Can I Raise Money From Investors Who Are Not “Accredited Investors”? Introducing The Slo-PO Method
A question we frequently receive from entrepreneurs raising capital for the first time is whether can raise money from people who do not meet the U.S. Securities and Exchange Commission (“SEC”) definition of an “accredited investors.” The easiest answer to tell a client is that “you shouldn’t” or “technically, you can but it is often too costly and time consuming because of all the state regulations.” Read More
Investor Relations Providers Indicted For Growlife and Hemp, Inc. Pumps
Three investor relations providers have been indicted for manipulating the securities of several microcap companies, including two marijuana-related stocks, Growlife and Hemp, Inc. According to the allegations, the four promoters bought inexpensive shares of thinly traded penny stock companies on the open market and conducted pre-arranged, manipulative matched orders and wash trades to create the illusion of an active market in these stocks.
Rule 147 l The Intrastate Exemption
Section 3(a)(11) of the Securities Act of 1933, as amended (“Securities Act”), is generally known as the “intrastate offering exemption.” It provides an exemption from the registration requirements of the Securities Act for “any security which is a part of an issue offered and sold only to persons who reside in a single State or Territory, where the issuer of such security is a person resident and doing business within or, if a corporation, incorporated by and doing business within, such State or Territory.” Read More
Kevin McKnight and Company He Promoted Charged With Fraud
On August 4, 2014, the Securities and Exchange Commission (“SEC”) announced an administrative proceeding against Kevin McKnight and his investor relations firm Undiscovered Equities for violations of Section 17(b) of the Securities Act of 1933, as amended (the “Securities Act”). Read More
Rule 144 Legal Opinion Checklist l Securities Lawyer 101
Securities Lawyer 101 Blog
The Securities Act of 1933, as amended (the “Securities Act”) requires the sale of a security to be registered under the Securities Act, unless the security or transaction qualifies for an exemption from registration. Rule 144 of the Securities Act provides a safe harbor that permits holders of “restricted securities” to resell their securities in the public market if specific conditions are met. In order to remove the legend from certificates representing shares being resold in reliance upon Rule 144, an opinion from an SEC attorney is required.
Rule 144 also applies to the public sale of any securities held by directors, executive officers and other “affiliates” of the issuer. Read More
What is a Penny Stock Bar? Securities Lawyer 101
The Securities & Exchange Commission (‘SEC)” has the authorization to bar an individual from certain conduct under the Securities Enforcement Remedies and Penny Stock Reform Act of 1990 (the “Remedies Act”). SEC Bars are injunctions that must be granted by a court. Upon court order, SEC Bars prohibit a variety of conduct. Bars may enjoin individuals from serving as officers or directors of a public company, from involvement with penny stock issuers, and from practicing before the SEC as an attorney or accountant.
To understand penny stock bar, it is necessary to be familiar with the definition of penny stock. Many penny stock market participants are unclear about the wide range of activities prohibited by a penny stock bar. The bar prohibits owning a penny stock even for one’s own account as well as any activity related to an offering of a penny stock, including drafting disclosures. The impact of a Penny Stock Bar is that he individual is barred from acting as a promoter, finder, consultant or agent or otherwise engaging in activities with a broker, dealer, or issuer for the purpose of the issuance or trading in any penny stock or inducing or attempting to induce the purchase or sale of any penny stock.
The term “penny stock” most often refers to a security issued by a very small company that trades for less than $5 per share but not always. Private companies can be penny stocks. The SEC issued guidance as to the application of the penny stock rules to private companies. (See Fast Answers Penny Stock Rules https://www.sec.gov/fast-answers/answerspennyhtm.html):
Penny stocks are often quoted on the OTC Markets OTC Link LLC. Penny Stocks may, however, also trade on securities exchanges, including NASDAQ, NYSE and even foreign securities exchanges . In addition, the definition of penny stock can include the securities of certain private companies with no active trading market. Read More
SEC Charges CEO & CFO with Sarbanes-Oxley Violations
On July 31, 2014, the Securities and Exchange Commission (the “SEC”) announced charges against Marc Sherman, the CEO and Edward Cummings, the CFO of a Florida-based computer equipment company for misrepresenting to external auditors and the investing public the state of its internal controls over financial reporting. The Sarbanes-Oxley Act of 2002 requires a management’s report on internal controls over financial reporting to be included in a company’s annual report.
Whistleblowers Gone Wild
Nearly everyone believes the Securities and Exchange Commission’s Whistleblower Program under the Dodd Frank Act is a good idea. By the agency’s account, a considerable number of fraudulent schemes have been exposed, and devious perpetrators brought to justice thanks to tips sent in by people who believe they possess information that could help stop crime. Unfortunately, not all tips received are reliable, and not all would-be whistleblowers are credible. The SEC recently disclosed a long-running problem it had with an individual who filed a very large number of complaints—and tried to claim monetary awards for—a wide variety of cases brought against individuals and entities for which he provided no useful information.
Frank Speight and International Stock Transfer Charged
On July 24, 2014, the Securities and Exchange Commission (the”SEC”) and Department of Justice announced charges against Frank-Speight (Cecil Franklin Speight) and his Florida-based transfer agent with defrauding investors by using aggressive boiler room tactics to peddle worthless securities with promises of high returns or discounted prices. Read More
Carolyn Winsor Apprehended by U.S. Authorities
On June 27, 2014, Caroline Winsor, also known as Caroline Meyers and Caroline Danforth was apprehended and is in custody of the U.S. authorities. Winsor was indicted with conspiracy, wire fraud, and securities fraud. In April of 2013, more than a year before her arrest, Winsor was the subject of a detailed forensic report by www.promotionstocksecrets.com, which contained allegations mirroring the government’s charges against Winsor.
What is a Confidential Treatment Request?
An issuer filing a registration statement with the Securities and Exchange Commission (the “SEC”) that desires to keep certain information confidential and out of the public domain may do so under limited circumstances by filing an SEC request for confidential treatment. Generally, the SEC will not grant a confidential treatment request with respect to information that is specifically required to be disclosed under the securities laws or information that is otherwise material to investors.
The SEC’s Oversight of the Registration Statement Process
The Securities and Exchange Commission (“SEC”) is the key regulator of going public transactions, securities offerings and securities professionals. During the going public and registration statement process the SEC provides oversight of various professionals involved in the process. These include Transfer Agents, Sponsoring Market Makers, Securities Attorneys, Edgar Filers and Accountants. Read More
Company Website Requirements for Periodic Reports
It has become almost routine for publicly traded companies to use their websites to provide information to investors. In going public transactions, the issuer’s website can be used to keep shareholders informed about the different stages of the going public process and it can become a source of the issuer’s SEC periodic reports. Companies become subject to the SEC’s periodic reporting requirements a number of ways including by filing a registration under the Securities Act of 1933, as amended or pursuant to the Securities Exchange Act of 1934. Company websites provide a painless method for issuers to provide transparency to both shareholders and investors while raising capital during the going public process. Read More
Pending JOBS Act Proposals – Securities Lawyer 101
The Jumpstart Our Business Startups Act (or JOBS Act) (the “JOBS Act”), enacted in 2012, is intended, among other things, to reduce barriers to capital formation, particularly for smaller companies. Read More
SEC Charges Investor Relations Provider, Kevin McGrath
SEC Charges Brokers and Codesmart Executive in Pump-And-Dump Scheme
On July 17, 2014, the SEC charged individuals who pocketed millions of dollars running an elaborate pump-and-dump scheme involving shares of a medical education company in Pennsylvania and two other microcap stocks.
The SEC alleges that the stock market manipulation ring included two self-described bankers, a pair of dishonest brokers, and a corrupt company executive who issued misleading press releases. The SEC suspended trading in one of the microcap companies before they could illegally profit further. Read More
SEC Charges Christopher Plummer & Cex Cowsert in Vaccine Development Scam
On July 18, 2014, the Securities and Exchange Commission (“SEC”) charged what it described as a serial con artist and a penny stock company CEO with misleading investors in a supposed vaccine development company by issuing false press releases portraying it as a successful venture when it was in fact a failing enterprise.
The SEC alleges that Christopher Plummer teamed up with the CEO of CytoGenix, Lex Cowsert, to defraud investors with extravagant claims about the microcap company’s revenue and other benefits. The defendant claimed to have a “shared revenue agreement” with Franklin Power & Light, an electricity provider supposedly operated by Plummer. According to the SEC charges, Plummer’s entity was a complete sham, CytoGenix had actually lost all of its vaccine patents and other intellectual property in a lawsuit. The SEC’s allegations include that Plummer and Cowsert stole proceeds of CytoGenix stock offerings that they told investors would be used for energy production projects and other corporate purposes. Read More
What is Regulation D? Going Public Lawyers
Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Regulation D of the Securities Act contains three rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register the securities with the SEC. For more information about these exemptions, read our publications on Rules 504, 505, and 506 of Regulation D.
While companies using a Reg D (17 CFR § 230.501 et seq.) exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what’s known as a “Form D” after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s executive officers and stock promoters, but contains little other information about the company. Read More
Can I Use Rule 504 to Issue Free Trading Stock? Securities Lawyer 101
Rule 504 of Regulation D provides an exemption from the registration requirements of the federal securities laws for some companies when they offer and sell up to $5,000,000 of their securities in any 12-month period. A company can use the Rule 504 exemption so long as it is not a blank check company and is not obligated to file reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Also, the exemption generally does not allow companies to solicit or advertise their securities to the public, and purchasers receive “restricted” securities, meaning that they may not sell the securities without registration or an applicable exemption. Read More
What Are SEC Related Party Disclosures?
The Securities and Exchange Commission’s (the “SEC”) disclosure requirements for transactions with certain Related Persons are designed to provide shareholders with a clear and complete picture of key financial relationships impacting public companies. Items 404(a) of Regulations S-K and S-B set out the SEC’s disclosure rules for these Related Person transactions. This blog post addresses the requirements of Item 404(a) for Related Party Disclosures. Read More
FINRA Announces Arbitration Task Force
On July 17, 2014, the Financial Industry Regulatory Authority (FINRA) announced its 13-member Arbitration Task Force. The task force will consider possible enhancements to its arbitration forum to improve the transparency, impartiality and efficiency of FINRA’s securities arbitration forum for all participants. The task force is comprised of seven public members and six industry members.
What is a Stock Promoter? Securities Lawyer 101
Securities Lawyer 101 Blog
The securities laws contain specific rules and regulations that apply to issuers who use the services of promoters.
These include disclosure obligations under the Securities Act of 1933, (“Securities Act”) and the Securities Exchange Act of 1934, (“Exchange Act”). Read More
Disclosure Controls and Procedures & Internal Control Over Financial Reporting
Under the Sarbanes-Oxley Act, a company’s Chief Executive Officer and Chief Financial Officer must provide certifications in Form 10-K and Form 10-Q. The certifications must state that they have reviewed the report, believe that it does not contain any material misstatements or omissions and that the included financial statements and other financial information fairly represent the issuer’s financial condition. Read More
SEC Charges Lawbreakers Who Secretly Ran Microcap Company
Posted by Securities Lawyer 101 Blog
On July 16, 2014, the Securities and Exchange Commission announced SEC charges against James E. Cohen and Joseph Corazzi who secretly controlled Natural Blue Resources including the operational and management decisions of the company while calling themselves outside “consultants.” Read More
Going Public Attorney Insights – Direct Public Offerings
A Going Public Attorney is an important part of the overall going public process. The issuer’s Going Public Attorney in the beginning of the process assist the company in selecting the best method to obtain public company status. This ensures a smooth transaction and assists the issuer in receiving DTC eligibility.
In 2013, changes resulting from the JOBS Act, made going public transactions an appealing option for private companies seeking to raise capital. Rule 506(c) allows companies to conduct private placements prior to going public to offset their going public costs. In going public transactions, these privately placed shares are registered on Form S-1 and become the public float. A Going Public Attorney in a Rule 506 offering assists the issuer with verification of investors and filing its Form D. Read More
The SEC Provides Guidance For Accredited Investor Verification
On July 3, 2014, the Securities and Exchange Commission (“SEC”) six compliance and disclosure interpretations (“CD&I”) providing guidance as to the accredited investor verification in Rule 506(c) offerings. On September 23, 2013, the Rule 506(c) became effective. The rule allows companies to advertise their private placements so long as sales are only made to purchasers who qualify as accredited investors. Under the rule, issuer who conduct 506(c) offerings are required to take “reasonable steps” to verify that all purchasers in their offerings are accredited investors. Offers can be made to all investors but for a sale, the issuer must have a reasonable belief that purchasers are accredited investors at the time of sale.
What Stock Can I Register on Form S-1?
A registration statement on Form S-1 can be used to register various types of securities offerings with the Securities and Exchange Commission (“SEC”). Form S-1 provides issuers with flexibility in the types of securities that can be registered. Form S-1 is used more often by issuers than any other type of registration statement form. The form can be used by existing public companies or companies in connection with a going public transactions. Regardless of whether the company is public or private, Form S-1 can be used to registered various types of transactions. Read More
SEC Charges Golfers in Scam By: Brenda Hamilton Lawyer
On July 11, 2014, the Securities and Exchange Commission announced charges against a group of golfing friends, who made more than $554,000 of illegal profits from trading on inside information about Massachusetts-based American Superconductor Corporation. Read More
Direct Public Offering Toolbox l By: Brenda Hamilton Attorney
Securities Lawyer 101 Blog
For companies with a reasonable time schedule for going public, a direct public offering provides an appealing method for obtaining public company status. In a direct public offering, a company’s shares are sold directly to investors by management, rather than through an underwriter.
A primary benefit of a direct public offering is that the process dramatically reduces the costs and risks associated with reverse merger transaction. Companies using a direct public offering in their going public transaction should consider these useful tools to ensure a smooth transaction.
Shareholder Requirements in Direct Public Offerings.
The Financial Industry Regulatory Authority (“FINRA”) requires that a company’s securities develop an orderly and liquid market. To meet this requirement you must have a shareholder base of at least 20 non-affiliated stockholders who have somewhat evenly distributed share ownership. For example, if a large portion of a company’s free trading shares is concentrated in only a handful of shareholders, FINRA will not likely assign a ticker symbol. Read More
SEC Comment and Review Process l Going Public Bootcamp
Securities Lawyer 101 Blog
The Securities and Exchange Commission’s (the “SEC’s“) Division of Corporation Finance reviews filings including registration statements filed pursuant to the Securities Act of 1933, as amended (the “Securities Act“), and the Securities Exchange Act of 1934, as amended (the “Exchange Act“), to review and address issuer compliance with applicable disclosure requirements and accounting standards.
The SEC also reviews registration statements filed under the Securities Act for going public transactions.
These registration statements are typically on Form S-1 under the Securities Act or Form 10 under the Exchange Act.
The Sarbanes-Oxley Act of 2002, requires the SEC to review an issuer’s Exchange Act filings at least once every three years. The SEC may also selectively review an issuer’s filings, including proxy materials and registration statements under the Securities Act.
When an issuer’s filings having been selected for review, the SEC conducts a non-public preliminary review and, on the basis of its findings, determines whether a further examination is warranted. The SEC undertakes three types of reviews. Read More