Social Media and Being Publicly Traded
Publicly traded companies are increasingly using their company websites and the social media to communicate information to the public. Investors are increasingly turning to electronic media as a principal source of information about publicly traded companies. In 2000, the SEC adopted Regulation FD under the Securities Exchange Act of 1934 to address selective disclosure of information by publicly traded companies and other issuers.
Preparing and Filing SEC Form D
Regulation D under the Securities Act of 1933, as amended (the “Securities Act”) provides exemptions that permit a company to offer and sell its securities without complying with the registration statement requirements of the Securities Act if certain conditions are met. A company claiming an exemption under Regulation D is required to file a Form D – Notice of Sales with the Securities and Exchange Commission (the “SEC”), within fifteen days after the first sale of securities in the offering. This publication is intended to serve as a summary of the SEC requirements for filing Form D, and does not purport to be a complete discussion of the issues summarized herein and does not create an attorney client relationship. For more information regarding the Amendments or regarding their application to securities offerings under Regulation D, please contact Hamilton & Associates Law Group, P.A. by telephone at 561-416-8956 or email at [email protected].
Summary of the Regulation D Exemptions
Regulation D provides three transactional exemptions from registration. These are Rules 504, 505 and 506. Regardless of the exemption, Regulation D requires that the issuer file a Form D with the SEC.
What is a Notice of Sales on Form D?
Form D serves as the official notice of an offering of securities made without registration under the Securities Act in reliance on the exemptions provided by Regulation D, Section 3(c) or Section 4(6) under the Securities Act. Form D serves as a means (i) to collect data for use in the SEC’s rule-making efforts and (ii) to enforce the federal securities laws, including enforcement for the exemptions found in Regulation D. An issuer relying on a securities registration exemption provided by Regulation D, Section 3(c) or Section 4(6) is currently required to file a paper copy of Form D with the SEC not later than 15 days after the first sale of securities.
State Blue Sky Laws
Under Section 18(b)(4)(D) of the Securities Act, any private placement made in compliance with Rule 506 of Regulation D preempts state Blue Sky laws. Section 18(c) of the Securities Act, grants states the authority to require a Company to make a notice filing and pay a filing fee in connection with its Rule 506 offering. As a result, many states adopted statutes and rules mirroring Regulation D. Most states require the filing of Form D and the payment of a filing fee.
Amending Form D
Rule 503 requires that a Form D be amended in the following three circumstances:
(i) to correct a material mistake of fact or error in the previously filed Form D;
(ii) to reflect a change in the information provided in a previously filed Form D that occurs prior to the termination of the offering; and
(iii) annually, on or before the first anniversary of the Form D filing or the most recent amendment, if the offering is ongoing at that time.
Electronic Filing of Form D
Like most filings made with the SEC, Form D must be filed electronically through its Electronic Data Gathering And Retrieval System (“EDGAR”). Form D may be signed electronically. The Form D is publicly available on the SEC Website upon filing. In order to file a Form D electronically, the issuer must file a Form ID with the SEC to obtain EDGAR filer codes.
Form D Information
The following summary is intended to provide a by item description of the new Form D resulting from the Amendments. A copy of the new Form D is attached to this client publication.
Item 1 – Identity of the Issuer
Form D requires basic identifying and contact information about the Company and related persons.
Item 2 – Principal Place of Business and Contact Information
Form D requires that companies provide their principal place of business addresses and telephone number.
Item 3 – Related Persons Disclosure
Form D Item 3 requires that Company’s disclose “related persons” to the extent such persons are promoters or are the company’s executive officers and directors.
Item 4 – Industry Group
Form D requires companies to identify their industry group from the form’s specified list.
Item 5 – Issuer Size
Form D requires companies provide a revenue range from information in the Form D or choose the “Decline to Disclose” or “Not Applicable” option for a fund that seeks asset appreciation only. The revenues should be calculated based on the company’s most recently completed fiscal year. Where a company has been in existence for less than a year, it may identify its revenues from inception until the date of the filing of the Form D.
Item 6 –Exemption and Exclusion
As carried over from the current Form D requirement, the issuer must still identify the exemption or exemptions being claimed for the offering (i.e. Rule 504, 505 or 506 and Section 4(6), as applicable). However, the issuer is now required to identify the specific paragraph or subparagraph of any Rule 504 exemption being claimed as well as any specific paragraph of Investment Company Act Section 3(c) that the issuer claims for an exclusion from the definition of “investment company” under the Investment Company Act.
Item 7 – Type of Filing
Item 7 requires the company to indicate whether the Form D filing is a new filing or an amendment to a previously filed Form D. With respect to an amendment to a previously filed Form D, the SEC requires an amendment for an ongoing offering where there has been a material change in information filed about the offering and where basic information previously submitted about the issuer has materially changed.
Item 8 – Duration of Offering
Item 8 requires the issuer to indicate whether the offering will last more than a year.
Item 9 – Type of Securities Offered
Item 9 requires that the company specify the type of securities being offered, such as debt or equity, with additional categories of securities added. The company must specify all categories that apply to the securities that are the subject of the exemption specified in Item 6 of the Form D.
Item 10 – Business Combination Transactions
Item 10 requires the company to indicate whether the offering is being made in connection with a business combination such as an exchange (tender) offer, a merger or acquisition, regardless of the type of offering.
Item 11 – Minimum Investment Amount
Item 11 requires the company to specify the minimum investment amount per investor that was or will be accepted in the offering.
Item 12 – Sales Compensation
Item 12 generally requires the company provide information relating to sales compensation. Item 12 requires the issuer to provide the Central Registration Depository (“CRD”) number of each person that is a compensation recipient named in response to Item 12, provided the person has a CRD number. Item 12 also requires the issuer to provide the CRD number for any person that receives sales compensation and the person’s associated broker-dealer, if any.
Item 13 – Offering and Sales Amounts
Item 13 requires the company provide the amount of total sales and the total amount of the offering.
Item 14 – Investors
Item 14 requires the issuer disclose that it intends to sell securities to persons who do not qualify as accredited investors and the number of such persons who already have invested. The company must specify the total number of investors in the offering including both accredited and non-accredited investors.
Item 15 – Expenses and Use of Proceeds of Offering
Item 15 requires that the issuer provide the amounts paid for sales commissions and, separately state, finders’ fees paid or to be paid in the offering.
Item 16 – Use of Proceeds
Item 16 requires the company to report the gross proceeds used or proposed to be used for payments to related persons including officers and directors.
Signature and Submission
Form D may be electronically signed and the form includes an undertaking to provide offering materials to the SEC upon request.
This client publication is intended only as a general discussion of these issues. It should not be regarded as legal advice. We would be pleased to provide additional details or advice about specific circumstances if desired. For more information on the topics covered in this issue, please contact Hamilton & Associates Law Group, P.A. at 561-416-8956 or visit https://www.securitieslawyer101.com.
Please note that the prior results discussed herein do not guarantee similar outcomes.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com
Going Public Attorneys Helping Issuers
Going public is a big step for any company. The process of “going public” is complex and at times precarious. While going public offers many benefits it also comes with risks and quantities of regulations with which issuers must become familiar. Despite the risks even in a down economy, the U.S. market remains one of the most attractive sources of capital in the world for companies seeking capital. Going public is a complicated & intricate procedure, and it is important to have an experienced securities attorney to help your company navigate through the process and deal with the Securities & Exchange Commission the (“SEC”), Financial Regulatory Industry Authority (“FINRA”) & Depository Trust Company (“DTC”).
Upon completion of a going public transaction, most companies are subject to the regulations that apply to public companies, including those of the Securities Act of 1933, as amended (the “Securities Act”) and Securities Exchange Act of 1934, as amended (the “Exchange Act”). Hamilton & Associates will design your going public transaction. Before planning a going public transaction, companies should engage a competent attorney with experience in taking companies public. An experienced going public attorney can structure the most favorable plan to go from private to public company status. Unlike most securities attorneys, a going public attorney focuses on helping companies become SEC reporting issuers with a stock ticker symbol. Read More
How Does the JOBS Act Benefit A Foreign Issuer?
As the Securities and Exchange Commission (“SEC”) finishes the rule making that provides a structure for full implementation of the JOBS Act, much has been written about its impact on going public transactions and foreign issuers. Less has been said about the benefits it may confer on foreign issuers trading in U.S. markets.
Emerging Growth Companies
Foreign issuers, like their U.S.-based counterparts, may be defined as an “emerging growth companies” under the JOBS Act if they have less than $1 billion in annual gross revenues, have not raised more than $1 billion in debt, and have not conducted an SEC registered public offering prior to December 8, 2011. If they wish to make an initial public offering, the securities laws provided them with relaxed disclosure requirements. Read More
Section 16 Reporting & Going Public Transactions
Once the SEC staff declares a company’s Form S-1 registration statement effective in a going public transaction, the company becomes subject to Exchange Act reporting requirements even if it does not have its ticker symbol. Many issuers are not aware of the disclosure requirements that apply upon effectiveness of a Form S-1 Registration Statement.
Section 16
Section 16(a) of the Exchange Act of 1934 (the “Exchange Act”) requires the reporting of beneficial ownership by the officers, directors and stockholders who hold stock directly or indirectly, beneficially owning more than 10% of the company’s common stock or other class of equity securities registered under Section 12(b) or 12(g) of the Exchange Act.Section 16 reporting requirements apply only to companies that have registered a class of securities under Section 12(b) or Section 12(g).Issuers that voluntarily file periodic reports under Section 15(d) of the Exchange Act, and their directors, officers and large stockholders, are not subject to the reporting obligations of Section 16. Nor are issuers that are required to file periodic reports under the Securities Act of 1933 bound by the provisions of Section 16. Read More
Reefer Madness – More Indicted In Pot Stock Scams
On August 5, 2014, the Attorney’s Office for the Western District of Washington announced criminal charges against Mikhail Galas, Alexander Hawatmeh, and Christopher Mrowca in connection with two heavily touted pot stocks, Growlife and Hemp, Inc., and several other penny issues. According to the charges, the three young men—they’re in their early 20s–manipulated penny stocks, and then laundered the proceeds by purchasing precious metals. They were charged with conspiracy to commit securities fraud and conspiracy to launder monetary instruments. The defendants were all associated with a promotional group known as Money Runners that had been created by Mrowca in 2011. Read More
Court Awards SEC Judgments Of Almost $70 Million Against Defendants
On August 9, 2014, the SEC announced that the U.S. District Court for the Eastern District of Tennessee issued final SEC judgments against AIC, Inc., Community Bankers Securities, LLC, and Nicholas D. Skaltsounis and Relief Defendants Allied Beacon Partners, Inc. (f/k/a Waterford Investor Services, Inc.), Advent Securities, Inc., and CL Wealth Management, LLC (f/k/a Allied Beacon Wealth Management, LLC and CBS Advisors, LLC). These final judgments impose on Defendants AIC, Community Bankers Securities, and Skaltsounis permanent injunctive relief, disgorgement, prejudgment interest, and third tier civil penalties. Read More
Crucible Capital and Chuck Moore Indicted for Obstructing SEC Investigation
On August 9, 2014, the Securities and Exchange Commission (the “SEC”) announced charges against Chuck Moore and Crucible Capital Group, a New York-based brokerage firm for allegedly violating net capital requirements and falsifying books and records to conceal the capital deficiencies. The SEC’s Division of Enforcement alleges that Charles “Chuck” Moore and Crucible Capital Group attempted to disguise the firm’s extensive and repeated net capital insufficiencies. Read More
SEC Charges Julian Brown and Bahamian Brokerage Firm, Alliance Investment Management
On August, 8, 2014, the Securities and Exchange Commission (“SEC”) announced charges against Julian Brown and his firm Alliance Investment Management Limited (AIM). According to the SEC allegations, Julian Brown purported to be the “custodian” for assets under the management of Nikolai Battoo. The SEC obtained a court-ordered freeze over Battoo’s assets after charging him in 2012 with defrauding investors around the world by hiding major losses while falsely boasting that their investments were performing remarkably during the financial crisis. Read More
What Are Seed Stockholders? Going Public Lawyer
The going public process involves a number of steps that vary depending on the characteristics of the private company wishing to go public, and whether it will become a Securities and Exchange Commission (“SEC”) reporting issuer. All companies seeking public company status must meet certain requirements in order for their securities to be publicly traded. One requirement is that the issuer obtain sufficient stockholders to establish a trading market. These initial investors are commonly referred to as “Seed Stockolders”.
Seed Stockholders Requirements in Going Public Transactions
The first step in a going public transaction is most often obtaining the number of Seed Stockholders required by the Financial Industry Regulatory Authority (“FINRA”). The shares issued to them must be unrestricted at the time of the filing of the Form 211 with FINRA, so that a public float will exist when the company’s stock begins trading.
Assuming the private company is not reporting to the SEC, in order for its shareholders to have shares that are unrestricted, the shareholders must have paid consideration for their stock 12 months prior to the filing of the Form 211 or the shares must be covered by an effective registration statement. Read More
Prospectus Disclosure Requirements – Going Public Attorneys
The prospectus is the most important document of a public offering. The prospectus is the document provided to investors in the issuer’s offering. The prospectus is contained in the registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”) and used by public companies who securities to the public. Section 5 of the 1933 Act provides that an issuer may not use the mails or other means of interstate commerce to offer or sell its securities unless a registration statement is in effect under the Securities Act. Read More
Officer and Director Disclosure of Background Matters
The securities laws require that public companies provide disclosure about the backgrounds of its officers and directors and describe certain material information that is “material to an evaluation of the ability or integrity of any director, person nominated to become a director or executive officer of the company. Additionally, companies must consider their obligation to disclose material information to investors. Read More
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
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