NASAA Launches Rule 506 Form D EFD
The North American Securities Administrators Association (“NASAA”) has launched its Electronic Filing Depository (“EFD”) for Rule 506 Form D filings. NASAA’s EFD was created to allow companies to post Form D’s for Rule 506 offerings online through NAASA’s EFD website. Rule 506 of Regulation D is a “safe harbor” for the private offering exemption of Section 4(a)(2) of the Securities Act. Issuers relying on the Rule 506 do not have to register their securities offering with the Securities and Exchange Commission (the “SEC”) or state securities regulators. Even though registration is not required, issuers must file a “Form D” with the SEC and state securities regulators after they first sell their securities. The Form D contains limited information about the securities being offered and the issuer offering those securities.
SEC Settles Charges Against Joseph Saranello
On December 17, 2014, the Securities and Exchange Commission (the “SEC”) announced settled charges against Joseph Saranello who participated in a pump-and-dump scheme involving the stock of Rudy Nutrition. The SEC previously charged thirteen other individuals in the District of Nevada for engaging in this scheme to manipulate the stock of Rudy Nutrition that netted over $11 million in illicit profits. Read More
Avon Products Charged with Foreign Corrupt Practices Act Violations
On December 17, 2014, the Securities and Exchange Commission (the “SEC”) charged Avon Products Inc. with violating the Foreign Corrupt Practices Act (FCPA) by failing to put controls in place to detect and prevent payments and gifts to Chinese government officials from employees and consultants at a subsidiary. Avon entities agreed to pay a total of $135 million to settle the SEC’s charges. The U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of New York announced parallel charges. Read More
Why The Rules That Apply To Transfer Agents Are Passé
On December 17, 2014, Luis A. Aguilar released a public statement about why the rules surrounding transfer agents should be updated and modernized. [1] Unfortunately, the rules governing transfer agents were adopted in the 70’s and 80’s and have not kept up with technological advances in the industry. In the informative release, Commissioner Aguilar explains the important role that transfer agents play in the public markets including as a gatekeeper to securities violations. Read More
CANN Settles Lawsuit Against Stephen Calandrella
On September 25, 2014, Advanced Cannabis Solutions, Inc. (“CANN”) sued Stephen G. Calandrella, one of the company’s biggest investors. Though that may seem paradoxical, CANN alleges in a lawsuit that Calandrella critically damaged the company. Last spring, on March 27, the Securities and Exchange Commission (“SEC”) suspended trading in CANN’s stock, citing “questions regarding whether certain undisclosed affiliates and shareholders of Advanced Cannabis common stock engaged in an unlawful public distribution of securities.”
SEC Charges Treaty Energy, Management & Attorney
On December 15, 2014, Securities and Exchange Commission (the “SEC”) charged Treaty Energy Corporation, Ronald L. Blackburn, Andrew V. Reid, Bruce A. Gwyn, Michael A. Mulshine, Lee C. Schlesinger and Samuel E. Whitley for a stock trading scheme in which they claimed to have struck oil in Belize in order to manipulate the company’s stock price as they illegally sold shares to the public. Read More
Doug Furth Indicted in Kickback Scheme
On December 12, 2014, the Securities and Exchange Commission (“SEC”) filed a civil injunctive action in the United States District Court for the Eastern District of New York, charging Douglas Furth, a stock promoter who resides in Solon, Ohio, with manipulating the common stock of SearchPath HCS, Inc. (“SearchPath”). On the same day Furth was indicted in connection with the same conduct. Read More
SEC Sanctions Firms For Lack of Auditor Independence
On December 8, 2014, the Securities and Exchange Commission (the “SEC”) sanctioned eight firms for violating auditor independence rules when they prepared the financial statements of brokerage firms that were their audit clients. The SEC determined that the audit firms generally took data from financial documents provided by clients during audits and used it to prepare their financial statements and notes to the financial statements. Under auditor independence rules, firms cannot jeopardize their objectivity and impartiality in the auditing process by providing such non-audit services to audit clients. Read More
SEC Sanctions Bitcoin Stock Exchange Operator
On December 8, 2014, the Securities and Exchange Commission (the “SEC”) announced sanctions against a computer programmer for operating two online venues that traded securities using virtual currencies Bitcoin or Litecoin without being registered as broker-dealers or stock exchanges. The programmer, Ethan Burnside, also was sanctioned for conducting unregistered offerings. He significantly cooperated with the SEC’s investigation and agreed to settle the case by paying more than $68,000 comprising his profits from the unregistered venues plus interest and a penalty.
Section 3(a)(10) l The Paper Crime Exemption
Section 3(a)(10) of the Securities Act of 1933 (the “Securities Act”) provides an exemption from registration that permits a company to issue common stock to public investors “in exchange for one or more bona fide outstanding securities, claims or property interests” without having to file a registration statement with the Securities and Exchange Commission (the “SEC”), “where the terms and conditions of such issuance and exchange are approved after a hearing upon the fairness of such terms and conditions” by any court or any governmental authority “expressly authorized by law to grant such approval.” Read More
SEC Targets Another Promoter In a Reverse Merger Scheme
The Securities and Exchange Commission (the “SEC”) charged another promoter in connection with a reverse merger issuer. Matthew Carley, a penny stock promoter in Montana with orchestrating a fraudulent pump-and-dump scheme involving the stock of reverse merger issuer, Red Branch Technologies, a company quoted by the OTC Markets OTC Link with an OTC Pink tier. The SEC alleges that Carley engineered a reverse merger with Red Branch Technologies then orchestrated two blast e-mail campaigns promoting its shares. It is unclear how Carley received free-trading shares or located the public shell company. According to the SEC charges, Carley timed e-mails to coincide with the release of materially false and misleading press releases touting technology related to airport and homeland security. Read More
SEC Charges Traders Cafe Founders As Unregistered Brokers
The Securities & Exchange Commission (the “SEC”) announced securities fraud charges against Albert J. Scipione and Matthew P. Ionno who they allege pursued investors to set up accounts at their Traders Cafe for day trading. Traders Cafe functioned as a broker-dealer for day trading customers despite not being registered as a broker-dealer. Read More
Executives of Assisted Living Concepts Charged with Fraud
On December 3, 2014, the Securities and Exchange Commission (the “SEC”) announced securities fraud charges against Laurie Bebo and John Buono two executives at an assisted living facility accused of listing fake occupants to meet the requirements to operate the facilities.
The SEC Enforcement Division alleges that then-CEO Laurie Bebo and then-CFO John Buono devised the securities fraud scheme involving false disclosures and manipulation of internal books and records when it appeared likely that their company Assisted Living Concepts Inc. would default on covenants in a lease agreement with a real estate investment trust called Ventas Inc., which owned the facilities.
The financial covenants required Assisted Living Concepts to maintain minimum occupancy rates and coverage ratios while operating the facilities, and failure to meet the covenants constituted a default on the lease. A default would have required Assisted Living Concepts to pay the remaining rent amount due for the full term of the lease, which amounted to tens of millions of dollars at the time. Read More
FINRA’s OTCBB Replacement To Report Six Digit Trade Prices
Recently, the Financial Industry Regulatory Authority (“FINRA”) announced its intention to shut down the OTCBB.com website it had run for many years. FINRA originally tried to sell the site and the accompanying trading platform, but the effort failed as OTC Markets Group’s OTC Link became the platform of choice for nearly all OTC issuers. That was because the OTCBB never automated its system—all trades were executed by telephone—and charged market makers hefty fees to use the service. Read More
The SEC Pursues Shell Packer, Joseph Meuse
On November 25, 2014, the Securities & Exchange Commission (“SEC”) announced administrative proceedings against Joseph Meuse pursuant to Section 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”). According to the SEC, from April 2004 through at least September 2009, Meuse was the founder, president and sole owner of Belmont Partners, LLC (“Belmont”), a shell packer whose business was to sell shell companies for reverse merger transactions.
From May 2008 through January 2014, Joseph Meuse was also the president and majority owner of a transfer agent registered with the SEC. From January 2005 through January 2011, Meuse was associated with various broker-dealers registered with the Commission. Meuse served as a director of Alternative Green Technologies, Inc. (“AGTI”) in October 2008.
In 2011, the SEC filed an action against Meuse. Meuse released a press release at that time stating, “Contrary to the SEC’s allegations, we were not involved in, nor did we have any knowledge of, the alleged stock selling scheme by the Company and its current management. We only briefly held an interest in the Company before selling it to Sierra Range Holdings, an entity controlled by Mitchell Segal, a New York attorney with a stellar resume..Given our undisputed lack of involvement in the stock manipulation described in the SEC’s complaint, we are genuinely disturbed by the SEC’s focus on our firm and Mr. Meuse, and view as unfair and inappropriate the quoted disparaging remarks by a high-ranking SEC official contained in the agency’s litigation release, which glosses over the alleged egregious conduct of the other defendants.” Read More
Feds to Auction Silk Road Bitcoins Belonging to Ross William Ulbricht
Last week, the US Marshals Service announced that it will hold an auction on December 4, to sell 50,000 bitcoins that belong to Ross William Ulbricht. Ulbricht is alleged to have operated the first Silk Road website that was often used for illegal activity including drug trafficking. According to the US Marshals Service, Ulbricht had 114,000 bitcoins stored on his computers when they were seized by federal authorities after his arrest last month. Read More
Trends in Bitcoin Regulation
On October 27, 2014, FinCEN issued two administrative rulings to companies seeking guidance on whether a company would be required to register as an MSD as defined under the BSA and be subject to the required reporting, recordkeeping, and monitoring obligations. In its first letter, it responded to whether a company’s plans to set up a virtual currency trading and booking platform, similar to a traditional securities or commodities exchange, would make it subject to FinCEN regulations. Read More
SEC Censures Eureeca.com For Selling To US Investors
On November 12, 2014, the Securities and Exchange Commission (the “SEC”) censured Eureeca.com, a Cayman Islands-based crowdfunding website for its failure to implement procedures “reasonably designed” to prevent U.S. investors from using its funding portal as a means to invest in securities offerings. In May 2013, Eureeca, through its website (www.eureeca.com), started a securities-based, crowdfunding platform that connects issuers with investors to raise funds in exchange for equity. Eureeca’s website offers securities of non-U.S. issuers.
The securities offerings listed on Eureeca’s website were not registered with the SEC. Read More
SEC Suspends Trading in Ebola Tickers
The Securities and Exchange Commission (the “SEC”) suspended trading in four companies that claim to be developing products or services in response to the Ebola outbreak, citing a lack of publicly available information about the companies’ operations. The SEC simultaneously issued an investor alert warning about the potential for fraud in microcap companies purportedly involved in Ebola prevention, testing, or treatment, noting that scam artists often exploit the latest crisis in the news cycle to lure investors into supposedly promising investment opportunities. Read More
SEC Charges Eric Van Nguyen, Jay Fung and Anthony Thompson
On November 17, 2014, the Securities and Exchange Commission (the “SEC”) charged three penny stock promoters with conducting pump-and-dump schemes involving stocks they were touting in purported independent newsletters. The SEC alleges that Anthony Thompson, Jay Fung, and Eric Van Nguyen worked in coordinated fashion to gain control of the public float of penny stock companies. Read More
Joseph Noel Charged In Stock Scalping Scheme
On November 17, 2014, the Securities and Exchange Commission (the “SEC”) charged Joseph Noel, the Chief Executive Officer of YesDTC Holdings, a San Francisco-based penny stock company. Noel is charged with defrauding investors by issuing false and misleading press releases in order to pump up the stock price up while he secretly sold his shares into the public market for proceeds of over $300,000. This practice is known as “stock scalping”. Read More
FINRA Investor Survey Reveals Support for Regulatory Protections
The Financial Industry Regulatory Authority (FINRA) recently released a survey of U.S. investors designed to measure perceptions of fairness and to gauge demand for additional regulatory protections. FINRA’s Investor Survey was conducted October 7 through October 9, 2014 and October 27 through October 29, 2014. Read More
CFTC Addresses the Use of Rule 506 By Commodity Pool Operators
The Commodity Futures Trading Commission (the “CFTC”) recently issued an Exemptive Relief letter No. 14-116 allowing certain operators of commodity pools (Commodity Pool Operators) to rely upon Rule 506 for certain securities offerings. Exemptive Relief was issued in response to amendments made by the Securities and Exchange Commission (“SEC”), pursuant to the JOBS Act, which adds a new registration exemption to Rule 506 of Regulation D and amend Rule 144A. Read More
FINRA Addresses Confidentiality Provisions In Notice 14-40
In FINRA Regulatory Notice 14-40, members are cautioned that it is a violation of FINRA Rule 2010- Standards of Commercial Honor and Principles of Trade- to incorporate confidentiality provisions into settlement agreements where the provisions seek to restrict or prohibit a customer or other person from reporting and/or communicating with the Securities and Exchange Commission (the “SEC”), FINRA, or any federal or state regulatory authority regarding possible violations of the securities laws. Read More
NASDAQ Submits Proposals Requiring Public Disclosure of Denied Listing Applications
On October 30, 2014, NASDAQ submitted a proposal addressing initial NASDAQ listing applications. The proposals include that a company could withdraw its initial listing application at any time. NASDAQ’s policies have always permitted a company to withdraw its initial listing application at any time, and as such, the proposals would formally make this policy part of NASDAQ’s rules. Read More
Medbox, Inc. Announces SEC Investigation
On November 12, 2014, Medbox, Inc. (MDBX) put an end to nearly two weeks of speculation by acknowledging in its 10-Q for the period ended September 30 that the company has received a formal notice of investigation from the Securities and Exchange Commission (“SEC”). According to the quarterly report, on November 10, the SEC “notified the Company that it is conducting an investigation pertaining to the Company and issued a subpoena to the Company for documents from December 1, 2011 to the present relating to the matters it is reviewing. Read More
Belizean Judge Removes Asset Freeze in Robert Bandfield Case
On November 10, 2014, Belizean Chief Justice Kenneth Benjamin ordered the removal of a freeze on accounts owned by six defendants in what the U.S. government describes as a $500 million fraud case. The U.S. alleges that three Belize broker-dealers, Legacy Global Markets S.A., Unicorn International Securities LLC, and Titan International Securities, Inc., participated in the fraud. The funds were frozen in early September by Belize’s Financial Intelligence Unit (“FIU”) at the request of the U.S. government. Simultaneously, the U.S. Attorney’s Office for the Eastern District of New York announced criminal charges against Robert Bandfield and Andrew Godfrey, who owned and operated a company called IPC Corporate Services. The DOJ charged the two men with helping more than 100 beneficial owners of penny stocks sell billions of shares of those stocks without reporting the transactions. Read More
Second Incarnation of Silk Road Bitcoin Shop Shut Down
On November 6, 2014, U.S. District Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation (“FBI”) and Homeland Security Investigations (“HSI”) announced the arrest of Blake Benthall in connection with his operation and ownership of a website known as “Silk Road 2.0.” Read More
What is an Investment Newsletter?
The Securities and Exchange Commission (“SEC”) recently issued an Investor Alert warning about the use of investment newsletters and emails as tools for fraud. In this digital age, sensible people know they should be wary of online financial advice, but there are still many who can’t resist the allure of the “guaranteed profits” that will be generated by a “once in a lifetime opportunity” that they learn about via email in their inbox. Read More
How Form S-1 and Form 10 Registration Statements Are Different
Going public often refers to the process of a company filing a registration statement under the Securities Act of 1933, as amended to register securities for public sale. Unlike a registration statement on Form S-1, a Registration statement on Form 10 registers a class of securities such as common or preferred stock pursuant to Section 12(b) or 12 (g) of the Securities Exchange Act of 1934.
A Form 10 registration statement is automatically effective 60 days after filing, regardless of whether the issuer has responded to all Securities and Exchange Commission (the “SEC”) comments.
Registration statements on Form S-1 register specific securities of a company. Form S-1 can be used to register shares for a company to sell to investors, specific shares for the issuer’s shareholders to resell. Form S-1 can also be used to register both simultaneously.
The S-1 registers and offers specific shares for the issuer or its stockholders to sell to the public. Form S-1 can be used for an Initial Public Offering (“IPO”) or Direct Public Offering (“DPO”) Read More
