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
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
Five Charged with Attempted Manipulation of Amogear
On July 14, 2014, the U.S. Attorney for the District of Massachusetts, and the Federal Bureau of Investigation today announced charges against five individuals whose attempt to manipulate shares of Boston-based Amogear Inc. was caught by an FBI undercover operation. According to the SEC and criminal cases filed in federal court in Boston, the defendants knew that Amogear was a shell company without any real operations, but schemed to boost its price and profit by selling their own shares.
What the parties didn’t know was that the FBI controlled Amogear and used it to obtain evidence of attempted stock manipulation. To protect investors, the SEC suspended trading in Amogear’s securities on February 10, as the attempted stock manipulation was underway. Read More
SEC Obtains Judgment Against John Babikian
On July 8, 2012, the Securities and Exchange Commission announced (“SEC”) announced a final judgment against defendant John Babikian in the Commission action styled, SEC v. John Babikian, Civil Action No. 14-CV-1740 (S.D.N.Y.). The Court entered the final judgment, to which Babikian consented without admitting or denying the allegations. The final judgment orders Babikian to pay a total of $3,730,000, comprised of $1,915,670 in disgorgement, together with prejudgment interest in the amount of $128,073, and a civil penalty in the amount of $1,686,257.
The final judgment also imposes a bar from participating in any offering of penny stock and enjoins John Babikian from recommending, directly or indirectly, the purchase of any U.S. publicly traded or quoted stock without simultaneously disclosing any plans or intentions to sell such stock within 14 days of the recommendation. Finally, the final judgment permanently enjoins Babikian from violating Section 17(a) of the Securities Act of 1933 (15 U.S.C. § 77q(a)), Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)) and Rule 10b-5 promulgated thereunder (17 C.F.R. § 240.10b-5). Read More
Securities Lawyers Gone Wild – Charles Blackwelder Indicted
Charles Blackwelder, an Indiana lawyer and his daughter have been charged in connection with a $23 million Ponzi scheme that was allegedly targeting senior citizens. Blackwelder and his daughter, Cara Grumme, were charged with twenty felonies, including nine counts of securities fraud and four counts of securities fraud on a victim over the age of 60. Each of the felonies carries a minimum sentence of four years. The most amazing aspect of the scheme is that it continued for more than a decade and cost investors more than $23 million. Read More
SEC Settles Action Against Noble Executives Mark A. Jackson and James J. Ruehle
On July 7, 2014, the Securities and Exchange Commission (SEC) announced that former Noble CEO Mark A Jackson and former Director and Division Manager of Noble’s Nigeria subsidiary James J. Ruehlen, have agreed to settle the SEC’s pending civil actions against them. The case had been set for a jury trial. Read More
The Role of the Go Public Attorney l Securities Lawyer 101
The role of the Go Public Attorney is one of the most important in the going public process. The Go Public Attorneys at Hamilton & Associates Law Group have provided private companies with their going public solutions for over ten years.
A skilled Go Public Attorney can design and implement the going public structure most beneficial to your company without the risks associated with reverse merger transactions. We have represented more than 300 market participants in securities law matters and going public transactions. Our experience includes issuers listing on stock exchanges as well those who elect to go public on the OTC Markets OTCQB or OTCQX. Read More
The Exchange Act Lawyer’s Role In Going Public Matters
Securities Lawyer 101
Form 10 registration statements and Exchange Act reporting are required by Securities Exchange Act of 1934 (the “Securities Exchange Act”) under certain circumstances. Exchange Act reporting follows going public transactions when the issuer files a registration statement under the Securities Act of 1933, as amended (the Securities Act). The Securities Exchange Act grants broad authority to the Securities and Exchange Commission (“SEC”) to oversee the securities industry. The SEC’s authority includes the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies; as well as self regulatory organizations like the Financial Industry Regulatory Authority (“FINRA”). Read More
Why Companies Going Public Need a Securities Lawyer
Companies going public must comply with federal and state securities laws. Section 5 of the Securities Act of 1933, as amended (the “Securities Act”) and all state securities regulators require that all securities either be registered with the Securities and Exchange Commission (“SEC”) or be exempt from registration. The disclosures companies provide to investors allow them to tell their story but evolving rules and regulations apply to these disclosures even if a company is not publicly traded.
Even companies whose securities are not yet publicly traded must comply with federal and state securities laws. Securities laws apply to the issuance of shares to founders as well as investors. A securities lawyer can help the issuer comply with the various laws during the going public process.
Failure to consider these laws before going public can have significant consequences for the company and its management. These consequences include SEC or other enforcement action and rescission to investors. Read More
SEC Charges Five With Short Sale Violations
The Securities and Exchange Commission (“SEC”) has charged five short sellers who were traders for committing short selling violations. According to the SEC, the short sellers were trading for themselves and Worldwide Capital Inc., a Long Island, N.Y.-based proprietary firm that earlier this year paid the largest-ever monetary sanction for Rule 105 violations. Worldwide Capital and its owner Jeffrey W. Lynn agreed to pay $7.2 million to settle SEC charges in March for violating Rule 105, which prohibits the short sale of an equity security during a restricted period – generally five business days before a public offering – and the subsequent purchase of that same security through the offering.
The SEC instituted settled administrative proceedings against Derek W. Bakarich, Carmela Brocco, Tina Lizzio, Steven J. Niemis, and William W. Vowell for violating Rule 105 by selling shares short during the restricted period and purchasing offering shares of the same securities they had shorted. They purchased the offering shares through accounts they opened in their names or names of alter ego corporate entities at large broker-dealers and then executed the short sales of the securities through an account in Worldwide’s name at different, smaller broker-dealers.
“These individuals shared in profits generated by transactions that violated important short selling regulations in place to protect the markets from manipulative trading activity,” said Andrew M. Calamari, director of the SEC’s New York Regional Office.
Each of the five traders agreed to settle the SEC’s charges and pay a collective total of nearly $750,000.
“When conducting these trades, these individuals did not comply with the law,” said Amelia A. Cottrell, associate director of the SEC’s New York Regional Office. “Now they must forfeit the profits they earned on their respective trades plus additional penalties.”
According to the SEC’s orders, Bakarich, Brocco, Lizzio, Niemis, and Vowell were selected by Lynn to conduct short sale trades for Worldwide Capital, which he created for the purpose of investing and trading his own money. The traders he chose to trade his capital pursued an investment strategy focused primarily on obtaining allocations of new shares of public issuers coming to market through secondary and follow-on public offerings at a discount to the market price of the company’s shares that were already trading publicly. They made short sales in advance of the offerings, hoping to profit by the difference between the price they paid to acquire the offered shares and the market price on the date of the offering. From approximately August 2009 to March 2012, Bakarich, Brocco, Lizzio, Niemis, and Vowell each violated the short sale rules in connection with at least nine covered offerings. They received ill-gotten gains ranging from approximately $16,000 to more than $200,000.
Each of the five traders agreed to cease and desist from violating Rule 105 without admitting or denying the findings in the SEC’s order. They agreed to disgorge all of their ill-gotten gains plus prejudgment interest and pay an additional penalty equal to 60 percent of the disgorgement amount:
Bakarich, who lives in Duluth, Ga., agreed to pay $16,231 in disgorgement, $757 in prejudgment interest, and a $9,739 penalty for a total of $26,727.
Brocco, who lives in East Meadow, N.Y., agreed to pay $215,233 in disgorgement, $27,056 in prejudgment interest, and a $129,140 penalty for a total of $371,429.
Lizzio, who lives in Boca Raton, Fla., agreed to pay $28,864 in disgorgement, $1,548 in prejudgment interest, and a $17,319 penalty for a total of $47,731.
Niemis, who lives in Jupiter, Fla., agreed to pay $130,842 in disgorgement, $5,893 in prejudgment interest, and a $78,505 penalty for a total of $215,240.
Vowell, who lives in Manasquan, N.J., agreed to pay $51,519 in disgorgement, $4,427 in prejudgment interest, and a $30,911 penalty for a total of $86,857.
For further information about short sale transactions, 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
NutraFuels Launches Extreme Energy Spray
COCONUT CREEK, FL, Jul 01, 2014 (Marketwired via COMTEX) — NutraFuels, Inc. (PINKSHEETS: NTFU), a manufacturer of oral spray dietary supplements, announced today that the company plans to launch its latest product, TapoutT XT Extreme Energy Oral Spray in the month of August. Read More
The SEC’s Cross-Border Security Swap Rules
The Securities and Exchange Commission (“SEC”) adopted the first of a series of rules and guidance on cross-border securities swap activities for market participants.
The SEC will use the new rules to finalizing the remaining proposals. Read More
SEC Announces Tick Size Plan
On June 25, 2014, the Securities and Exchange Commission (the “SEC”) announced its tick size plan whereby it ordered that the national securities exchanges and the Financial Industry Regulatory Authority (“FINRA”) to act jointly to develop and file with the Commission a national market system plan. Read More
FINRA Brings Transparency to Rule 144A Corporate Debt Transactions
On June 30, 2014, the Financial Industry Regulatory Authority (“FINRA”) began publicly disseminating Rule 144A transaction data in corporate debt securities, bringing transparency to a market. 144A transactions—resales of restricted corporate debt securities to large institutions called qualified institutional buyers (QIBs)—account for a significant portion of the volume in corporate debt securities. Read More
FINRA Fines Goldman Sachs Execution & Clearing $800,000
On July 1, 2014, the Financial Industry Regulatory Authority (“FINRA”) announced that it had fined Goldman Sachs Execution & Clearing, L.P. $800,000 for failing to have reasonably designed written policies and procedures in place to prevent trade-throughs of protected quotations in NMS stocks from November 2008 through August 2011 in connection with trading in its proprietary alternative trading system, SIGMA-X. Read More
Securities Lawyers Gone Wild – Marcus Luna
On June 27, 2014, the U.S. District Court of Nevada issued an order imposing sanctions against a securities attorney, Marcus Luna, three other individuals – Nathan Montgomery, Adam Daskivich, and David Murtha – and their businesses for their roles in a multi-million dollar scheme. Read More
SEC Charges 3 Regions Bank Executives
On June 25, 2014, the Securities and Exchange Commission (the “SEC”) announced fraud charges against three former senior managers of Regions Bank for intentionally misclassifying loans that should have been recorded as impaired for accounting purposes. As a result, the bank’s publicly-traded holding company overstated its income and earnings per share in its financial reporting. The SEC also entered into a deferred prosecution agreement with Regions Financial Corp., which substantially cooperated with the agency’s investigation and undertook extensive remedial actions.
Being Publicly Traded By: The Going Public Lawyers
After an issuer completes its going public transaction, an issuer that has filed a registration statement for an initial or direct public offering under the Securities Act of 1933, as amended (the “Securities Act”) must file annual, quarterly and current reports with the Securities and Exchange Commission (“SEC”) under Section 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”).
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 registration under Securities Exchange Act.
A Company’s periodic reports and filings with the SEC update and supplement public disclosures that the issuer made in its previous registration statement or other SEC filings. Issuers must file their periodic reports within a specified number of days after the end of each reporting period and file reports on Form 8-K after certain material events. Generally, Annual Reports on Form 10-K must be filed 90 days after the issuer’s year end. Quarterly Reports must be filed 45 days after the quarter and Reports on Form 8-K must be filed within 4 days of the triggering event. Read More
FINRA Bars Success Trade Securities By: Brenda Hamilton Attorney
This month Success Trade Securities was ordered to pay $13.7 million in restitution and expelled by a Financial Industry Regulatory Authority (“FINRA”) hearing panel. Success Trade Securities allegedly ran a Ponzi scheme targeting professional athletes. FINRA claimed that many of the athletes that invested were financially inexperienced and included Detroit Pistons guard Brandon Knight, and Cleveland Browns cornerback Joe Haden. Read More
Transparency Bootcamp – Custodianship Disclosures In Reverse Mergers
Recently custodianship and/or receivership proceedings involving publicly traded companies have been in the spotlight because of the increasing number of fraudsters seeking these appointments so that they can create their own personal inventory of public shell companies for reverse merger transactions. Because custodians are fiduciaries all states impose disclosure obligations on any person seeking appointment as a custodian. As explained below, fraudsters with disciplinary history go through considerable lengths to conceal their backgrounds. Read More
