The SEC’s Corporate Hijacking Task Force
A few weeks ago, the Securities and Exchange Commission (the “SEC”) issued its “Enforcement Initiatives to Combat Financial Reporting and Microcap Fraud and Enhance Risk Analysis.” The SEC release identified financial reporting, microcap fraud and enhancing risk analysis as the SEC’s new enforcement initiatives.A primary target of the new task force will be reverse merger purveyors and securities attorneys involved in corporate hijackings. The release emphasized the importance of the role gatekeepers—attorneys, auditors, broker-dealers, and transfer agents—play, or ought to play, in stopping fraud before it happens. All too often, unfortunately, those gatekeepers collude with the fraudsters particularly where corporate hijackings are present. Read More
What is Broker-Dealer Registration? Securities Lawyer 101
Broker-dealers are subject to regulation by the SEC, FINRA, Self Regulatory Organizations (“SROs”) such as stock exchanges, and the states in which they do business. The Securities Exchange Act of 1934 (the “1934 Act”) requires that any broker-dealer effecting securities transactions by means of interstate commerce be registered.
State laws also regulate broker-dealer activity within their jurisdictions. Unless an exemption from registration is available, state laws require registration of any broker-dealer doing business from or with persons in their state. The broker-dealer’s employees doing business within the state must also be registered there. Read More
The OTCBB Obsolete Marketplace l Securities Lawyer 101 Blog
The OTC Bulletin Board (“OTCBB”) is an electronic quotation system that provides real-time quotes, last-sale prices, and volume information for some over-the-counter securities not listed on a national securities exchange such as NASDAQ. Brokers-dealers who subscribe to the OTCBB can use its platform to look up prices or enter quotes for securities quoted by the OTC.
Years ago, the OTCBB provided the only widely accepted venue for quotation of micro-cap companies that were SEC filers. Companies that did not meet the OTCBB’s requirements were delisted to what was then called the Pink Sheets. Now many market makers have abandoned the OTCBB entirely; the securities of issuers who used their services have been removed to OTCMarkets. Read More
Going Public – OTC Markets OTCQB – Going Public Lawyers
Many private companies seeking to go public are opting for going public transactions on the OTC Markets OTCQB. The OTC Markets Group operates an electronic inter-dealer quotation system called OTC Link. OTC Markets ranks issuers in tiers; each issuer’s rank depends upon the amount of disclosure provided. Issuers using registration statements followed by Rule 15c2-11 applications to go public qualify for the “OTCQB” tier. The QTCQB tier is only available to issuers who file reports with the SEC. These issuers are not required to provide additional disclosures to the OTC Markets.
In order for a private company to go public on the OTCQB, it must become an SEC reporting issuer. Once the company is reporting, it can then obtain its ticker symbol assignment from the Financial Industry Regulatory Authority (“FINRA”) if it meets certain requirements.
Funding Portal Registration And the JOBS Act
On February 5, 2013, the SEC’s Division of Trading provided guidance on the exemption from broker-dealer registration in Title II of the Jumpstart Our Business Startups Act (“JOBS Act”). The SEC’s FAQs are not rules, regulations or statements of the SEC and the Commission has neither approved nor disapproved them. Section 201(c) of the JOBS Act adds new paragraph (b) to Section 4 which clarifies that a platform can rely on the exemption from broker-dealer registration in Securities Act Section 4(b) until the SEC’s rules permitting general solicitation in Rule 506 offerings are adopted. Read More
Rule 5123 Requires the Filing of Private Placement Documents
The SEC recently approved Rule 5123 that any FINRA member firm selling an issuer’s securities in a non-public offering in reliance on an exemption from registration under the Securities Act is required to file copies of private placement materials such as memorandums, term sheets, or other offering documents with FINRA within 15 days after the first sale. INRA 5123 Notice Filing
Filings under FINRA Rule 5123 are treated as “notice” filings, and FINRA will not review or respond to the filing with a comment letter or provide a clearance letter. FINRA will treat all documents filed as confidential. Read More
Shareholder Solicitations & the SEC’s Proxy Rules
Most public companies hold a stockholders’ meeting annually and hold special meetings to vote on special corporate actions such as name changes and mergers. Shareholder voting on takes place either in person or by proxy. Proxy solicitation is governed by a number of rules and regulations including: (i) state corporate law; (ii) stock exchange listing requirements; (iii) SEC proxy rules; and (iv) the issuers’ articles and bylaws. Issuers who have a class registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are subject to the proxy rules. The SEC’s proxy rules are loccated in Section 14(a) of the Exchange Act.
OTC Markets Rules of the Road
The Financial Industry Regulatory Authority (“FINRA”) and the Securities and Exchange Commission (“SEC”) regulate trading of stocks quoted by the OTC Markets Group.
OTC Markets is not a regulator and is not affiliated with FINRA or the SEC. Additionally, OTC Markets is not a stock exchange and it has no listing requirements.
FINRA and OTC Markets
FINRA establishes rules that impact OTC Markets in several ways. These include FINRA rules regulating its broker-dealer members and setting qualification standards for securities industry professionals as well as rules governing compliance.
OTC Markets OTC Pink Tier
The OTC Markets Group operates an electronic inter-dealer quotation system called OTC Link that broker-dealers use to trade securities not listed on a national securities-related exchange. OTC Markets has three OTC Pink tiers. Each issuer’s rank in the OTC Pink tiers depends upon the amount of disclosure provided. Issuers using SEC Rule 15c2-11 qualify for the “OTC Pink Current Information” tier.
OTC Pink Tiers – The Pink Current Tier Read More
Boca Raton Attorney William J. Reilly Indicted For Securities Fraud
Lawyers Gone Wild Series
On October 24, 2012, Boca Raton securities lawyer William J. Reilly was arrested by the FBI for allegedly engaging in a scheme to fraudulently sell stock in a company called Caribbean Pacific Marketing. In its S-1 registration statement filed with the Securities and Exchange Commission (“SEC”), Caribbean Pacific claimed it qualified as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). Once the S-1 was deemed effective by the SEC in August 2012, Reilly sold stock to, among others, a “confidential source” who was working with the FBI. Read More
What Are Form 8-K Disclosures? Going Public Lawyer
Private companies seeking to go public should be aware that once their S-1 or other registration statement is declared effective by the SEC, the company will be required to publicly file on the SEC’s EDGAR database annual reports on Form 10-K and quarterly reports on Form 10-Q. SEC reporting companies must also report certain material events within four days ofthe event. Current Reports on Form 8-K provide investors with current information to enable them to make informed investment decisions. The information required to be disclosed on Form 8-K is generally considered to be “material” information. Generally, this means that there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision.
NYSE and NASDAQ Compensation Committee Proposals
On January 17, 2013, the Securities and Exchange Commission (the “SEC”) approved proposals by the New York Stock Exchange (“NYSE”) and the NASDAQ Stock Market (“NASDAQ”) regarding compensation committee and compensation adviser independence, as required by the new SEC rules issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank Act”). Read More
How Can I List My Company on NASDAQ?
Private companies that go public often attempt to list on a national securities exchange. One of these, the NASDAQ Stock Market (“NASDAQ”) has three distinct tiers for companies considering an exchange listing as part of their going public transaction. These tiers are the NASDAQ Global Select Market, the NASDAQ Global Market and the NASDAQ Capital Market. Issuers must satisfy specific Read More
OTC Markets Eliminates Quarterly Legal Opinions For OTC Pink Market
On January 3, 2013, OTC Markets revised its disclosure requirements for issuers quoted on OTC Markets’ “OTC Pink Current Information” tier. As set forth in our January 4, 2013 blog post, these revisions reduced the filing deadline for reporting a laundry list of corporate events but eliminated the obligations of issuers to provide quarterly legal opinion letters from their securities attorneys.
About the OTC Markets Disclosure Tiers Read More
Spam 101 l Securities Lawyer 101 Blog
Spam is unsolicited information–usually cast in the form of an advertisement–that is sent to a large number of recipients electronically. Spam may take the form of an email or a series of message board postings. The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (the “CAN-SPAM Act”) addresses commercial email. Commercial email is defined as “any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service.” Read More
SEC Seeks Order For Section 3(a)(10) Action
On December 23, 2013, the Securities and Exchange Commission (“SEC”) entered into a proposed settlement of a pending civil action against Advanced Cell Technology, Inc. (“Advanced Cell”), arising out of Advanced Cell’s issuance of hundreds of millions of unregistered shares of common stock on thirteen separate occasions without qualifying for any exemption from registration. The settlement is subject to the Court’s approval. Read More
OTC Markets Increases Disclosure Requirements for OTC Pink Issuers
On January 3, 2013, the OTC Markets revised its disclosure requirements for issuers quoted with an OTC Markets “OTC Pink Current” tier. These revisions increase current events disclosures for a laundry list of corporate events but reduce the obligations of issuers to provide quarterly legal opinion letters from their securities lawyers.
The OTC Markets Group operates an electronic inter-dealer quotation system for broker-dealers to trade securities not Read More
What Is Section 16 Reporting? Securities Lawyer 101
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.
Beneficial Ownership
For the purposes of Section 16, beneficial ownership means having or sharing, directly or indirectly, either investment or voting power or both. To determine what or how many securities are reported under Section 16, beneficial ownership means having an economic or pecuniary interest, which includes directly or indirectly receiving or sharing in profits from a transaction in the securities, whether by agreement, relationship or other arrangement (See Rule 16(a)-1, Exchange Act). Direct economic interests are defined as ownership of securities in certificate form, or of securities held in a brokerage account bearing the individual’s name. Indirect economic interests that imply beneficial ownership include the following:
♦ A person is generally regarded as beneficially owning securities held in the name of immediate family members sharing the same household. As such, if a spouse or household family member purchases an issuer’s securities, the spouse or other members of the household have an interest in those shares;
♦ An indirect pecuniary interest in securities can cause beneficial ownership to be attributed to multiple persons, such as when persons are acting as a group to acquire, hold, vote or dispose of an issuer’s equity securities. Each person in the group is deemed to be a beneficial owner of all the issuer’s equity securities that are beneficially owned by the other persons within the group; and
♦ The right to acquire equity securities by the exercise or conversion of a derivative including debt security is considered an indirect pecuniary interest in the underlying equity security whether or not the right is presently exercisable.
Section 16 requires the following reports:
♦ SEC Form 3 to report an initial statement of beneficial ownership;
♦ Form 4 to report changes in beneficial ownership; and
♦ Form 5 to report annual statements of beneficial ownership.
Form 3
A Form 3 for the initial statement of beneficial ownership should be filed after one of the following events:
♦ Upon an issuer listing for the first time on a securities exchange under Section 12(b) of the Exchange Act;
♦ Upon an issuer’s first registration statement under Section 12(g) of the Exchange Act such as Form 10 or Form 8A becomes effective; or
♦ After a person becomes a director, officer or 10% holder of the issuer.
A Form 3 is required by Section 16 even if the insider does not beneficially own any of the issuer’s securities at that time. Newly-appointed directors and officers, and new greater-than-10% shareholders must file Forms 3 within ten days.
Form 4
Any change in ownership after the filing of the Form 3 must be reported on Form 4. A single Form 4 can be used to report multiple transactions. A Form 4 should be filed for any purchases, sales, gifts, or exercise of options that result in acquisition or disposition of the issuer’s equity securities. With limited exceptions, Forms 4 must be filed within two days.
Form 5
An annual report on Form 5 is required once annually to report transactions that occurred during the prior fiscal year that either were not required to be reported on a Form 4 or should have been reported on a Form 3 or Form 4 but were not. They must state the filer’s beneficial ownership at the end of the fiscal year. The Form 5, if required, is due within 45 days following the end of the company’s fiscal year.
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 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
Emerging Growth Company – Going Public Attorneys
On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”), which was intended to help smaller and emerging growth companies raise capital in the U.S. markets. The JOBS Act amends, and adds new sections to, the Securities Act of 1933 (the “1933 Act”) and the Securities Exchange Act of 1934 (the “1934 Act”), as well as the Sarbanes-Oxley Act of 2002. The JOBS Act implements measures relating to initial and direct public offerings and creates a new category of issuer known as the Emerging Growth Company. Read More
The SEC Issues Trading Suspension of Southridge Enterprises
On Dec 28, 2012, the Securities and Exchange Commission (“SEC”) announced a trading suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of the securities of Southridge Enterprises, Inc. (SRGE), a Nevada corporation (“Southridge”).
The SEC’s Order of Suspension of informs the public that, “It appears … that there is a lack of current and accurate information concerning the securities of Southridge because of questions regarding the accuracy of statements made by Southridge. Read More
Securities Registration and the Emerging Growth Company
If a private company undertakes a public offering, the Securities Act of 1933, as amended (the “1933 Act”) requires the private company to file a registration statement with the SEC before it may offer its securities for sale to the public. The registered offering can be a direct public offering for a company that chooses to go public directly or an initial public offering (“IPO”) for company conducting an underwritten public offering. The company may not sell the securities covered by the registration statement until the SEC staff declares the registration statement “effective.” The disclosures required by the 1933 Act vary depending upon if the issuer qualifies as an emerging growth company and whether the company previously engaged in a reverse merger with a public shell company. Read More
How Do I Go Public to Raise Capital?
A private or public company can raise capital in a variety of ways. Traditional sources of capital for companies include loans from financial institutions such as a bank, or from friends and family as well as receivable financing. Companies can also raise capital in going public transactions by selling their securities prior to filing an SEC registration. Read More
JOBS Act l Research Analysts and Underwriters
On September 28, 2012, the Financial Industry Regulatory Authority, Inc. (“FINRA”) proposed rule changes to the Securities and Exchange Commission (the “SEC”), for NASD Rule 2711, which regulates the activities of research analysts. The proposals were made pursuant to the requirements of the Jumpstart Our Business Startups Act (the “JOBS Act”).
JOBS Act – Research Analyst Communications Read More
Securities Lawyers Gone Wild l Carl Duncan
On September 27, 2012, the SEC charged 8000, Inc. and Carl Duncan, Esq. for his role in a scheme to manipulate 8000, Inc.’s stock price. The SEC complaint alleges that certain defendants misrepresented 8000, Inc.’s financial condition to investors while simultaneously selling, or facilitating the sale of, the company’s securities in violation of the antifraud and securities registration provisions of the federal securities laws. Read More
Removing the Advertising Ban in Rule 506 Offerings
Rule 506(c) of Regulation D, enacted under the Jumpstart Our Business Startups Act (the “JOBS Act”) is intended to help smaller and emerging growth companies raise capital in the U.S. capital markets. The JOBS Act adds new sections to the Securities Act of 1933 (the “1933 Act”) and the Securities Exchange Act of 1934 (the “1934 Act”). The JOBS Act’s stated purpose is to assist small companies in raising capital. Less stringent requirements will encourage smaller companies seeking to raise capital to go public directly, without involving an underwriter, as traditional IPOs do.
In furtherance of this purpose, Section 201 of the JOBS Act requires the SEC to change regulations applicable to Rule 506 Attorneys of Regulation D of the Securities Act. Most notably, the JOBS Act removes the prohibition on general solicitation and advertisement by issuers that rely on Rule 506. Rule 506 is an exemption frequently used by private companies that go public directly on OTC Markets, and by hedge funds, private equity funds and venture capital funds. Read More
How Did the JOBS Act Change Mandatory Exchange Act Registration?
On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”), which is intended to help smaller and emerging growth companies access the U.S. capital markets. The JOBS Act amends, and adds new sections to, the Securities Act of 1933 (the “1933 Act”) and the Securities Exchange Act of 1934 (the “1934 Act”), as well as the Sarbanes-Oxley Act of 2002. Section 12(g) of the Exchange Act requires companies with more than $10 million in assets whose equity securities are held by more than 500 shareholders of record to file periodic reports with the Securities and Exchange Commission (the “SEC”). Read More
OTC Markets OTC Pink Disclosure Obligations
OTC Markets Group operates the world’s largest electronic inter-dealer quotation system. Broker-dealers use it to trade unlisted securities. OTC Markets assigns issuers to one of three tiers based upon the level of disclosure provided.
The OTC Pink is used to categorize issuers who do not file reports with the Securities and Exchange Commission (“SEC”).
The OTC Pink tier comprises three sub-categories: OTC Pink Current Information, Pink Limited Information, and Pink No Information.
Secondary trading of the securities of OTC Pink Sheet issuers is facilitated only between broker-dealers. They use OTC Link, OTC Markets’ electronic trading platform.
Current SEC reporting companies and non-U.S. companies that are listed on a qualified foreign stock exchange automatically qualify for the OTC Pink Sheets Current Information tier. Issuers not reporting with the SEC must subscribe to the OTC Markets Disclosure and News Service to be quoted on the OTC Pink Sheets Current tier, and must also publicly file an initial Information and Disclosure Statement with a signed Attorney Letter Agreement by the issuer’s SEC attorney.
Equity Crowdfunding 101- Going Public Lawyers
On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”), which is intended to help smaller and emerging growth companies access the U.S. capital markets. The JOBS Act amends, and adds new sections to, the Securities Act of 1933 (the “1933 Act”) and the Securities Exchange Act of 1934 (the “1934 Act”), as well as the Sarbanes-Oxley Act of 2002. The SEC had 270 days to enact the rules necessary to allow for crowdfunding. Once the SEC rules concerning equity crowdfunding are enacted, both private and public companies will be able to raise money from a broad range of investors using the Internet and social media.
Equity crowdfunding significantly impacts the securities laws governing private and public companies, and those that use traditional IPOs. The creation of the equity crowdfunding exemption from 1933 Act registration will not only provide a way for public and private companies to raise capital inexpensively, but will also ease the burden for many private companies seeking to go public directly by enabling them to more easily obtain the number of shareholders required to obtain a stock trading symbol. Read More
BP to Pay $525 Million to SEC – Securities Lawyer 101 – Go Public Blog
On November 15, 2012, the Securities and Exchange Commission charged BP p.l.c. with misleading investors by significantly understating the flow rate while its Deepwater Horizon oil rig was gushing into the Gulf of Mexico in 2010. The company did so in multiple reports filed with the SEC. The SEC alleges that the global oil and gas company headquartered in London made fraudulent public statements indicating a flow rate estimate of 5,000 barrels of oil per day. BP reported this figure despite its own internal data indicating that potential flow rates could be as high as 146,000 barrels of oil per day.
FINRA Issues Crowdfunding Rules
The Financial Industry Regulatory Authority (“FINRA”) has issued a voluntary form for prospective crowdfunding portals under the Jumpstart Our Business Startups Act (“JOBS Act”), signed in April 2012 by President Obama.
Anyone who intends to set up a crowdfunding portal for individual investments in start-up companies can voluntarily submit information to FINRA, which FINRA will use in drafting rules governing crowdfunding portals. The form is not definitive; FINRA will not adopt its final form until the SEC has adopted its own crowdfunding funding portal rules. Read More
