The OTC Markets “Face-to-Face” Meeting Requirement for Securities Lawyers
The OTC Markets Group operates an electronic inter-dealer quotation system used by broker-dealers to trade securities not listed on a national securities exchange such as NASDAQ, NYSE or AMEX. OTC Markets assigns companies to tiers defined by the amount of disclosure provided.
The “OTCPink Sheets Current” is one tier available to issuers who do not file reports with the Securities and Exchange Commission (“SEC”), but voluntarily provide specific disclosures required by OTC Markets. Issuers provide these disclosures to the public through the OTCMarkets website.
The OTC Markets Requirements for Securities Lawyers
OTC Markets has established specific disclosure requirements for the Pink Sheet Current tier and requires that issuers and their securities attorneys, who provide the obligatory legal opinion letters, use forms designated by OTC Markets to provide much of the required disclosure.
The OTC Markets requires among other things that the securities lawyer state it has “personally met” or had a “face-to-face” meeting with management of the issuer.
Securities Lawyers as Gatekeepers of the OTC Markets Platform
Because attorneys function as gatekeepers for the disclosure of the companies who trade on the OTC Markets platform, they themselves must represent in their own agreement with OTC Markets (the “Attorney Agreement”) that they have complied with the OTC Disclosure Guidelines. Securities attorneys who do not submit the Attorney Agreement are not permitted to render opinions for OTC Markets. Attorneys who render opinions that do not comply with its guidelines are publicly banned by OTC Markets. The Attorney Agreement stipulates that the attorney satisfy the face-to-face meeting requirement.
OTC Markets & the “Face-to-Face” Meeting
The face-to-face meeting requirement of the OTC Markets for opinions rendered by the issuer’s securities attorney is straight forward and requires exactly what the phrase suggests—that the issuer’s securities attorney must meet face-to-face with each member of the issuer’s executive management and a majority of its board of directors in order to qualify for the OTC Markets Pink Sheet Current Information tier.
The OTC Markets Statements About the Role of Securities Lawyers
According to the OTC Markets, the “Personally Met” requirement “describes the process used by a competent securities lawyer to perform the work necessary to submit an honest and reliable letter with respect to the issuer’s disclosure posted through the OTC Disclosure and News Service. This process requires counsel to assist the issuer by participating directly in drafting the Information required under the OTC Pink Basic Disclosure Guidelines. In drafting this disclosure, the attorney will examine the evidence that supports each material statement made in the Information. Some of this evidence will be physical or documentary, while other evidence will consist of oral statements made to the attorney by executive officers who participated in or directed the events described in the Information. We believe that it is essential for the attorney to interview these officers personally to confirm the material facts described in the Information and clear up discrepancies in the evidence at hand. The securities attorney will then discuss the Information with the members of the issuer’s board of directors to confirm and correct the disclosure, where necessary, so that it is a correct statement of all material facts regarding the issuer and its securities.”
It is the belief of the OTC Markets that an issuer’s securities attorney cannot perform its duties unless the he or she has actually met face-to-face with the issuer’s executive management, including all those persons actively involved in the matters described in the information, and a majority of the Board of Directors. A personal meeting enables the attorney to assess the demeanor and credibility of these “witnesses” and supports their testimony and recollection of events. Or, in some cases, it may result in the issuer’s securities attorney having doubts about those individuals’ suitability to act as officers of a public company. The OTC Markets states that: “It is also our experience that people are more candid when discussing matters with persons they have personally met.”
The OTC Markets does not require all meetings between an issuer and its securities attorney be face-to-face. The OTC Markets also allows discussions between the issuer and its securities attorney regarding the matters disclosed in the Information Statement to take place by telephone, email or other media, provided that on prior occasions the issuer’s securities attorney has actually met each member of the issuer’s executive management and a majority of the board of directors, and, on the basis of those meetings, believes that these other means of communication will be adequate to confirm the reliability of the information.
The OTC Markets Adopts New Rules for Securities Lawyers
As of January 3, 2013, the OTC Markets reduced the requirement that an issuer provide quarterly legal opinions for its reports. Issuers must now only provide an opinion from a securities lawyer one time annually. For issuers who provide an audit letter by a PCAOB registered auditor along with each Annual Report, an Attorney Letter is not required to qualify for the OTC Pink Current Information tier.
An opinion letter need only be provided to accompany the issuer’s annual report; it is not required for quarterlies.
SEC Enforcement Actions Against Securities Lawyers
As demonstrated by a string of recent SEC enforcement cases involving securities lawyers, many fail miserably in their role as gatekeepers for OTC Markets disclosures. The recent cases demonstrate that a significant number of penny stock and/or securities lawyers not only disregard securities laws when rendering OTC Markets legal opinions, but also disregard OTC Markets Disclosure Guidelines and state ethics rules. These SEC actions reveal securities lawyers writing baseless legal opinions, engaging in forgery, lying about meeting with management of the issuer, lying about and concealing SEC investigations and much more. Needless to say, hiring the wrong lawyer can result in serious consequences for the issuer.
Any issuer quoted on the OTC Markets should consult and meet face-to-face with qualified legal counsel concerning the disclosures required by federal and state securities laws and proceed with caution before engaging a securities attorney who is listed on the OTC Markets banned attorney list, as well as any attorney who has been the subject of an SEC enforcement action.
More information about the role of securities lawyers and the OTC Markets can be viewed at:
More information about SEC Enforcement proceedings can be viewed at:
The OTCMarkets Prohibited Attorneys list can be viewed at:
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
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Boca Raton, Florida 33432
Telephone: (561) 416-8956
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