SEC Sanctions 10 Issuers for Form 8-K Failures

SEC Enforcement

On November 5, 2014, the Securities and Exchange Commission (the “SEC”) announced enforcement actions against 10 companies for failing to file Current Reports on Form 8-K disclosing financing deals and other unregistered securities sales that diluted their shareholders and investors.

Companies are required to file a Form 8-K to inform investors when shares of common stock are sold in transactions that are not registered with the SEC under the federal securities laws and constitute at least five percent of the total stock held by their shareholders.  Companies also must report when they’ve entered into a financing agreement not made in the ordinary course of business. These disclosures enable investors to be aware that stock dilution has occurred as a company issues additional shares in a financing transaction or other unregistered sale that has the effect of reducing the earnings per share and an investor’s percentage of ownership in the company.

SEC investigations found that each of the 10 companies named failed to make the required 8-K disclosure for a stock dilution scenario.  Three of the companies additionally failed to use accurate numbers when later reporting the amount of dilution to their common stock in quarterly or annual reports.  The companies all agreed to settle the SEC’s charges, and the agency assessed a total of $350,000 in penalties.

According to the SEC’s orders instituting settled administrative proceedings against the companies, the following disclosure regulations are at issue:

  • Under Item 1.01 of Form 8-K, a registrant must disclose within four business days its entry into a material definitive agreement.
  • Under Item 3.02 of Form 8-K, a smaller reporting company must disclose within four business days the unregistered sales of equity securities unless they constitute less than five percent of the number of last reported shares outstanding of the class of equity securities sold.
  • In Form 10-Q or 10-K (quarterly or annual reports), issuers must disclose the number of outstanding shares of their common stock as of the latest practicable date, and the information must be true, correct, and complete.

The SEC’s orders made the following findings and require payment of the following penalties:

  • APT MotoVox Group Inc. (formerly known as Frozen Food Gift Group Inc.) – Failed to file Form 8-K disclosing three unregistered sales of equity securities.  The Kansas City-based company agreed to pay a penalty of $25,000.
  • CoroWare Inc. – Failed to file a Form 8-K disclosing an unregistered sale of equity securities, and failed to file a Form 8-K disclosing a financing agreement.  The Bellevue, Wash.-based company agreed to pay a penalty of $25,000.
  • ERF Wireless Inc. – Failed to file Form 8-K disclosing three unregistered sales of equity securities, failed to file a Form 8-K disclosing a financing agreement, and incorrectly reported the number of shares outstanding in its Form 10-K for the 2013 fiscal year.  The League City, Texas-based company agreed to pay a penalty of $50,000.
  • Green Automotive Company – Failed to file Form 8-K disclosing three unregistered sales of equity securities, failed to file a Form 8-K disclosing a financing agreement, and incorrectly reported the number of shares outstanding in its Form 10-K for the 2013 fiscal year.  The Riverside, Calif.-based company agreed to pay a penalty of $50,000.
  • MineralRite Corporation – Failed to file Form 8-K disclosing two unregistered sales of equity securities, and failed to file a Form 8-K disclosing a financing agreement.  The Lindon, Utah-based company agreed to pay a penalty of $25,000.
  • Mondial Ventures Inc. – Failed to file Form 8-K disclosing four unregistered sales of equity securities, and incorrectly reported the number of shares outstanding in its Form 10-Q for the quarter ended Sept. 20, 2013.  The Scottsdale, Ariz.-based company agreed to pay a penalty of $50,000.
  • Monster Arts Inc. – Failed to file Form 8-K disclosing three unregistered sales of equity securities, and failed to file a Form 8-K disclosing a financing agreement.  The San Clemente, Calif.-based company agreed to pay a penalty of $25,000.
  • Red Giant Entertainment Inc. – Failed to file a Form 8-K disclosing an unregistered sale of equity securities, and failed to file a Form 8-K disclosing a financing agreement.  The Clermont, Fla.-based company agreed to pay a penalty of $25,000.
  • Seaniemac International Ltd. – Failed to file a Form 8-K disclosing an unregistered sale of equity securities, failed to file a Form 8-K disclosing financing agreements, and failed to make required annual and quarterly filings on Forms 10-K and 10-Q.  The Huntington, N.Y.-based company agreed to pay a penalty of $50,000.
  • Worthington Energy Inc. – Failed to file Form 8-K disclosing three unregistered sales of equity securities, and failed to file a Form 8-K disclosing a financing agreement.  The Corte Madera, Calif.-based company agreed to pay a penalty of $25,000.

The companies consented to the SEC’s orders without admitting or denying the findings that they violated Section 13(a) of the Securities Exchange Act of 1934 and related rules.

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
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Boca Raton, Florida 33432
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www.SecuritiesLawyer101.com