM Capital LTD – a nonexistent company for which the defendants created an EDGAR account. Fitbit’s stock price temporarily spiked when the tender offer became publicly available on Nov. 10, 2016, and Burns sold all of his options for a 350 percent profit of approximately $13,000.

“We allege that Burns and Murray tried to camouflage their identities and their affiliation with an EDGAR account by using disguised IP and e-mail addresses,” said Robert A. Cohen, Chief of the Cyber Unit. “Despite their sophisticated efforts to avoid detection, we stopped their alleged abuse of our filing system and charged them with being responsible for this manipulation.”

SEC Charges Credit Suisse With FCPA Violations

The Securities and Exchange Commission announced on July 5, 2018 that Credit Suisse Group AG will pay approximately $30 million to resolve SEC charges that it obtained investment banking business in the Asia-Pacific region by corruptly influencing foreign officials in violation of Foreign Corrupt Practices Act (FCPA). Credit Suisse also agreed to pay a $47 million criminal penalty to the U.S. Department of Justice.

According to the SEC’s order, several senior Credit Suisse managers in the Asia-Pacific region sought to win business by hiring and promoting individuals connected to government officials as part of a quid pro quo arrangement. While the practice of hiring client referrals bypassed the firm’s normal hiring process, employees in other Credit Suisse subsidiaries and affiliates were aware of it and in some instances approved these “relationship hires” or “referral hires.” The SEC’s order found that in a six-year period, Credit Suisse offered to hire more than 100 individuals referred by or connected to foreign government officials, resulting in millions of dollars of business revenue.

SEC Charges KBR for Inflating Key Performance Metric and Accounting Controls Deficiencies

On July 2, 2018 The Securities and Exchange Commission charged global engineering and construction company KBR Inc. with inflating a key, non-financial statement performance metric known as work in backlog. KBR agreed to pay a $2.5 million penalty to settle the SEC’s charges.

According to the SEC’s order, KBR’s public disclosures of its work in “backlog” were important to investors because the metric was supposed to represent the amount of revenue that KBR expected to receive in the future from “firm orders” under previously awarded contracts. However, the SEC’s order found that in the second quarter of 2012, KBR improperly included $459 million in its publicly disclosed backlog for a pipe fabrication and modular assembly contract in Canada, even though KBR had not actually received — and the counterparty was not obligated to provide — any orders under the contract. By including the full $459 million, KBR misled investors by overstating its work in backlog and violated its internal reporting policies. KBR continued to overstate its backlog for almost two years. The SEC’s order also found that KBR had deficient internal accounting controls and failed to make accurate and reliable estimates of the costs to complete seven Canadian contracts, which led the company to overstate net income. As a result, KBR restated earnings in its consolidated financial statements for the fiscal year ended December 31, 2013 and its unaudited consolidated financial statements for the third quarter of 2013, resulting in charges of $156 million. Read More

SEC Charges BGC Financial For Failure to Preserve Documents and Maintain Accurate Books and Records

SEC Charges BGC Financial for Failure to Preserve Documents and Maintain Accurate Books and Records

The Securities and Exchange Commission announced on July 17, 2018 that New York-based broker-dealer BGC Financial has agreed to pay a $1.25 million penalty to settle charges that it failed to preserve audio files sought by the SEC and inaccurately recorded travel, entertainment, and other expenses.

The SEC’s order finds that after receiving document requests in 2014 from the SEC’s Division of Enforcement, BGC deleted audio files for the recorded telephone lines of eight brokers that were responsive to the document requests. According to the order, the department responsible for maintaining voice recordings was unaware of the SEC’s request and deleted the files in keeping with the firm’s policy of not maintaining them after one year.

The SEC order also finds that BGC failed to maintain books and records that accurately recorded compensation, travel, entertainment, and gifts. BGC provided a high performing broker with season tickets for a New York-area sports team that cost more than $600,000 per year, and failed to record the payments for the tickets as compensation in its general ledger. BGC also reimbursed this same broker for more than $100,000 of expenses associated with an international trip for his birthday and other foreign travel that lacked a sufficiently documented business purpose. BGC inaccurately recorded these items in its books and records as selling and promotion. BGC also reimbursed a different broker for thousands of dollars of personal expenses spent on his birthday party, his bachelor party, and two separate trips to Las Vegas for his friends’ bachelor parties.

SEC Files Charges Core Performance Management LLC, RMR Asset Management Co in Municipal Bond “Flipping” and Kickback Schemes

SEC Files Charges in Municipal Bond “Flipping” and Kickback Schemes The Securities and Exchange Commission charged two firms and 18 individuals in a scheme to improperly divert new issue municipal bonds to broker-dealers at the expense of retail investors. According to the SEC’s complaint, the defendants – known in the industry as “flippers” – purchased new issue municipal bonds, often by posing as retail investors to gain priority in bond allocations. The defendants then “flipped” the bonds to broker-dealers for a fee. The SEC also charged a municipal underwriter for accepting kickbacks from one of the flippers.

The SEC alleges that from at least 2009 to 2016, Core Performance Management LLC, RMR Asset Management Co., their principals, and certain of their associates, misrepresented their identities to gain priority in new issue municipal bond allocations. Municipal issuers typically require underwriters to give retail investor orders the highest priority when allocating new issue bonds, particularly retail investors within the municipal issuer’s jurisdiction. According to the SEC’s complaint, these defendants used fictitious business names, falsely linked their orders to ZIP codes within the issuer’s jurisdiction, and split orders among dozens of accounts. After acquiring the bonds, the SEC alleges that the defendants quickly resold them to broker-dealers, typically for a fixed, pre-arranged commission, and often sought to hide the flipping activity from issuers and underwriters by manipulating sales tickets.

SEC Charges Cloud Communications Company and Senior Executives Mark Greenquist And Michael Swade With Misleading Revenue Projections

The Securities and Exchange Commission charged a cloud communications company and two executives with providing misleading quarterly revenue estimates. The company and executives agreed to pay over $1.9 million in penalties to settle the SEC’s charges.

According to the SEC’s order, Sonus Networks Inc.’s former CFO, Mark Greenquist, was aware of red flags which undermined the company’s first quarter 2015 revenue estimates. These red flags included that Sonus had pulled forward deals initially projected to close in 2015 in order to achieve its revenue guidance for the fourth quarter of 2014. Despite recognizing these risks, Greenquist said in a press release that he was comfortable with the consensus analyst revenue estimate of $74 million for the first quarter. About six weeks later, the company issued guidance of $74 million which reflected certain forecasted sales that had been improperly reclassified, due to pressure from Michael Swade, Sonus’s Vice President of Global Sales, in order to support the $74 million estimate. Read More

Foreign Private Issuers NYSE Audit Committee Requirements

The New York Stock Exchange (NYSE) corporate governance standards are contained in Section 303A of the NYSE Listed Company Manual. The NYSE corporate governance standards apply to all US companies that are listing or have listed equity securities on the NYSE (see NYSE Listed Company Manual). Foreign Private Issuers must comply with the audit committee standards in Rule 10A-3 of the Securities Exchange Act of 1934 (the “Exchange Act”).

Compliance with SEC Rules

Foreign Private Issuers must have an audit committee that complies with the requirements of Rule 10A-3 under the Exchange Act. Additionally, a Foreign private issuer must disclose how its corporate governance standards in its home country differ from the NYSE corporate governance requirements. Foreign private issuers that are subject to SEC Reporting Requirements and required to file a Form 20-F must disclose this corporate governance information in their Form 20-F report. All other foreign private issuers can provide this information on their websites or in annual reports filed with the SEC. Read More

Section 4(a)(2) and Rule 506(b) Exempt Offerings – Securities Lawyer 101

Section 4(a)(2) and Rule 506(b) Exempt Offerings

Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) exempts Rule 506(b) securities offerings from the SEC’s registration requirements when the transactions are by an issuer and do not involve a public offering of securities. Rule 506(b) is used by both private and public companies seeking to raise capital without the use of general solicitation and advertising.

To qualify a securities offering for the Section 4(a)(2) exemption, investors in the offering must:

either have enough knowledge and experience in finance and business matters to be “sophisticated investors” who are able to evaluate the risks and merits of the investment, or be able to bear the investment’s economic risk; and
have access to the type of information normally provided in a prospectus of a SEC registration statement such as Form S-1.

In general, public advertising of the offering, and general solicitation of investors, is incompatible with the Section 4(a)(2) exemption. As the number of investors increases and their relationship to the company and its management becomes more remote, it is more difficult to demonstrate that the offering qualifies for this exemption. If a company offers securities to even one person who does not meet the necessary conditions, the securities offering may be in violation of the Securities Act. Read More

Foreign Private Issuer NYSE Audit Committee Requirements

Compliance with SEC Rules

SEC Charges U.S. Congressman Christopher Collins and Others With Insider Trading

The Securities and Exchange Commission announced on Aug. 8, 2018 the filing of insider trading charges against Congressman Christopher Collins, the U.S. Representative for New York’s 27th Congressional District, his son, Cameron Collins, and a third individual, Stephen Zarsky. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced related criminal charges.

Christopher Collins, who served as an independent director of an Australian biotech company, Innate Immunotherapeutics Ltd., is charged with tipping Cameron Collins after receiving confidential information about negative clinical trial results for Innate’s multiple sclerosis drug. Cameron Collins and his girlfriend’s father, Stephen Zarsky, are charged with trading and tipping others on the basis of the material, nonpublic information. Read More

Regulation A+ Guidebook

Regulation A+ Lawyers – Regulation A+ White Paper

Overview of the Regulation A+ Exemption

On March 25, 2015, The Securities and Exchange Commission (the “SEC”) adopted final rules to implement Section 401 of The Jumpstart Our Business Startups (JOBS) Act by expanding Regulation A into two tiers. These changes have had a notable impact on companies raising capital and going public particularly companies quoted by the OTC Markets.

Tier 1 of Regulation A+ provides an exemption for securities offerings of up to $20 million in a 12-month period while Tier 2 provides an exemption for securities offerings of up to $50 million in a 12-month period. An issuer of $20 million or less of securities in its offering can elect to proceed under either Tier 1 or Tier 2. Read More

What Are the SEC Reporting Requirements After My Form S-1 ls Effective?

What Are the SEC Reporting Requiements After My Form S-1 ls Effective?

Once the SEC staff declares your company’s Securities Act registration statement on Form S-1 effective, the company becomes subject to the SEC’s reporting requirements under the Securities Exchange Act of 1934. These rules require your company to file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the SEC on an ongoing basis. Read More

SEC Charges William McFarland and Others With $27.4 Million Offering Fraud

SEC Charges Failed Fyre Festival Founder and Others With $27.4 Million Offering Fraud

The Securities and Exchange Commission announced on July 24, 2018 that New York entrepreneur William Z. (Billy) McFarland, two companies he founded, a former senior executive, and a former contractor agreed to settle charges arising out of an extensive, multi-year offering fraud that raised at least $27.4 million from over 100 investors.

The SEC’s complaint alleges that McFarland fraudulently induced investments into his companies Fyre Media, Inc., Fyre Festival LLC, and Magnises, Inc., including in connection with McFarland’s failed venture to host a “once-in-a-lifetime” music festival in the Bahamas. Read More

Why Does a Company Go Public? Going Public Attorneys

How Does My Company Go Public? 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. markets remain an attractive source of capital for issuers. Going public is an intricate process, and it is important to have an experienced going public attorney to help your company navigate through the process and deal with the Securities & Exchange Commission the (“SEC”), Financial Regulatory 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”). A going public securities attorney can guide the company through these regulations. Read More

SEC Charges Howard Appel in Stock Manipulation Scheme

SEC Charges Howard Appel in Stock Manipulation Scheme On July 27, 2018 The Securities and Exchange Commission charged Howard Appel with manipulating the stocks of three microcap companies while on supervised release following his criminal conviction for a prior securities fraud.

According to the SEC’s complaint, Howard Appel orchestrated multiple schemes to manipulate the market for trading in shares of Virtual Piggy Inc., (VPIG), Red Mountain Resources Inc. (RDMP), and Rio Bravo Oil Inc. (RIOB), and concealed his activity by using overseas associates and nominee brokerage accounts. The SEC’s complaint alleges that Howard Appel secretly acquired ownership or control over sufficient shares of the companies so that he and his associates could manipulate their stocks through coordinated trading activity. As alleged in the complaint, Howard Appel kept tight control over the trading and engaged in matched trading with his associates. In one instance, Howard Appel allegedly sought to coordinate artificial bidding activity to prevent the price of RDMP from dropping, emailing instructions to his associates: “Have ur guy for 12500 at .87 and another 7500 at .85 in case we get hit by selling today. (My guy above that bidding .87).” In another example in the complaint, Howard Appel sold 200,000 shares of RIOB to accounts controlled by one of his associates overseas in a series of matched trades that accounted for 80 percent of the reported volume on RIOB’s second day of trading. Read More

Yao Li Settles Insider Trading Charges

SEC Detects Silicon Valley Executive’s Insider Trading

On July 24, 2018, the Securities and Exchange Commission (SEC) announced that Yao Li, a senior executive at a Silicon Valley fiber optics company agreed to settle charges that he made nearly $200,000 in illicit profits by trading on inside information in advance of three disappointing earnings announcements by the company. The case stems from the SEC Market Abuse Unit’s Analysis and Detection Center, which uses data analysis tools to detect suspicious patterns such as improbably successful trading in advance of earnings announcements over time. Enhanced detection capabilities enabled SEC enforcement staff to identify the unusual trading activity.

The SEC’s order finds that Yao Li, as Vice President of Technology at Alliance Fiber Optic Products, Inc. (AFOP), learned during regular meetings with AFOP’s senior executives that the company was likely going to miss its revenue guidance in three different quarters during 2014 and 2015. According to the SEC’s order, Li traded on this inside information by short selling AFOP shares for profits as well as selling AFOP shares he already owned to avoid losses before these announcements. Read More

SEC Charges John Paulsen for Aiding & Abetting Pay-To-Play Scheme

On July 26, 2018, the Securities & Exchange Commission (“SEC”) filed a civil injunctive action against John A. Paulsen, a former managing director and fixed income research analyst at a registered broker-dealer, for aiding and abetting a pay-to-play scheme involving the New York State Common Retirement Fund. As alleged in the SEC’s complaint, from early 2014 until February 2016, Navnoor S. Kang was the Fund’s Director of Fixed Income, with investment responsibility for approximately $50 billion of the Fund’s assets. According to the SEC’s complaint, Kang used his position at the Fund to solicit and receive improper entertainment from Paulsen and Deborah D. Kelley, a registered representative at the broker-dealer. In exchange, Kang directed millions of dollars in state business to the broker-dealer, generating sizable commissions.

The SEC alleges that Paulsen and Kelley planned a ski trip for the purpose of entertaining Kang and his girlfriend. The complaint alleges that Kang told Paulsen and Kelley that the Fund had very strict rules that prohibited him from accepting anything from Paulsen. Yet, according to the complaint, Paulsen and Kelley spent thousands of dollars entertaining Kang and his girlfriend. Read More

SEC Amends Smaller Reporting Company Definition

Last month, the Securities & Exchange Commission (SEC) adopted amendments to its definition of a “Smaller Reporting Company” which increases the number of companies that are allowed to provide reduced disclosures to comply with their SEC Reporting Requirements. The effective date of the amendments is September 10, 2018. As a result of the amendments, the definition of a Smaller Reporting Company for purposes of compliance with SEC Reporting Requirements has been expanded as discussed below.

Public Float Test – Initial Quotation

A public company with less than $250 million in their public float now qualifies as Smaller Reporting Company as compared to the $75 million threshold under the prior definition.

Revenue Test – Initial Quotation

A public company with less than $100 million in annual revenues now qualifies as Smaller Reporting Company, if the company also has either no public float; or a public float of less than $700 million. The revenue test in the prior definition of a smaller reporting companies required the issuer to have less than $50 million of annual revenues and no public float. Read More

OTC Markets OTCQB, OTCQX, OTC Pink Quotation, Listing and Disclosure

Public companies with shares traded on OTC Markets OTC Link® ATS are organized into three unique market places. In part, the trading market depends upon whether the issuer is required to comply with the SEC Reporting Requirements. The OTC Markets provides venues for both domestic and foreign issuers and provides a unique platform for foreign issuers seeking to dual listing their securities. The OTCQX Best Market is for established, global, and growth companies. OTC Markets OTCQX companies must meet high financial standards, follow best practice corporate governance, demonstrate compliance with U.S. securities laws, and have a professional third-party sponsor. The OTCQB Venture Market is for entrepreneurial and development stage companies that are not yet able to qualify for OTCQX. OTCQB companies must be current in their SEC reporting requirements and must undergo an annual verification and management certification process.

The OTC Markets OTC Pink Open Market is for broker-dealers to trade all types of securities without requiring company involvement.

In contrast to securities listed on U.S. stock exchanges, securities on the OTCQX, OTCQB and Pink markets may trade without filing a registration statement with the SEC if they meet certain disclosure and other requirements.

How to Go Public Using Form S-1 – Going Public Lawyers

Using a Form S-1 Registration Statement to Go Public

Private companies that go public commonly use a registration statement (“Registration Statement”) on Form S-1 under the Securities Act of 1933, as amended (the “Securities Act”) to go public. When a Form S-1 Registration Statement is used to go public, the company will submit the Registration Statement to the Securities & Exchange Commission (the “SEC”), registering securities it plans to sell or securities held by its shareholders (“Selling Shareholders”).

SEC Comments on Form S-1 Registration Statements

Smaller Reporting Companies that go public using Form S-1 should anticipate SEC comments to the Registration Statement from the SEC. The SEC reviews and may comment on the disclosures in the Form S-1 Registration Statement. Upon confirmation that the SEC is satisfied that the issuer’s disclosures satisfy the requirements of the securities laws, the SEC will declare the Registration Statement effective and the securities may be sold. Read More

Regulation A+ 2018 Shelf Offerings

Posted by Brenda Hamilton, Securities Attorney

Regulation A also known as Regulation A+ provides an existing exemption from registration for smaller issuers of securities. Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction. One key benefit of Regulation A+ is that companies using Regulation A+ can comply with scaled down SEC reporting obligations. Another notable benefit is that Regulation A allows issuers to conduct continuous or delayed offerings under pursuant to Rule 251(d)(3). Continuous or delayed offerings are also known as shelf offerings. Shelf offerings are often used in going public transactions to register shares held by selling stockholders. This helps the issuer and its sponsoring market maker satisfy FINRA’s shareholder requirements for a ticker symbol assignment.

Rule 251(d)(3) allows Regulation A shelf securities offerings for:

Secondary offerings,
Securities offerings issued pursuant to an issuer’s dividend or interest reinvestment plan,
Securities offerings issued under an employee benefit plan,
Securities issued upon the exercise of outstanding options, warrants or rights,
Securities issued upon conversion of outstanding securities,
Securities that are pledged as collateral,
Continuous securities offerings that start within two calendar days after SEC qualification of the offering may continue for a period of more than 30 days after the initial qualification and will be made in an amount that, at the time of the initial qualification, is reasonably expected to be offered and sold within two year periods. An issuer may sell such securities for a maximum of three years after initial SEC qualification if it is current in its Tier 2 annual and semi-annual reports, if required to file such reports.

Use of Proceeds In Form S-1 Registration Statements – Form S-1

Companies going public with Form S-1 have several options in how to structure their transaction when registering securities with the Securities and Exchange Commission (“SEC”). Form S-1 enables issuers to raise capital using the registration statement or register shares on behalf of existing shareholders. If the issuer seeks to raise capital using the S-1’s registration statement expansive disclosure is required of the intended use of proceeds.

Item 504 or Regulation S-K establishes the requirements for disclosure of Form S-1 proceeds in the registration statement. Read More

What Is a Private Placement Offering? Securities Lawyer 101

Securities Lawyer 101 Blog

The Securities Act of 1933 (the “Securities Act”) provides for a private offering or private placement exemption from federal securities registration which is increasingly being used by companies seeking to raise capital during market downturns and in times of market uncertainty.

While the term “private offering” leaves much to the imagination, the Securities Act provides substantial guidance about the circumstances in which an offering will be deemed a private placement.

Form S-1 Summary Information- Securities Attorney 101

Form S-1 is the most commonly used registration statement statement filing with the Securities and Exchange Commission (“SEC”). This blog post addresses the summary information section of Form S-1. The requirements of the section are located in Items 501 and 502 of Regulation S-K. The goal of the summary section of Form S-1 is to highlight selected information that is presented in greater detail elsewhere in the registration statement.

The S-1 summary does not contain all of the information required under the specific headings addressed. As such, the Form S-1 summary section should reference the sections summarized. The section includes summaries of Business, Securities, Risk Factors, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements and other material information. Read More

Regulation A +, Going Public Direct and Offering Integration

Regulation A+ Offering Integration

The Regulation A + offering integration rules prevent companies from improperly avoiding registration by dividing a single securities offering into multiple securities offerings to take advantage of Securities Act exemptions that would not be available for the combined offering. Regulation A also known as Regulation A+ contains integration safe harbor provisions. Under Rule 251(c), a Regulation A+ offering will not be integrated with prior offers or sales of securities. Subsequent offers or sales in Regulation A+ offerings will not be integrated with other securities offerings that are:

registered pursuant to Securities Act, unless the abandoned Regulation A + offering provisions are applicable
conducted pursuant to Rule 701;
conducted pursuant to employee benefit plans;
conducted pursuant to Regulation S;
conducted pursuant to Regulation Crowdfunding; or
conducted more than six months after the completion of the Regulation A + offering.

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