Reverse Merger Bootcamp l Going Public Attorneys
Over recent years, the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) have overhauled the rules and regulations applicable to reverse merger transactions. Not only have the SEC and FINRA jumped on the bandwagon to eliminate them, but as will be explained, Depository Trust Company and national securities exchanges have joined in their efforts. Among the SEC’s efforts to stem microcap fraud is a campaign to eliminate dormant shell companies to prevent them from being used in reverse merger transactions. Read More
New Proposals To Amend FINRA Rule 5110
On January 9, 2014, FINRA submitted proposals to the SEC to amend FINRA Rule 5110. FINRA’s proposals seek to:
(i) narrow the definition of “participation or participating in a public offering;”
(ii) modify the lock-up restrictions to exclude certain securities acquired or converted to prevent dilution to stockholders; and
(iii) clarify that the information requirements are applicable only to relationships with a “participating” FINRA member. Read More
SEC Shuts Down 20 Bogus S-1 Registration Statements After Promotion Stock Secrets Research Report
On February 3, 2014, the Securities and Exchange Commission (“SEC”) announced the filing of stop order proceedings against 20 purported mining companies for providing false information in their S-1 registration statements. Of the 20 S-1 registration statements, 18 were opined upon by the same attorney, Diane Dalmy, who is the subject of a pending SEC proceeding.
More than one year prior, Promotion Stock Secrets published a featured report in which it noted blazing red flags of fraud in the same 20 S-1 registration statements. Read More
SEC Charges College Professor, Gonul Colak, in Naked Short Selling Scheme
On January 31, 2014, the Securities and Exchange Commission charged two Florida college professors with perpetrating a complex naked short selling scheme for more than $400,000 in illicit profits. Read More
Going Public For Canadian Issuers – Multijurisdictional Disclosure System
The Multijurisdictional Disclosure System was adopted in July 1991 by the U.S. Securities and Exchange Commission (“SEC”) and the Canadian Securities Administrators to facilitate cross-border public offerings of securities between the U.S. and Canada. The Multijurisdictional Disclosure System provides Canadian issuers with appealing options for accessing the U.S. capital markets and completing going public transactions. Read More
SEC Suspends Hi Score and OLIE After Janice Shell Research Report
On January 27, 2014, the Securities and Exchange Commission (the “SEC”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of trading in the securities of OLIE, Inc. (“OLIE”), of Vancouver, Canada, and of Hi Score Corp. (“Hi Score”), of Sunrise, Florida, commencing at 9:30 a.m. EST on January 27, 2014, and terminating at 11:59 p.m. EST on February 7, 2014. The SEC temporarily suspended trading in Hi Score and OLIE due to a lack of current and accurate information about the companies. It is not yet known whether the suspension will be followed by an SEC Enforcement action. Read More
David Kevin Lewis Sentenced to 30 Years for Oil and Gas Fraud
On January 24, 2014, a Texas court sentenced David Kevin Lewis, 52, to 30 years in federal prison for 23 counts of securities fraud and conspiracy and ordered to pay approximately $2.5 million in restitution, following his conviction.
Lewis was the chairman and director of field operations of Always Consulting, Inc., an oil and gas well company in Richardson, Texas. Bruce Kyle Griffith, 59, of Dallas, and Thomas Alden Markham, Jr., 63, of Plano, Texas, each pleaded guilty to their roles and were sentenced in December 2013 to 100 months and 21 months, respectively. Griffith, who was the president and CEO of Always Consulting, pleaded guilty to one count of conspiracy to commit securities fraud and one count of securities fraud. Read More
Felon Barry Minkow Becomes Pastor and Cons Church Congregation Out of Millions
Last week, Barry Minkow pleaded guilty to embezzling funds from the San Diego Community Bible Church, a U.S. attorney’s statement said. Minkow was already serving a five-year sentence for securities fraud.
According to the plea agreement, Minkow opened unauthorized church bank accounts, forged signatures on checks and used congregation donations as his own personal piggy bank. Read More
SEC Provides Additional Guidance For Rule 506(c) Offerings
On January 23, 2014, the Securities and Exchange Commission (the “SEC”) issued new guidance concerning Rule 506(c) in its Compliance and Disclosure Interpretations. In the Compliance and Disclosure interpretations, the SEC addresses Rule 506 offerings that commenced prior to Rule 506(c)’s effectiveness on September 23, 2013. Read More
What Is Caveat Emptor? Going Public Lawyers
The Latin phrase Caveat Emptor means “let the buyer beware.” The application of the Caveat Emptor principle is most often applied in the sale of property where a purchaser has a specific period of time to discover any defects. After that period of time expires, the buyer accepts any defects he failed to detect. In the offer and sale of securities, the Caveat Emptor theory is reversed. Read More
Steven Palladino Sentenced to 10-12 Years
On January 24, 2014, the Securities and Exchange Commission (“SEC”) announced that a Massachusetts state court judge sentenced Massachusetts resident Steven Palladino to a prison term in a criminal action filed by the Suffolk County (Massachusetts) District Attorney. The criminal action against Palladino and his company, Massachusetts-based Viking Financial Group, Inc., was initially filed in March 2013 and involves the same conduct alleged in a civil securities fraud action brought by the Commission in April 2013.
Suffolk Superior Court Judge Janet Sanders sentenced Palladino, of West Roxbury, Massachusetts, to serve a prison term of 10-12 years, followed by a probationary period of five years, and to pay restitution to victims, for crimes that he committed in connection with a Ponzi scheme perpetrated through Viking.
At the same hearing, Palladino pled guilty to criminal charges that included conspiracy, being an open and notorious thief, larceny, and larceny from elderly person(s). Viking also pled guilty to related charges and was sentenced to a probationary period of five years and ordered to pay restitution to victims. The Court set a further hearing for March 7, 2014 to determine, among other things, the amount of restitution to be paid to victims.
The SEC previously filed an emergency action against Viking and Palladino (collectively, “Defendants”) in federal district court in Massachusetts. In its complaint, the Commission alleged that, since April 2011, Defendants misrepresented to at least 33 investors that their funds would be used to conduct the business of Viking – which was purportedly to make short-term, high interest loans to those unable to obtain traditional financing. The Commission also alleged that Palladino misrepresented to investors that the loans made by Viking would be secured by first interest liens on non-primary residence properties and that investors would be repaid their principal, plus monthly interest at rates generally ranging from 7-15%, from payments that borrowers made on loans. The complaint alleged that, in truth, Defendants made very few real loans to borrowers, and instead used investors’ funds largely to pay earlier investors and to pay for the Palladino family’s substantial personal expenses, including cash withdrawals, gambling debts, vacations, luxury vehicles and tuition.
The Commission first filed this action on April 30, 2013, seeking a temporary restraining order, asset freeze, and other emergency relief – which the Court granted. On May 15, 2013, the Court also issued an escrow order, which ordered Defendants to deposit all funds and assets in their possession into an escrow account. The asset freeze and escrow order have remained in effect at all times since April 30, 2013 and May 15, 2013, respectively. On July 15, 2013, the Court held that Defendants’ conduct violated securities anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. On November 18, 2013, the Court entered orders that enjoined Defendants from further violations of the antifraud provisions of the securities laws and ordered them to pay disgorgement of $9,701,738, plus prejudgment interest of $122,370.
On September 4, 2013, the Commission filed a motion for contempt against Palladino for violations of the asset freeze and the escrow order. The motion alleged that Palladino violated the asset freeze by transferring three vehicles that he owned (solely or jointly with his wife) into his wife’s name and using the vehicles as collateral for new loans – effectively cashing out the equity in these vehicles. The motion also alleged that Palladino violated the escrow order by failing to deposit all cash in his possession into the escrow account. On November 15, 2013, the Court held Palladino in contempt and ordered that he restore ownership of the vehicles that he had transferred into his wife’s name. Subsequently, Palladino restored ownership of two of the vehicles but has failed to restore ownership of one vehicle. As a result, the Court refused to dismiss the contempt finding against him at hearings on December 3, 2013 and January 17, 2014. The Court has set a further hearing date of February 20, 2014 to address, among other things, whether Palladino remains in contempt.
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
SEC Target Held In Contempt and Arrested
On January 23, 2014, the Securities and Exchange Commission (“SEC”) announced that a Staten Island man who was a SEC enforcement target was held in contempt of court and arrested for failing to comply with subpoenas requiring him to produce documents and give testimony. Read More
Investment Advisor Impersonates Angel Investors to Get Clients
Kimberly Fontenot of Texas has been convicted of defrauding clients of her so-called investment advisory firm, Stellar Grants Inc. According to the FBI, Fontenot lured potential clients by falsely claiming to know numerous wealthy investors located throughout the United States. She offered access to these wealthy investors, whom she called her “angel investors,” to potential Stellar Grants clients in exchange for money. Read More
Art Scammers Busted by FBI
On January 16, 2014, a federal grand jury in San Jose returned a 12-count indictment charging two antique dealers with conspiracy to commit mail fraud and wire fraud, mail fraud, and wire fraud relating to a multi-million-dollar investment scheme, announced United States Attorney Melinda Haag, Federal Bureau of Investigation Special Agent in Charge David J. Johnson, and United States Postal Inspection Service Acting Inspector In Charge Rafael Nunez. Read More
SEC Charges Senior Management of Veolia with Falsifying Financial Records
On January 14, 2014, the Securities and Exchange Commission filed a civil injunctive action in federal district court Milwaukee, Wisconsin, charging Christopher Hohol (“Hohol”) and Brian Poshak (“Poshak”), formerly the senior vice president for operations and the controller, respectively, of Veolia Special Services (“Special Services”), a fourth-tier United States subsidiary of Veolia Environnement S.A. (“Veolia”), a multinational utilities and environmental services company, with falsifying books, financial records, and accounts and circumventing internal controls in order to overstate Special Services’ earnings before taxes (“EBT”) over a period of at least three years.
According to the SEC, beginning no later than January 2008 and continuing through February 2011, Hohol and Poshak, among other things, made and caused others to make false accounting entries in Special Services’ general ledger. Read More
Joseph Meuse & Belmont Partners Barred, Enjoined and Fined
On January 10, 2014, the Securities and Exchange Commission (“SEC”) announced a $300,000 settlement against Belmont Partners LLC, an alleged “shell packaging” company and Joseph Meuse, its Chief Executive Officer. Belmont and Meuse were charged with facilitating a penny stock scheme involving a reverse merger. According to the SEC, Virginia-based Belmont Partners LLC and its CEO Joseph Meuse are in the business of identifying and selling public shell companies for use in reverse mergers. Belmont’s marketing materials reflect it assisted more than 100 companies complete reverse mergers. Many of these reverse mergers involved China based penny stock issuers. Public shell companies for reverse merger transactions sell for as much as $450,000 each. Read More
FINRA Suspends and Fines Thomas Mikolasko
The Financial Industry Regulatory Authority (“FINRA”) recently suspended and fined Advisor Thomas Mikolasko, (“Mikolasko”) of HFP Capital Markets LLC (“HFP”). According to FINRA, Mikolasko made material misrepresentations and omissions of material fact in connection with $3 million in Senior Secured Zero Coupon Notes sold to 58 customers of HFP for Metals Millings and Mining LLC (“MMM”) in a private placement offering. Read More
What Are the Benefits of Foreign Issuer Status in Going Public Transactions?
A private foreign company seeking to go public may be classified as a U.S. domestic issuer or a non-U.S., private foreign issuer under SEC rules. A company’s status as a private foreign issuer has many benefits for a foreign company seeking public company status. These benefits include less stringent narrative and financial statement disclosure in public offering documents making the SEC registration statement process less burdensome.Upon completion of a going public transaction, foreign companies become subject to less stringent SEC periodic reporting requirements. Additionally, upon obtaining public company status, foreign companies are not subject to the proxy rules which impose disclosure and procedural obligations for companies who solicit shareholder votes.
The term “private foreign issuer” is not determined by solely where an issuer is incorporated or domiciled. Instead it is defined under the securities laws. Foreign issuer status offers many benefits to issuers in going public transactions. Read More
What Are Regulation Crowdfunding Disclosures?
On October 23, 2013, the Securities and Exchange Commission (“SEC”) proposed Regulation Crowdfund, setting forth the rules governing the offer and sale of securities through crowdfunded offerings, pursuant to Title III of the Jumpstart Our Business Startups Act (“JOBS Act”).
Within days, FINRA published its proposed rules for the licensing and regulation of “funding portals.” The Read More
Regulation Crowdfund For Investors
On October 23, 2013, the Securities and Exchange Commission (“SEC”) proposed Regulation Crowdfund, setting forth the rules governing the offer and sale of securities through equity crowdfunded offerings, pursuant to Title III of the Jumpstart Our Business Startups Act (“JOBS Act”). Read More
How Does the JOBS Act Benefit Foreign Issuers? Going Public Lawyers
The JOBS Act offers incentives for foreign issuers seeking to go public and enter the U.S. capital markets without filing a Form S-1 or other registration statement under the Securities Act of 1933, as amended or registering a class of securities on Form 10 under the Exchange Act. Effective September 23, 2013, as required by the JOBS Act, the SEC lifted the ban on general solicitation and advertising in private placement offerings of securities made pursuant to Rule506(c) of Regulation D. Read More
Regulation Crowdfunding for Intermediaries
Regulation Crowdfunding provides for two types of intermediaries, the registered broker-dealer and the funding portal. Broker-dealers do not need to register in order to engage in crowdfunding offerings, but their activities in this area are governed by Read More
FINRA Orders Stifel, Nicolaus and Century Securities to Pay $1 Million
On January 9, 2014, the Financial Industry Regulatory Authority (FINRA) announced that it ordered two St. Louis-based broker-dealers, Stifel, Nicolaus & Company, Incorporated and Century Securities Associates, Inc., to pay combined fines of $550,000 and a total of nearly $475,000 in restitution to 65 customers in connection with sales of leveraged and inverse exchange-traded funds (ETFs). Stifel and Century are affiliates and are both owned by Stifel Financial Corporation. Read More
SEC Announces 2014 Examination Priorities
On January 4, 2014, the Securities and Exchange Commission (“SEC”) announced its examination priorities for 2014, which cover a wide range of issues at financial institutions, including investment advisers and investment companies, broker-dealers, clearing agencies, exchanges and other self-regulatory organizations, hedge funds, private equity funds, and transfer agents.
Andrew J. Bowden, Director of the SEC’s Office of Compliance Inspections and Examinations stated, “We are publishing these priorities to highlight areas that we perceive to have heightened risk… Read More
SEC Issues New Rule 506 Guidance
On January 3, 2014, the Securities and Exchange Commission (the “SEC”) released Compliance and Disclosure Interpretations. The release provided useful information about several topics including the JOBS Act’s recently enacted Rule 506 (c) of Regulation D.
Under the federal securities laws, the purchase or sale of a security must be subject to a registrationstatement under the Securities Act of 1933 (the “Securities Act”) or exempt from registration. Section 4(a)(2) provides an exemption from securities registration for transactions by an issuer not involving a public offering. Rule 506 of Regulation D under the Securities Act provides an exemption for private placement offerings that do not to involve a public offering under Section 4(a)(2). The JOBS Act amended Rule 506(c) to allow general solicitation and advertising in offerings so long as sales are made only to accredited investors. Rule 506(c) streamlines the going public process and provides a method for issuers to raise capital both before and after their transaction is complete.
The SEC’s new Compliance and Disclosure Interpretations related to Rule 506 of Regulation D are summarized below. Read More
Senators Request Pre-Filing of Form D
A fundamental principle of the federal securities laws is that the purchase or sale of a security must be subject to a registration statement under the Securities Act of 1933 (“Securities Act”) or exempt from registration. Section 4(a)(2) provides an exemption from securities registration for transactions by an issuer not involving a public offering. Rule 506 of Regulation D under the Securities Act provides an Read More
How Regulation M Impacts Securities Offerings – Going Public Lawyers
Recently, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued guidance concerning Rule 105 (“Rule 105”) of Regulation M of the Securities Exchange Act of 1934, as amended. Rule 105 prohibits the purchase of securities in a secondary offering if the purchaser has a short position of the same securities established during a specified restricted period. A short sale is defined as the “sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by, or for the account of, the seller.” The SEC’s guidance and recent cases indicate that the SEC will likely direct its attention to Rule 105 violations in firm examinations and SEC investigations. Read More
How Do I Resell Restricted Stock Under Rule 144? l Securities Lawyer 101
It has become routine for public companies and private companies going public to mark their stock certificates with “Restrictive Legends”. Generally, restrictive stock legends state that the securities represented by the stock certificate are not covered by a registration Read More
Celebrity Broker Bambi Holzer Barred by FINRA
Bambi Holzer, an author and former registered broker to numerous celebrities has been barred by Financial Industry Regulatory Authority (“FINRA”). Holzer frequently made television appearances. Despite her celebrity clients, by September 2013, Holzer was suspended by FINRA for her failure to comply with a $2 million arbitration award. At the time of her suspension, Holzer’s BrokerCheck report contained more than 64 customer initiated investment related legal actions alleging fraud in connection with the sale of securities. Read More
SEC Seeks Comment On DTC Proposals
On December 18, 2013, the SEC published a notice to solicit comments concerning The Depository Trust Company’s (“DTC”) proposals to specify procedures for securities deposited at DTC for book entry services when it imposes or intends to impose restrictions on the further deposit and/or book entry transfer of those securities.
DTC’s proposed rules establish procedures for: (a) notice to an issuer that a Deposit Chill Read More
