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
Robert Kelly Sentenced to 27 Months For Securities & Wire Fraud
On September 23, 2014, Robert Kelly, the former chief executive officer of Wwebnet, Inc. (“Wwebnet”), a software development company, was sentenced to 27 months in prison. Kelly is also subject to three years supervised release and required to pay restitution of $2,111,600. Read More
SEC Addresses the Intrastate Crowdfunding Exemption
On October 2, 2014, the Securities and Exchange Commission issued an updated compliance and disclosure interpretation addressing intrastate crowdfunding and Rule 147 of the Securities Act of 1933, as amended (the “Securities Act”). Rule 147 of the Securities Act is known as the intrastate exemption. It provides an exemption from the registration statement requirements for issuers conducting an intrastate offering that satisfies certain conditions including that sales may only be made to residents of the same state as the issuer. Read More
What Are the Prospectus Delivery Requirements? Going Public
Securities Lawyer 101 Blog
Under the Securities Act of 1933 as amended (the “Securities Act”), a Company that conducts an initial public offering (“IPO”) including in a going public transaction must adequately disclose material information to investors. These disclosures include details of the Company’s business and financial condition as well as the securities the Company proposes to offer.
In going public transactions, these disclosures are most often provided in a Form S-1 Registration Statement. Upon effectiveness of its S-1 registration statement, the Company provides potential investors with a prospectus which forms a part of the registration statement. The prospectus contains two parts. Read More
Dickson Lee of L&L Energy Pleads Guilty to Securities Fraud
On September 23, 2014, Dickson Lee, former CEO of Seattle-based L&L Energy, plead guilty to two counts of securities fraud. The plea was announced by the U.S. Attorney’s Office for the Western District of Washington. L&L Energy was once listed on the NASDAQ. It purported to be engaged in various aspects of the coal mining business in China, and had offices in Taiwan as well as in Seattle. Read More
Raising Capital and Going Public Guide
There are two primary sets of federal securities laws that come into play when a company wants to offer and sell its securities and go public. These are the Securities Act of 1933 (“Securities Act”), and the Securities Exchange Act of 1934 (“Exchange Act”). These laws are complex and govern the registration statement process and disclosure obligations.
The Securities Act in Going Public Transactions
The Securities Act regulates offers and sales of securities in the United States or that use the means of interstate commerce, such as the internet, U.S. telephone lines or the U.S mail.
For securities offerings to the public, the Securities Act generally requires the company to file a registration statement containing information about itself, the securities it is offering and the offering. The SEC staff reviews these registration statements to see if the SEC’s disclosure rules are satisfied. The SEC does not evaluate the merits of securities offerings, or determine whether the securities offered are “good” investments or appropriate for a particular type of investor. Once the review is completed, the staff declares the registration statement “effective,” allowing it to be used to complete sales to investors. Read More
What is the Section 4(a)(5) Accredited Investor Exemption?
Offers and sales of securities must be either registered with the Securities and Exchange Commission (the “SEC”) or be exempt from registration.
Section 4(a)(5) of the Securities Act of 1933, as amended exempts from the registration statement requirements offers and sales of securities to accredited investors when the total offering price is less than $5 million. Read More
The SEC’s XBRL Interactive Data l Securities Lawyer 101
The use of eXtensible Business Reporting Language (XBRL) interactive data is intended to improve the accessibility of financial information to investors by making the information inexpensive and easier to use. XBRL interactive data uses a standardized set of tags to consistently identify data in embedded text. Issuers must identify each piece of data in its financial statements according to a standard list of tags assigned to the particular type of data. Read More
What is a Shelf Registration Statement? Going Public Bootcamp
A shelf registration statement allows an issuer to register a public offering even when there is no present intention to sell all the securities being registered. Shelf registration statements are often used in going public transactions by issuers who registered securities on a Form S-1 registration statement. Read More
The Going Public Attorney & Due Diligence – Going Public Attorneys
A company’s going public lawyer must conduct proper due diligence in order to draft required disclosures during the going public process. These expansive disclosure requirements apply to private companies going public. During the going public process, companies must generally provide expansive disclosures. These disclosures include information about their financial condition, business plan and operations, material risks, management, litigation and stockholders, in addition to how many shares will be offered and at what offering price.
The going public attorney’s role varies, depending upon the company’s financial condition, assets, revenues, its business, location and other factors. Any private company seeking to go public needs a securities lawyer to guide it through the registration statement requirements, auditors to audit at least two years of financial statements and–if an initial public offering (“IPO”) is planned–the issuer will also require underwriters to offer and sell its securities. Read More
Section 15-d Reporting l Securities Lawyer 101
Upon completion of a going public transaction, an issuer that has registered equity or debt securities in an initial or direct public offering registered on Form S-1 under the Securities Act of 1933, as amended (the “Securities Act”) must file annual, quarterly and current reports with the Securities and Exchange Commission under Section 15-d of the Securities Exchange Act of 1934.
Section 15-d reporting requirements apply even if the public company does not list its securities on a national securities exchange or market and the company has not met the size thresholds requiring Exchange Act registration. Read More
Oh the Places You Will Go When Going Public
Oh the Places You’ll Go – Understanding the Going Public Process
The going public process involves a myriad of rules and regulations that issuers must consider before structuring their transactions.
While going public offers many benefits, it also comes with risks and quantities of regulations with which issuers must become familiar. Read More
What Are Form 10-K Exhibits ? By Brenda Hamilton, Lawyer
Some of the most valuable sources of information about a public company are Form 10-K exhibits. Item 601 of Regulation S-K identifies the documents to be filed as exhibits. Issuers are often unclear about the requirements of Item 601 particularly its provisions requiring issuers to file material agreements made outside the normal course of business.
Issuers typically generally incorporate by reference documents that they have previously filed as exhibits to other SEC filings. The most important documents that must be filed as exhibits to Form 10-K are the issuer’s material contracts. Read More
