Robert Zickefoose Indicted in Colorado Oil and Gas Fraud
On July 15, 2013, Colorado Attorney General John Suthers announced that a grand jury had indicted Robert Zickefoose on seven counts of securities fraud. Zickefoose is the owner and president of Zickefoose Reserves, LLC, a purported gas and oil company located in Colorado Springs. The indictment alleges he was offering unregistered investments in oil and gas. The scheme was uncovered by the Colorado Division of Securities. Read More
FINRA Fines Oppenheimer $1.4 Million for Sale of Unregistered Penny Stocks
On August 5, 2013, the Financial Industry Regulatory Authority (“FINRA”) announced that it had fined Oppenheimer and Co., Inc. $1,425,000 for allowing the sale of unregistered stock of penny companies, and for its failure to have an adequate anti-money Read More
FINRA Investigates Trading Algorithms
The Financial Industry Regulatory Authority (“FINRA”) is investigating Trading Algorithms and whether trading firms that engage in high frequency trading have proper controls in place to ensure their trading algorithms do not malfunction and cause harm to public markets.
The regulator wants to know how at least ten trading firms use and control their high frequency trading algorithms. Read More
SEC Amends Financial Responsibility Rules for Broker-Dealers
On July 31, 2013, the Securities and Exchange Commission (“SEC”) announced the adoption of amendments to the net capital, customer protection, books and records, and notification rules for broker-dealers.
The amendments to the broker-dealer financial responsibility rules are designed to better protect a broker-dealer’s customers Read More
More Paperwork for Broker-Dealers l Securities Lawyer 101
On July 31, 20113, the Securities and Exchange Commission (the “SEC”) announced the adoption of rules created to increase safeguards for investor assets held at broker-dealers registered with the SEC and Financial Industry Regulatory Authority (“FINRA”). According to the SEC, the new rules require broker-dealers to file new reports with the SEC which will result in higher levels of compliance with the SEC’s financial responsibility rules.
A New Crowdfunding Watchdog in Massachusetts
Consumer watchdogs and the Securities and Exchange Commission (“SEC”) as well are aware that certain provisions of the new Rule 506 created in connection with the JOBS Act could encourage fraud if not effectively policed, resulting in significant losses for non-accredited investors who choose to participate in 506 offerings.
These provisions include those making advertising and general solicitation permissible, and those allowing “crowdfunding” initiatives. Read More
SEC Charges Investor Relations Provider With Insider Trading
On July 26, 2013, the Securities and Exchange Commission (the “SEC”) charged Stephen B. Gray, an investor relations provider with insider trading in the securities of his firm’s clients. The SEC action alleges that Gray obtained confidential information about his firm’s clients while the firm assisted them with drafting and publishing press releases announcing to quarterly and annual earnings, mergers and acquisitions, and other major events. Read More
SEC Settles Charges For Registration Violations in Unregistered Securities
On July 23, 2013, the Securities and Exchange Commission (the “SEC”) settled charges against Florida resident Jorge Bravo, Jr., for unlawful sales of millions of shares of unregistered securities without complying with the registration statement requirements of the Securities Act of 1933. Read More
Securities Violator Patrick Kiley Sentenced to 20 Years in Prison
On July 15, 2013, Patrick Kiley was sentenced to 20 years in prison and ordered to pay $155 million in restitution in connection with his conviction on 15 criminal counts including mail and wire fraud, conspiracy to commit mail and wire fraud, and money laundering. The conviction arose from his role in a $194 million foreign currency trading scheme that defrauded approximately 1,000 investors. Read More
Securities Attorney, Richard Kranitz Sentenced to 18 Months
On July 17, 2013, Richard Kranitz, a Wisconsin securities attorney was sentenced to 18 months in federal prison Wednesday for his role in a securities fraud involving an FBI Sting operation. Kranitz was also sentenced to 12 months of supervised release following his prison time. Read More
SEC Issues Trading Suspension of Camelot Entertainment and 5 Other Issuers
The SEC’s Warning
In its news release announcing the trading suspension, the SEC cautioned broker-dealers, shareholders, and prospective purchasers to carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.
The SEC also reminded brokers and dealers of the requirements of Rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, and that no quotation may be entered unless and until they have strictly complied with all of the provisions of Rule 15c-211.
About SEC Trading Suspensions
The Securities Exchange Act authorizes the SEC to issue a trading suspension for up to ten business days. Investors should exercise caution before investing in a public company after the SEC has issued a trading suspension. Those who fail to do so ignore an obvious indication of securities fraud. From January 1, 2010 through December 31, 2012, there were over 1,100 SEC trading suspensions. They are blazing red flags warning that violations of the securities laws may have occurred.
The SEC will order a trading suspension if it determines it is necessary to protect investors. Generally, SEC trading suspensions are issued if there is:
♦ a lack of current, accurate, or adequate information about an issuer;
♦ concern about the accuracy of publicly available information in press releases and public filings and reports; or
♦ suspicious trading activity, including trading by insiders, potential market manipulation, and problems with clearing and settlement of transactions in the issuer’s securities.
Securities suspended by the SEC fall into two categories. The first is comprised of delinquent filers: stock of fully-reporting issuers that have neglected to keep up with their obligation to file annual and interim financial reports with the SEC. In connection with the suspension, those companies will be subjected to an administrative proceeding in which the SEC seeks to revoke the issuer’s registration. Once that happens, the issuer has a simple choice: it can catch up with its delinquent filings quickly, or have its ticker–and its existence as a public company–eliminated. Most companies in this situation do not object to revocation, despite the brief hopes of investors.
After it issues a trading suspension, the SEC may follow the suspension with a further investigation that can result in a civil lawsuit down the road. A list of issuers whose stock is currently suspended, or which have been subject to an SEC suspension, may be found at the link below:
http://sec.gov/litigation/suspensions.shtml
Post-Suspension Trading
When an SEC trading suspension ends, a broker-dealer may not solicit investors to buy or sell the previously-suspended security until certain requirements are met, including the submission of a Form 211 with the Financial Industry Regulatory Authority (“FINRA”) by a market maker. The market maker must represent that the issuer has satisfied all applicable requirements, including those of Rule 15c2-11. No broker-dealer may solicit or recommend that an investor buy shares in a stock that has been subject to a trading suspension unless and until FINRA has approved a Form 211 relating to the stock. Neither may any broker-dealer publish quotes for the stock.
If there are continuing regulatory concerns about the issuer, its disclosures, or other factors such as a pending regulatory investigation, a Form 211 application may not be approved. In the absence of a termination notice from the SEC, stating that no further enforcement action is contemplated, market makers are unlikely to sponsor a formerly-suspended company. Not a single one of the 1,100 stocks that were suspended from January 1, 2010, through December 31, 2012 returned to normal trading on the OTCMarkets platform.
Rule 15c2-11 requires broker-dealers to review and maintain certain documents and information about the issuer, including the corporation’s organization, operations, control affiliates, the nature of the securities outstanding and being traded, the issuer’s most recent balance sheet, and its profit and loss and retained earnings statements.
When a stock is suspended, after four sessions without published quotations it will be demoted to the Grey Market. Once the suspension ends, limited or “unsolicited” trading can occur in these Grey stocks. Investors may trade, but at their own risk. Typically, a brand new Grey loses 60% to 80% of its value the first day out; within a few weeks, volume declines dramatically.
Investors should be extremely cautious when considering an investment in a stock following an SEC trading suspension. At a minimum, investors should ensure that a broker-dealer has submitted a Form 211 that has been approved so that they have current and reliable information about an issuer before investing.
Additional information about SEC trading suspensions can be found here:
https://www.securitieslawyer101.com/sec-trading-suspensions-101/
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
Rule 506 Gives Bad Actors The Boot l Going Public Lawyers
On July 10, 2013, the Securities and Exchange Commission (the “SEC” or “Commission”) adopted amendments to rules promulgated under Regulation D of the Securities Act of 1933, as amended (the “Securities Act”) to Read More
When the SEC Investigates l Securities Lawyer 101
No company wants to become the target of a Securities and Exchange Commission (“SEC”) investigation, and no investor welcomes an inquiry into a stock he holds. Issuers and shareholders alike need to understand how an investigation begins, how it proceeds Read More
Securities Lawyers Gone Wild l Michael Scaglione Indicted
Securities Lawyers Gone Wild Series
On July 10, 2013, Michael Scaglione, a Coral Gables securities attorney, was arrested by the FBI and charged in the the Eastern District of New York, with laundering more than $750,000 he believed were the proceeds from a penny stock scam. Read More
Going Public Question & Answer l Ask Securities Lawyer 101
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. markets remain an attractive source of capital for both domestic and foreign issuers.
Going public is a complicated and intricate procedure, and it is important to have an experienced securities attorney to help your company navigate through the process in dealing with the Securities & Exchange Commission the (“SEC”), the Financial Regulatory Authority (“FINRA”) and the 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”).
Q. What does it mean for a company to Go Public?
A. Going public often refers to the process of a company filing a registration statement with the SEC to register its securities and become an SEC reporting company. Other times going public may mean the filing of a Form 211 with FINRA to obtain a ticker symbol for quotation on the OTCMarkets OTC Pink Sheets without filing a registration statement with the SEC.
Q. Why do most companies Go Public?
A. Most companies go public to raise money. It is much easier for a public company to locate capital than it is for a private company. Funds raised in going public transactions can be used for working capital, research and development, retiring existing indebtedness, acquiring other companies or businesses or paying suppliers.
Q. What are other advantages of Going Public?
A. Numerous additional benefits come with public company status. Among them are:
• Once a going public transaction is complete, the company will be able to use its common stock as a form of currency and as collateral for loans.
• Going public creates value for an issuer’s securities. Going public also creates liquidity for existing and future investors, and provides an exit strategy for shareholders and/or investors. Additionally, public company stockholders may be able to sell their shares or use them as collateral.
• Public companies have greater visibility than private companies. It is easier to build recognition of a public company than a private one. Publicly traded companies are often promoted and gain publicity from their status as a public company. Further, the media has greater economic incentive to provide coverage of matters concerning public companies than private companies because of the number of shareholders and investors seeking information about the company.
• Going public may allow a private company to attract more qualified employees and key personnel, such as officers and directors because it allows the company’s management and employees to share in its growth and success through stock options and other equity-based compensation.
• There is a certain amount of prestige associated with public company status or service to a public company.
Q. What are the disadvantages of Going Public?
A. The disadvantages to going public include:
• Going public requires management to answer to shareholders and give up a certain amount of their control over company matters.
• Going public is expensive and staying public is expensive. Legal, accounting and compliance costs are significant and these costs will have to be paid regardless of whether a company raises capital.
• After a going public transaction, a newly public company will incur higher costs as a public company, including auditing and legal expenses and costs of compliance with the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”).
• Public companies are subject to more scrutiny than private companies. Once a company becomes public, certain information must be disclosed to the public, such as executive compensation, financial information, previous violations of the securities and other laws and material agreements must be disclosed. Public companies operate under close scrutiny as well as oversight.
• SEC reporting companies must comply with reporting requirements under the Exchange Act as soon as their going public transaction is complete. Complying with these reporting requirements is costly and time consuming for management.
• Going public also exposes the company and its management to liability for false or misleading statements in filings and reports filed with the SEC.
Q. What is the difference between filing a registration statement under the Securities Act and filing a registration statement under the Exchange Act in a Going Public transaction?
A. Filing a registration statement under the Securities Act registers an offering of securities. Shares registered by the issuer or on behalf of its selling shareholders who are not affiliates of the issuer generally are unrestricted securities. Filing a registration statement under the Exchange Act registers a class of securities such as common stock. Registration under the Exchange Act does not register a securities offering and does not create unrestricted securities.
Q. What is a Direct Public Offering?
A. A direct public offering is an offering conducted by a company on its own behalf without an underwriter.
Q. Can a Direct Public Offering be used in a Going Public transaction?
A. Yes, direct public offerings are often used in conjunction with going public transactions.
Q. Do I have to file a registration statement with the SEC if I conduct a Direct Public Offering?
A. Not necessarily. A direct public offering can be structured for a listing on the OTC Markets OTC Pink sheets and it can involve a private offering rather than an offering subject to an SEC registration statement.
Q. What is DTC eligibility and why does my company need to be DTC Eligible?
A. The DTC serves as the only custodian of securities for its participants, which include broker-dealers. DTC is also the only securities settlement provider in the U.S. If an issuer’s stock is DTC eligible, DTC will hold an inventory of free-trading street name shares on deposit. These free-trading shares are also known as the “public float.” Without DTC eligibility shares can only be publicly traded if there is physical delivery of a stock certificate and payment between a buyer and seller. Without DTC eligibility, it is almost impossible for a public company to establish an active tradign market in its securities.
Q. What is a Reverse Merger ?
A. A reverse merger is a transaction in which a private company merges into or is acquired by an existing public company.
Q. Should I use a Reverse Merger in my Going Public Transaction?
A. Probably not. Reverse mergers are often vehicles for fraud and new rules impact reverse merger transactions. Most often if done properly, reverse mergers cost more and take longer than filing a registration statement with the SEC in a going public transaction.
Q. Why do some securities attorneys say I should use a Reverse Merger in my Going Public Transaction?
A. Often securities lawyers who suggest reverse merger transactions manufacture shells. They make a substantial amount of money selling their own public shells.
Hamilton & Associates has extensive experience in all aspects of securities law and going public transactions including SEC registration statements on Form S-1, direct public offerings, domestic and international stock exchange listings and quotation on the OTC Markets.
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
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The JOBS Act l Rule 506
The Jumpstart Our Business Startups (“JOBS”) Act was signed into law by President Obama on April 5, 2012. The JOBS Act required the Securities and Exchange Commission (the “SEC”) to issue final regulations regarding the portions of the JOBS Act relating to the elimination of general solicitation in Rule 506 offerings within 90 days of its enactment to allow general advertising and solicitations of Read More
The SEC Blacklists Bad Actors ln Rule 506 Offerings
On July 10, 2013, the SEC approved a rule banning the use of the Rule 506 exemption from securities registration if the issuer and bad actors had a “disqualifying event.” The new ban on bad actors becomes effective 60 days after publication in the federal register.
The Rule 506 Bad Actor Blacklist
The SEC’s final disqualification of bad actors in 506 offerings covers the issuer, including its predecessors and affiliated issuers, as well as: Read More
Promissory Notes l Securities Lawyer 101
Private companies going public seek to raise capital for a variety of reasons. This capital may be sought from the sale of equity ownership of the corporate entity or debt such as a loan. Frequently, loans are considered to be securities and as such, are subject to federal and state securities laws. It is important for any company going public to know whether its debt instruments are securities to ensure compliance with relevant securities laws. Read More
Registration Statements l Going Public Lawyer
This blog post addresses the most common questions we receive about going public using Form S-1 and the SEC registration statement process.
Q. How do I register a securities offering for my company with the Securities and Exchange Commission (“SEC”)?
A. If you decide that you want to register a public securities offering, the SecuritiesAct of 1933, as amended (the “Securities Act”) requires your company to file a registration statement with the SEC before it can offer or sell its securities.
Q. Will the information contained in my company’s registration statement public?
A. Under most circumstances, any information contained in a registration statement filed with the SEC will immediately become pubic upon filing. Read More
What is the OTC Pink Current Tier? Going Public Lawyers
Q. What is the OTC Markets OTC Pink Current Tier?
A. Companies on the Pink Sheets are assigned to one of three tiers by the OTC Markets based upon the amount of disclosure the Company provides to the public. The OTC Pink Current Information is the highest of these tiers, created for companies that voluntarily provide specific disclosures to the OTCMarkets. Read More
What Does Rule 506 of Regulation D Require? Going Public Lawyers
To offer and sell securities in the United States, an issuer must comply with the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), or must offer and sell the securities pursuant to an exemption from the registration statement requirements. A commonly used private offering exemption is Rule 506 of Regulation D. Rule 506 is a non-exclusive “safe harbor” for the statutory exemption provided by Section 4(2) of the Securities Act. The Rule 506 exemption is often used by issuers who engage in go public direct transactions and conduct underwritten and direct public offerings. With a Regulation D offering only a notice filing on Form D is required to be filed with the SEC.
SEC Sues Imaging and CEO Dean Janes for Fraud
On June 26, 2013, the Securities and Exchange Commission (“SEC”) filed an enforcement action charging Imaging3, Inc. (IMGGQ), and Dean Janes, its CEO, with securities fraud, accusing Janes of misleading shareholders about actions taken by the Food and Drug Read More
Rule 144 C & D l Ask Securities Lawyer 101
The SEC‘s Compliance and Disclosure Interpretations provide its interpretations of the rules adopted under the Securities Act of 1933, as amended (the “Securities Act”). A summary and excerpts of the portions relevant to restricted securities and Rule 144 as interpreted by the SEC are set forth below.
Question: Is Rule 144 available to the issuer of the securities?
Answer: No. Rule 144 is not available to the issuer of the securities.
Question: How long must an underwriter wait before it resells the unsold portion of a “sticky” public offering as if it were compensation? Read More
SEC Suspends Biozoom After Publication of Private Report
On June 25, 2013, the Securities and Exchange (“SEC”) suspended trading in the securities of Biozoom, Inc. (BIZM). In connection with the SEC action, it stated that “certain Biozoom affiliates and shareholders may have unjustifiably Read More
Ask Securities Lawyer 101 l Financial Intermediaries
It is not unusual for a private or public company to be approached by financial intermediary (“Intermediary”) that offers to locate investors in exchange for a fee. Most Intermediaries are not registered as broker-dealers with the Securities and Exchange Commission (the “SEC”).
While many Intermediaries are aware of the factors that will determine whether their services will be deemed unregistered broker dealer activity, few are aware of the Read More
SEC Revokes Five Issuers to Prevent Reverse Merger Scams
On May 24, 2013, the Securities and Exchange Commission (“SEC”) revoked the registrations of Enercorp, Inc. (ENCP), FTS Group, Inc. (FLIP), Games, Inc. (n/k/a InQBate Corporation; INQB), Hartmarx Corporation (n/k/a XMH Corp. 1; (HTMXQ), and Penn Treaty American (PTYA) by default in order to avoid reverse merger scams. Read More
FINRA Prohibited Conduct l Broker-Dealer Lawyers
The Financial Industry Regulatory Authority (“FINRA”) require that broker-dealers and market makers observe “high standards of commercial honor and just and equitable principles of trade.” FINRA rules also prohibit broker-dealers and market makers from “any manipulative, deceptive, or fraudulent actions.”
Prohibited Conduct l Broker-Dealers l Market Makers
As a warning to the public, FINRA has drawn up a list of specific examples of activities that constitute serious violations of its rules and regulations. These violations harm investors and jeopardize the integrity of the securities markets. Some of the examples used by FINRA are self evident and apply to all market participants, not just those regulated by FINRA. Read More
Penny Stock CEO and Co-Conspirator Convicted of Securities Fraud
On May 3, 2013, in connection with an action that went unnoticed by most penny stock observers, the U.S. Attorney’s Office for the District of Massachusetts announced that John Jordan, of Cameron Park, California, and James Prange, of Greenbush, Wisconsin,had been found guilty of conspiracy to commit securities fraud, and of the commission of mail and wire fraud.
Jordan is the CEO of Vida Life International, Ltd. (VILF); Prange is a self-described consultant to microcap companies. Prange also provided his dubious services to two other companies involved in the prosecution, China Wi-Max Communications, Inc. (CHWM), and the Small Business Company, Inc. (SBCO). The CEOs of the latter two issuers, along with a China Wi-Max director, pleaded guilty last month to conspiracy to commit securities fraud.
The three companies, all of them fully reporting to the Securities and Exchange Commission (“SEC”), were far from successful. Illiquid and low-priced, they had few buyers. When Prange offered management a way to attract the interest of a supposed penny stock investment fund representative, they couldn’t resist. Prange explained that management would be expected to pay kickbacks to the representative from any stock purchases made by the fund. Still, the CEOs didn’t hesitate. They went ahead with the deal, concealing the kickbacks by using sham consulting agreements and other cooked-up documents. Read More
SEC Charges Ernesto Lujan and Direct Access Partenrs in Venezuelan Fraudulent Bond Kickback Scheme
In June 12, 2013, the Securities and Exchange Commission (“SEC”) brought an action against an additional defendant for his role in a frauduent kickback scheme involving the payment of millions of dollars in bribes to a Venezuelan finance official in order to obtain the bond trading business of a state-owned Venezuelan bank, the Banco de Desarrollo Económico y Social de Venezuela (“BANDES”).
In its latest SEC action, the SEC charged Ernesto Lujan of Miami, the former head of the Miami office of Direct Access Partners. The four original defendants named in Read More
SEC Revokes Registration of Sunrise Solar
Securities Lawyers Gone Wild Series
Sunrise Solar’s most recent financial report filed was a 10-Q for the period ended March 31, 2009.
According to the SEC action, Sunrise Solar purported to be in the solar power business, and was located in San Antonio, Texas. The Read More
