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
Why BrokerCheck is Flawed – Going Public Lawyer
The Financial Industry Regulatory Authority’s BrokerCheck is a free tool available to the public that provides some information about the professional backgrounds of brokerage firms and brokers currently or formerly registered with FINRA or a national securities exchange.
It provides similar information for current or former investment adviser firms and representatives. 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
SEC Sanctions 10 Issuers for Form 8-K Failures
On November 5, 2014, the Securities and Exchange Commission (the “SEC”) announced enforcement actions against 10 companies for failing to file Current Reports on Form 8-K disclosing financing deals and other unregistered securities sales that diluted their shareholders and investors.
Companies are required to file a Form 8-K to inform investors when shares of common stock are sold in transactions that are not registered with the SEC under the federal securities laws and constitute at least five percent of the total stock held by their shareholders. Companies also must report when they’ve entered into a financing agreement not made in the ordinary course of business. Read More
The SEC Investigates Bitcoin Companies
Bitcoin blogs have been buzzing recently with news of an SEC investigation into cryptocurrency companies that the agency apparently believes have engaged in potentially illegal securities issuances. Bitcoin has been controversial since it was “invented” several years ago, in large part because ownership, and transactions made using it, are anonymous and, supporters claim, untraceable. Read More
SEC Obtains Judgments Against James Wheeler and MicroHoldings
Securities Lawyer 101 – Securities Law Blog
On October 31, 2014, the Securities & Exchange Commission (the “SEC”) obtained judgments MicroHoldings US, Inc., and its Chief Executive Officer, James Wheeler, in a securities fraud action that was filed in December 2011. MircroHoldings, a former shell dormant company, traded on the OTC Markets OTC Pink with the symbol (“MCHU”). MicroHoldings was a “penny stock” as defined by the Exchange Act and traded at less than $5.00 per share during the relevant periods.
The securities fraud involved a kickback scheme that was exposed by an undercover operation of the Federal Bureau of Investigation (the “FBI”). MicroHoldings and Wheeler are two of several parties charged on December 1, 2011, by both the SEC and the U.S. Attorney for the District of Massachusetts, alleging that they used kickbacks and other schemes to trigger investments in various thinly-traded stocks. Read More
OTC Markets Rules for OTCQB Companies
Posted by Brenda Hamilton Attorney
In May of this year, the OTC Markets’ new rules for OTCQB stocks were implemented, as promised. The changes took many issuers and investors by surprise adding significant costs to the going public process. OTC Markets explained that by instituting this new program, it intended to create a “true venture stage marketplace for early and development stage companies.” The program’s two most important features are a minimum bid price requirement of $0.01 and an annual fee of $10,000. There was formerly no fee for companies quoted with the OTCQB tier.
OTC Markets’ original announcement caused surprise with market participants. Many issuers wrongly believed that the Securities and Exchange Commission (the “SEC”) was somehow involved. It was not. As far as SEC regulations are concerned, there are only two types of over-the-counter stocks: SEC registrants, and SEC non-registrants. OTC Markets is not a regulatory agency or a stock exchange; it is a quotation service. Nonetheless, it established its own rules and regulations. In the absence of competition—the old OTCBB, run by FINRA, is now dead, for all practical purposes—companies have no choice but to pay attention. And money if they want to be quoted above the OTC Pink tier.
Attorney Kenneth Eade Barred By SEC
Securities Lawyers Gone Wild Series
On October 28, 2014, the Securities and Exchange Commission (“SEC”) announced the settlement of an administrative proceeding brought by the agency against Kenneth Eade, a securities attorney licensed to practice in California, but living in Paris, France. By agreeing to the suspension, Eade accepted a suspension from practicing law before the SEC for a period of five years. “Practicing” comprehends preparing and submitting filings to the SEC, representing clients in SEC enforcement actions, and more. When the suspension ends, Eade may request permission to resume practicing and appearing before the SEC. Read More
Crowdfunding a Texas Intrastate Offering
Texas is the latest state to embrace equity crowdfunding. On October 22, 2014, the Texas State Securities Board approved proposed Rule 139.25, which exempts intrastate securities offerings using crowdfunding. Rule 139.25 will become effective in November of 2014. The new Texas exemption requires that offers and sales of an issuer’s securities be made exclusively through an Internet website operated by a Texas registered general dealer or Texas registered crowdfunding portal.
Crowdfunding a Going Public Transaction –
The Securities and Exchange Commission (“SEC”) rules for crowdfunding remain in limbo, but 12 states have passed legislation allowing intrastate crowdfunding. The SEC as well as state securities regulators have provided meaningful guidance addressing intrastate crowdfunding. One benefit of intrastate crowdfunding is that while it will not give a company public company status, if structured properly, it can serve as a stepping stone in the right direction.
In addition, a crowdfunded offering can serve as a way for the issuer to finance its going public transaction and provide investors with an exit strategy.
To understand how crowdfunding can be used in a going public transaction, you must be familiar with the requirements of going public. This post addresses only the requirements for companies who go public by filing a registration statement with the SEC. This is most often accomplished on Form S-1.
A company going public must locate a sponsoring market maker to submit a Form 211 with the Financial Industry Regulatory Authority (“FINRA”) in order to obtain a stock trading or ticker symbol. FINRA requires that the company be able to establish an active market for its securities. To do this, the issuer must have a sufficient number of non-affiliate stockholders with unrestricted securities. FINRA has not established the number of stockholders required to satisfy this requirement. Generally, most sponsoring market makers require at least 20 non-affiliate stockholders who hold at least 250,000 unrestricted shares. Read More
How Do I Spin-Off A Subsidiary? Going Public Lawyers
Securities Lawyer 101 Blog
A spin-off (“Spin-off”) involves a transaction in which a parent company (“Parent”) distributes securities of its subsidiary (“Subsidiary”) to the Parent’s stockholders so that the Subsidiary becomes a separate, independent company. Spin-off securities are usually distributed on a pro-rata basis. State law dictates whether stockholder approval of a spin-off is required. Securities issued in spin-offs do not require registration under the Securities Act of 1933, as amended (the “Securities Act”) if certain conditions are met. The SEC has taken the position, that as long as the conditions of Staff Legal Bulletin No. 4, have been satisfied, the spin-off of the Subsidiary’s securities by the Parent will not require a registration statement under the Securities Act. After the spin-off is complete, the private issuer must locate a sponsoring market maker to submit a Form 211 to FINRA to seek a ticker symbol. Read More
Ebola Stock Scams – FINRA Risk Alert
The Financial Industry Regulatory Authority (“FINRA”) recently issued a Risk Alert about Ebola Stock Scams. The Risk Alert warns investors about potential investment scams involving companies that claim to be involved in the development of products that will prevent the spread of Ebola and other viral diseases like Middle East Respiratory Syndrome (MERS). Read More
SEC Judgment Entered Against James Crane CFO of Subaye
On October 20, 2014, the Securities and Exchange Commission (the “SEC”) announced a final judgment, in an enforcement action filed by the SEC in May 2013, against James Crane, the former Chief Financial Officer of Subaye, Inc., a company based in China. Among other things, the judgment orders James Crane to pay $150,000. Crane is also barred from serving as an officer or director of a public company for ten years. According to the SEC Charges, Subaye began promoting itself during 2010 as a provider of cloud computing services to Chinese businesses. According to the SEC complaint, Subaye claimed to have over 1,400 sales and marketing employees in 2010, with reported revenues of $39 million in 2010 and projected revenues of more than $71 million for 2011. Read More
DTCC Removes Global Lock of Veltex Corporation’s Securities
Effective October 17, 2014, the Depository Trust Company (“DTCC”) has reinstated services for the securities of Veltex Corporation (“Veltex”).
Stephen G. Macklem, CFO of Veltex quantified in a statement, “Veltex, thru the retention of the Law Offices of Hamilton & Associates Law Group, P.A. and its principal Veltex attorney Brenda L. Hamilton, has received communications that the global lock of Veltex’s common shares has been removed.” Read More
Risk Alert – Penny Stock Deposits | Hamilton & Associates
On September 9, 2014, the Securities and Exchange Commission (the “SEC”) published a Risk Alert concerning the obligations of broker-dealers who engage in unregistered penny stock transactions on behalf of their customers. The SEC publication of the staff guidance was accompanied by the announcement of an enforcement action against two E*TRADE Subsidiaries for improperly selling billions of shares of penny stocks through such unregistered securities offerings.
The SEC’s Risk Alert summarizes deficiencies that were discovered by the SEC’s Office of Compliance Inspections and Examinations (OCIE) during its review of 22 broker-dealers frequently involved in the sale of microcap securities. Read More
Proposals For DTC Chills and Global Locks WITHDRAWN
On December 18, 2013, the Depository Trust Company (“DTC”) submitted a proposed rule change to the Securities and Exchange Commission (“SEC”), which regulates its activities. Its aim was to “specify procedures available to issuers of securities deposited at DTC for book entry services when DTC imposes or intends to impose restrictions on the further deposit and/or book entry transfer of those securities…”
In plain English, the new rule would provide that in most cases, issuers would receive advance notice of planned DTC chills or global locks, and would be able to protest the imposition of the chill or lock proposed. Emergency actions would still be possible, but issuers could protest them after the fact. It also set a limit for the duration of DTC chills and locks: six months in the case of issuers who are SEC registrants, and one year in the case of non-registrants.
SEC Obtains Final Judgment Entered Against 8000, Inc. CEO, Thomas Kelly
Securities Lawyer 101 – Securities Law Blog
On October 9, 2014, the Securities and Exchange Commission (the “SEC”) announced a Final Judgment had been entered against Thomas Kelly, the former Chief Executive Officer of 8000, Inc. 8000, Inc. was formerly quoted with the symbol (“EIGH”) on OTC Pink operated by OTC Markets Group.
Kelly along with securities attorney, Carl N. Duncan, Jonathan Bryant, and 8000, Inc. were defendants in an SEC action filed on September 27, 2012. Read More
DTC Chill Conspiracy Theories On the Rise
The Depository Trust Company (“DTC”) is the only stock depository in the United States. When DTC provides services as the depository for an issuer’s securities, its securities can trade electronically.
Without DTC eligibility, it is almost impossible for a company to establish or maintain an active market for its securities. Read More
Can A Foreign Company Go Public in the U.S.? Going Public Lawyers
Typically, foreign companies seeking to raise capital attempt to obtain public company status. Foreign companies that go public in the U.S. may complete a public offering by registering securities with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”) or by registering a class of securities under the Securities Exchange Act of 1934 (the “Exchange Act”).
Like domestic issuers, foreign companies have access to several means of raising capital during the going public process.
A direct public offering (“Direct Public Offering”) allows an issuer to raise capital by selling securities directly to investors without the use of an underwriter. The Direct Public Offering for a foreign company involves registering a securities offering with the SEC, typically on Form F-1 (”F-1”).
Form F-1 which allows the foreign company to use financial statements that comply with International Financial Reporting Standards (“IFRS”) instead of GAAP. Registration with the SEC eliminates many of the risks and expenses associated with reverse merger transactions and public shell companies, as well as the stigma currently attached to reverse mergers involving foreign issuers. Reverse merger risks include, but are not limited to, undisclosed liabilities, incomplete or sloppy corporate records, Depository Trust Company (“DTC”) Chills and Global Locks, and SEC trading suspensions. Read More
SEC Charges E*TRADE Subsidiaries With Improperly Selling Penny Stocks
Securities Lawyer 101 Blog
On October 9, 2014, the Securities and Exchange Commission (the “SEC”) announced an enforcement action against current and former brokerage subsidiaries of E*TRADE Financial Corporation. According to the SEC charges, E*Trade improperly engaged in unregistered sales of penny stock issuers for their clients. An SEC investigation determined that E*TRADE Securities and E*TRADE Capital Markets sold billions of penny stock shares during a four-year period. Read More
Geoffrey Eiten Ordered to Pay Over $700,000 In SEC Case
On October 8, 2014, the Securities and Exchange Commission (the “SEC”) announced that the U.S. District Court for the District of Massachusetts entered a final judgment against stock promoter Geoffrey Eiten. Eiten is a defendant in an action filed by the Commission in December 2011, alleging that Eiten and his company, National Financial Communications made material misrepresentations and omissions in penny stock publications they issued. Among other things, the judgment orders Eiten to pay a total of $727,029. Read More
