Six Years Later – U.S. v Ross Mandell
In July 2009, Ross Mandell, founder of Sky Capital Holdings, Ltd., a venture capital firm and brokerage, was arrested by the Federal Bureau of Investigation and charged with violating the Securities Exchange Act of 1934. According to the U.S. Attorney’s Office for the Southern District of New York, he and a number of co-defendants had used Sky Capital to run a boiler room operation, and had defrauded investors of $140 million between 2001 and 2006. The firm had been raided by the FBI in late 2006, but was permitted to carry on with its business. Mandell sold his stake in it to a group of clients from the U.K., who renamed it Granta Capital. Read More
Can I Issue Free Trading Shares Under Rule 504? Going Public Lawyers
Despite numerous SEC enforcement actions, Rule 504 of Regulation D of the Securities Act remains a commonly misused exemption particularly in dilution schemes. The popularity of Rule 504 is simple – the Rule 504 exemption provides a way for dilution funders to issue illegally free trading shares using baseless legal opinions. Any experienced going public lawyer will tell you that Rule 504 does not allow a company to issue unrestricted shares. Read More
SEC Charges Frederick Elm and Elm Tree Investment Fund LP
On January 21, 2015, the Securities and Exchange Commission (the “SEC”) announced fraud charges and an asset freeze against a Fort Lauderdale, Florida-based investment advisory firm, its manager, and three related funds in a scheme that raised more than $17 million since November 2013.
The SEC’s complaint filed in federal court in the Southern District of Florida charged Elm Tree Investment Advisors LLC, its founder and manager, Frederic Elm, and Elm Tree Investment Fund LP, Elm Tree “e”Conomy Fund LP, and Elm Tree Motion Opportunity LP. According to the complaint, Elm, formerly known as Frederic Elmaleh, his unregistered investment advisory firm, and the three funds misled investors and used most of the money raised to make Ponzi-like payments to the investors. Read More
Who Has To File Form 144?
Rule 144 of the Securities Act of 1933, as amended provides a safe harbor for certain public resales of securities, if certain conditions are met. Rule 144 applies to unregistered shares acquired directly from an issuer, (“restricted securities”), and unrestricted shares held by an affiliate of the issuer (“control securities”). Under some circumstances, persons who rely on Rule 144 must file a “Notice of Sale” on Form 144 with the Securities and Exchange Commission (the “SEC”). This blog post addresses some recent questions we received about the SEC’s requirements for filing a Form 144 – Notice of Sale. Read More
Just What Is A Security Anyway? – Going Public Lawyers
Below is a teaser from the new e-book by Michael T. Williams, a going public lawyer and Best-Selling Amazon E-Book author. The book will be available to the public in a few weeks.
Your are only subject to federal and state securities laws if you are selling what is defined as a “security.” If you are selling stock in your IPO Alternative transaction, you know you are selling a security. But Section 3(a)1 of the Securities Act of 1933 tells you all kinds of other instruments you sell may also be securities, as follows:
The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, …, or, in general, any interest or instrument commonly known as a “security.” Read More
What Happens If I Forget To File My Form D? Going Public Lawyers
The most common exemptions from registration for both public companies and private companies seeking to go public are those provided by Regulation D of the Securities Act of 1933, as amended (“Securities Act”). Many issuers who go public do not realize that the filing of a Form D with the Securities and Exchange Commission (the “SEC”) is required in Regulation D offerings. Form D is a notice of an exempt offering of securities in reliance upon Regulation D (or Section 4(6) of the Securities Act). Form D requires specific information about the issuer and the offering it is conducting. This information includes (i) the issuer’s identity, (ii) its principal place of business and contact information, (iii) its state of domicile, (iv) the names and addresses of its executive officers and directors, (v) the specific exemption claimed under the Securities Act, and (vi) the identity and contact information of any broker-dealer, finder or other person receiving any commission or other similar compensation relating to the sale of securities in the offering. Read More
Do I Have to Disclose Payments To a Finder?
Companies seeking capital are frequently approached by intermediaries who offer to locate investors in exchange for a fee. Most intermediaries also known as “finders” are not registered as broker-dealers with the Securities and Exchange Commission (the “SEC”). These intermediaries wear many hats and may refer to themselves as fund managers, receivers, turnaround experts, investment bankers, stock promoters, placement agents, business brokers, investor relations firms or consultants. They may be attorneys, CPAs, insurance brokers, custodianship shell purveyors or other market participants. Often these intermediaries claim that they do not need to be registered with the SEC or FINRA as broker-dealers because of a “finder’s exemption”. Read More
How Do I Spin-Off My Subsidiary? Going Public Lawyer
A spin-off (“Spin-off”) involves a transaction in which a parent company (“Parent”) distributes shares of its subsidiary (“Subsidiary”) to the Parent’s shareholders so that the Subsidiary becomes a separate, independent company. Spin-off shares are usually distributed on a pro-rata basis. A going public lawyer can assist the company in determining whether state corporate law and the rules of stock exchanges require shareholder approval of the spin-off. Read More
FINRA Expels John Thomas Financial & Bars Tommy Belesis
On January 9, 2015, The Financial Industry Regulatory Authority (“FINRA”) announced that a hearing panel expelled John Thomas Financial, and barred its Chief Executive Officer, Anastasios “Tommy” or “Thomas”) Belesis, from the securities industry for violations in connection with the sale of penny stock issuer, America West Resources, Inc. (“AWSR”) common stock, including trading ahead of customers’ orders, recordkeeping violations, violating just and equitable principles of trade, and for providing false testimony. The FINRA hearing panel also ordered John Thomas Financial and Belesis to pay $1,047,288, plus interest. Additionally, John Thomas Financial and Belesis were suspended for two years and jointly and severally fined $100,000, and John Thomas Financial’s Chief Compliance Officer Joseph Castellano was suspended for one year and fined $50,000, for harassing and intimidating registered representatives. Read More
What Is SEC Form 5 & When Is It Due? Securities Lawyer 101
Section 16 of the Securities Exchange Act of 1934 requires that officers, directors and holders of more than 10% of a company’s equity securities disclose their ownership of, and transactions in, equity securities, including stock options, warrants and other convertible securities. Section 16 requires that such persons file an Annual Statement of Changes in Beneficial Ownership on Form 5 with the Securities and Exchange Commission (the “SEC”). SEC Form 5 reports any transactions in the Company’s equity securities that the reporting person engaged in during the company’s most recently completed fiscal year that were not previously reported on a Form 4, other than transactions that are exempt from Form 5’s reporting obligations. Read More
How Do I Go Public on the OTC Pink? – Going Public Lawyer
Many private companies that go public are opting for the listing on the OTC Market’s OTC Pinks due to the increased costs and more stringent regulations associated with Securities and Exchange Commission (“SEC”) reporting. Rule 15c2-11 (“SEC Rule 15c2-11”) of the Securities Exchange Act of 1934 (the “Exchange Act”) can be used by a private company seeking to go public without an SEC registration statement by a sponsoring market maker submitting a Form 211 with the Financial Industry Regulatory Authority (“FINRA”).
This enables the company to be quoted on OTC Markets Pink Sheets quotation system. In order to go public in this manner, the private company must meet certain requirements discussed below. The Pink Sheets offers several listing options and provides a method for companies to comply with the adequate public information requirement of Rule 15c-211, without filing reports with the SEC. Providing the information required by Rule 15c-211 enables market makers to publish quotes in a company’s securities. Read More
How Does a Sponsoring Market Maker Get a Ticker? Form 211 and Rule 15c-211
The last step in going public transactions is most often obtaining a stock trading or ticker symbol from the Financial Industry Regulatory Authority (“FINRA”). For a company to obtain a ticker, a market maker must submit a Form 211 on the issuer’s behalf to FINRA. This last step is required of all companies including those filing Form S-1 registration statements with the SEC. Only a Market Maker can submit a Form 211 to obtain a ticker symbol assignment. An issuer cannot submit the form itself. As such, the sponsoring market maker plays an important role in the going public process.
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What Is a Reverse Merger Super 8-K? Going Public Lawyer
The Securities and Exchange Commission (“SEC”), Division of Corporate Finance frequently notes disclosure failures of reverse merger transactions in Form 8-K also known as “Super 8-K”. This blog post summarizes SEC staff comments in response to reports on Form 8-K reporting of reverse mergers with public shell companies and similar transactions that result in a public company no longer being designated as a shell company. These include that the issuer provide “Form 10 information” including audited financial statements in a Super 8-K.
Super 8-K’s disclosure requirements for reverse merger transactions are expansive and in most respects and comparable to the disclosures found in a registration statement under the Securities Act of 1833, as amended (the “Securities Act”). In addition to these requirements, issuers must comply with FINRA’s notice requirements under Rule 6490. Reverse merger issuers often find their securities subject to Depository Trust (“DTC”) scrutiny, DTC Chills and global locks because of the presumption of fraud associated with reverse mergers. Read More
And The Beat Goes On – Tennessee Adopts Crowdfunding
While the SEC (after 700 days) has not adopted its final equity crowdfunding regulations, Tennessee’s entrepreneurial efforts have moved forward. Tennessee’s new crowdfunding law known as “Invest Tennessee Exemption” became effective on January 1, 2015. The new law allows Tennessee-based companies to engage in intrastate crowdfunding. The Invest Tennessee Exemption requires that the offering comply with the federal intrastate offering exemption provided by Section 3(a)(11) of the Securities Act of 1933, as amended. Read More
What is a Form 144 Notice of Sales? Going Public Lawyer
Rule 144 requires that a “Notice of Sale” on Form 144 be filed by any person for whose account the securities are being sold if the person is an affiliate at the time of sale, or was an affiliate during the 90 days preceding the sale, and is selling more than 5,000 shares or the shares being sold have an aggregate sale price of more than $50,000.
Public Availability of the Rule 144 Notice Filing
Form 144 is publicly available upon filing through the SEC’s EDGAR database. Rule 144(h) states that Form 144 must be filed only by the person for whose account a sale is being made under the rule. Read More
Reverse Mergers & Form 10 Shells
Form 10 Shells are often sold for reverse merger transactions. A Form 10 shell is a company with no or nominal operational activity that are “Public Companies” meaning they are obligated to file reports with the Securities and Exchange Commission as a result of filing a Form 10 registration statement. Form 10 shells are rarely a good solution or cost effective method for a private company to obtain public company status. Form 10 Shells do not have a ticker symbol despite having costly SEC reporting obligations. Unlike Form S-1 registration statements, a Form 10 registration does not create “free trading” shares. Read More
Paying Consultants & Stock Promoters With Stock – Going Public Lawyers
It has become almost routine for OTC Markets listed issuers to pay for consulting services with their restricted shares of common stock. The tradability of shares that can be issued to consultants is impacted by whether the company issuing the shares is reporting with the Securities & Exchange Commission (“SEC”) and whether the issuer has ever been a shell company (“Shell Company”) as defined by Rule 405 of the Securities Act of 1933, as amended.
Non-Reporting Issuers
For non-reporting companies, such as OTC Pink issuers, the company usually enters into an employment agreement with the consultant and/or service provider. The employment and/or consulting agreement should address the term of service, compensation and scope of services to be provided. Assuming the issuer is not presently and has never been a shell company, the shares can be resold after a period of twelve months in reliance upon Rule 144 of the Securities Act of 1933, as amended (“Securities Act”).
Shell Companies
Rule 144 imposes limitations on the use of Rule 144 by Shell Companies. If a company has at any time been a shell company, Rule 144 is unavailable until 12 months after the issuer files Form 10 information with the SEC. Read More
Why Companies Need a Going Public Attorney
A Going public attorney can help ensure that a Company’s offer and sale of securities comply with both state and federal securities laws. Going public is an intricate process that can be structured a variety of ways. It is important to have an experienced going public attorney who will help you navigate through the process. Generally, all securities offerings must be registered or exempt from federal and state securities registration laws. Failure to comply with these laws can have significant consequences that include rescission to investors, and enforcement actions by the Justice Department or Securities and Exchange Commission.
Common matters for which a company and its management consult with their going public attorney include but are not limited to the following: Read More
When Is Form 10-K Due? Securities Lawyer 101
A public company must file an annual report on Form 10-K following the end of each of its fiscal year. The first Form 10-K deadline is 90 days after the end of the first fiscal year in which the issuer becomes subject to the periodic reporting requirements of the 1934 Act. After the first year the Form 10-K deadline depends upon whether the issuer is an acceleratged filer, large accelerated filer, non-accelerated filer or smaller reporting company. Each category is summarized below:
Accelerated Filer
An accelerated filer is an issuer that: Read More
DTC Conspiracy Theories Continue In 2015
We continue to receive inquiries from management and shareholders of public companies about the Depository Trust Company (“DTC”). Many of these people assert that there is a larger DTC conspiracy in the works. Frequently, companies engaging in certain types of reverse merger transactions find their securities without DTC eligibility. A closer review of these transactions reveals that in most instances the reverse mergers involved public shells that were illegally acquired by the shell purveyor. Read More
What Does a Going Public Lawyer Do Anyway?
The role of the Going Public Lawyer is one of the most important in the going public process. The Going Public Lawyers at Hamilton & Associates Law Group have provided private companies with their going public solutions for over ten years. A skilled Go Public Lawyer can design and implement the going public structure most beneficial to your company without the risks associated with reverse merger transactions. We have represented more than 300 market participants in securities law matters and going public transactions.
Our experience includes direct public offerings (“DPO”), slow public offerings (“Slow PO”), Initial Public Offerings (“IPO’s) and SEC registration statements. Private companies using an SEC registration statement have a variety of structures available to them when designing their going public transactions. A Going Public Lawyer should structure the most cost and time effective going public solution for your private company to become publicly traded.
Many private companies file a registration statement filing with the SEC in connection with their going public transaction. The most commonly used registration statement form is Form S-1. A going public lawyer can guide you through the S-1 registration statement process.
All companies qualify to register securities on a Form S-1 registration statement. Private companies going public should be aware of the expansive disclosure required by in registration statements filed with the SEC prior to making the decision to go public. A registration statement on Form S-1 has two principal parts which require expansive disclosures. Part I of the registration statement is the prospectus which requires that the company provide certain disclosures about its business operations, financial condition, and management. Part II contains information that doesn’t have to be delivered to investors. A skilled Going Public Lawyer can draft the disclosures for the Form S-1 and assist management in compiling information required for its auditor. Read More
Can Form S-1 Be Used To Go Public ? l Going Public Lawyers
Going Public Bootcamp – Securities Lawyer 101 Blog
Form S-1 is the basic registration statement form used to register securities. Form S-1 can be used to register securities for which no other form is authorized or prescribed, except securities of foreign governments or political sub-divisions thereof. Form S-1 is commonly the first form of SEC registration statement used by issuers during the going public process when a direct public offering (“Direct Public Offering” or “DPO”) is conducted. Unlike an Initial Public Offering (“IPO”), a Direct Public Offering allows an issuer to sell its shares directly to investors without the use of an underwriter as part of its going public transaction. If a Form S-1 is used in conjunction with a Direct Public Offering in a going public transaction, the issuer becomes an SEC reporting company with a ticker symbol.
This blog post discusses the use of Form S-1 in the going public process. Read More
Can I Go Public With an Exchange Act Registration Statement?
All public companies whose securities are registered on a national securities exchange, and generally issuers whose assets exceed $10,000,000 with a class of equity securities held by 500 or more persons, must register a class of their securities under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”). Companies can elect to become subject to the Exchange Act by filing an Exchange Act registration statement. An Exchange Act attorney can guide the issuer through the registration statement forms that will cause it to become subject to the reporting requirements of the Securities and Exchange Commission (the “SEC”). Many companies in going public transactions voluntarily register securities under the Exchange Act, so to provide transparency to investors and to have the prestige associated with SEC reporting. Read More
What is Stock Scalping ? Securities Lawyer 101
Stock promoters often engage in what is known as stock scalping. Stock scalping is the illegal and deceptive practice of recommending that others purchase a security while secretly selling the same security. In recent years, the SEC and Justice Department have brought an increasing number of cases alleging securities violations for stock scalping activity.
The Role of the Stock Promoter in Stock Scalping Schemes
Stock Promotion entails the dissemination of information about a publicly traded company intended to increase its stock price and trading volume. The person who publishes this information is called a “promoter” or a “stock tout.” Read More
Tips for Going Public With a Direct Public Offering
Direct Public Offering Lawyer – Securities Law Blog
More and more issuers going public opt for a direct public offering. In a direct public offering management sells shares of the company’s stock directly to investors, rather than through the efforts of an underwriter. Going public with a direct public offering eliminates costs and risks associated with a reverse merger transaction. Private companies conducting a direct public offering should consider the pointers below to ensure a successful and cost-effective going public transaction.
The direct public offering process provides options for multiple structures, each with its own unique benefits and requirements. The decision about the appropriate going public structure often involves complex legal issues that vary depending upon the needs of the particular company involved.
Direct public offerings involve complex disclosures and legal issues, including those required by the Form S-1 registration statement. Forms S-1 are reviewed by the Corporation Finance Division of the Securities and Exchange Commission (“SEC”). Each of the multiple reviews prompts comments to which the company must respond with the help of its securities attorney. The attorney will draft these responses and file amendments to the registration statement. When the SEC examiners feel the Form S-1 has satisfied all requirements, the registration statement will be deemed effective. Read More
Public Company Disclosure Controls and Procedures
To back up the officer and director certifications in periodic reports, issuers must establish and maintain a system of disclosure controls and procedures designed to ensure that the company records, processes, summarizes and discloses on a timely basis information required to be disclosed in 1934 Act filings. Issuers must evaluate on a quarterly basis the effectiveness of their disclosure controls and procedures. The requirement that an issuer have disclosure controls and procedures extends beyond financial matters and includes all controls and procedures relating to required SEC disclosures, including interactive data. Read More
Form 8-K Disclosure of Shareholder Meetings
Companies with a class of securities registered under the Securities Exchange Act of 1934, as amended are required to file periodic reports with the Securities and Exchange Commission (“SEC”). These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q and current information reports on Form 8-K. Under Item 5.07 of Form 8-K, issuers must disclose the results of a shareholder vote within four business days after the meeting at which the vote was held or the action was taken by written consent. Read More
Crowdfunding Platforms to Watch in 2015
It has been more than a year and the SEC has not finalized its rules with respect to equity crowdfunding under the Title III of the JOBS Act, which would allow an issuer to raise up to $1 million from the sale of securities from non-accredited investors through online funding portals.
Despite this equity and intrastate crowdfunding have progressively marched forward with four viable crowdfunding platforms including the intrastate crowdfunding platform, partnership or fund model, broker-dealer and lending platforms.
E-Cigarette Scams – American Heritage International
Last week, the Financial Industry Regulatory Agency (“FINRA”) issued an investor alert concerning companies touting new technology for electronic cigarettes, often called e-cigarettes. The SEC recently announced a trading suspension of American Heritage International (AHII), a company that purports to make disposable electronic cigarettes, because of concerns about manipulative activity related to its common shares. E-cigs have been around for ten years or more. At its website, American Heritage boasts that it makes “America’s original premium electronic cigarette.” Read More
What is a Sponsoring Market Maker? Sponsoring Market Maker Lawyers
The last step in a going public transaction is for the company to receive a stock trading or ticker symbol from the Financial Industry Regulatory Authority (“FINRA”). For a company to obtain its ticker symbol, a sponsoring market maker (“Sponsoring Market Maker”) must sponsor the company’s application and submit a Form 211 to FINRA on the issuer’s behalf. Sponsoring Markets Makers have become one of the most important participants in the going public process because they are the only ones who can apply for a ticker symbol.
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