Convertible Notes, PIPEs, and Toxic Funding Convertible Notes, PIPEs, and Toxic Funding are common financing tools for emerging companies, but they carry significantly different structures, risks, and implications for both issuers and investors. While these instruments can provide fast access to capital, they may also lead to substantial dilution, pricing pr…
Read MoreThis article discusses the risks and consequences of toxic convertible financing, also known as "death spiral financing," for small and emerging companies trading on the OTC Markets. These financings typically involve convertible promissory notes that convert into stock at deep discounts to the market price. The core issue is the floating conversion rate tie…
Read MoreLearn how the SEC's Dealer Rule targeted toxic lenders in penny stock markets — and why its defeat means ongoing risks for OTC issuers reliant on convertible notes and death-spiral financing.
Read MoreIn the past five years or so, we’ve written many times about “toxic lenders”. These toxic lenders have been active since the end of the last century and have flourished, providing financing to small publicly traded companies quoted by the OTC Markets. The kind of financing they offer is called “market adjustable” by the Securities […]
Read MoreSince 2017, the SEC has been bringing enforcement actions intended to curb the excesses of lenders who deal in convertible securities like promissory notes, preferred stock, warrants, debentures, and more. While the word “lenders” seems anodyne or even beneficial, these individuals and the businesses they run have come to be known to issuers and investors [&…
Read MoreWe’ve often written about “toxic” promissory notes or preferred stock and the unregistered dealers who purchase them. These dealers are not the broker-dealers ordinary retail investors have accounts with. They are individuals with companies of their own that they use to provide financing to mostly microcap companies desperate for cash. In the long run, these…
Read MoreConvertible Financing For decades, microcap issuers on the OTC Markets in need of financing have largely been forced to turn to what are known as “toxic funders” or “toxic lenders.” The money they offer comes with a hefty price tag. It’s paid in exchange for convertible securities that are almost invariably market-adjustable. That means the […]
Read MoreOver the past few years, we’ve written frequently about so-called “toxic lenders” engaged in unregistered dealer activity and the toll their loans take on struggling over-the-counter companies. Nearly all of these companies need financing for operations, research and development, expansion and more, and are rarely able to obtain it from banks or other tradit…
Read MoreIn 2020, the Securities and Exchange Commission (the “SEC”) stepped up its efforts to reel in “toxic lenders”: individuals who profit enormously by buying convertible securities in penny stock companies and selling the shares they obtain upon conversion of their promissory notes, warrants or preferred stock. Since those conversions usually take p…
Read More2020 has been a historic year for Securities and Exchange Commission ("SEC") enforcement action against toxic lenders as unregistered dealers.
Read MoreOn August 17, 2020, Judge Marcia G. Cooke, persuaded by the SEC’s arguments, handed down an order granting the SEC’s motion for summary judgment against Ibrahim Almagarby. The SEC is now seeking total financial sanctions amounting to $1,147,277, penny stock bars against both Almagarby and his company, Microcap Equity Group LLC, and requests that the court or…
Read MoreOn December 22, 2020, the Securities and Exchange Commission (“SEC”) voted to propose amendments to Rule 144 to eliminate tacking for shares acquired upon exercise or conversion of market-adjustable securities. Market adjustable securities are most often promissory notes, warrants, or preferred stock convertible into common or other shares at a dramatic dis…
Read MoreThe SEC filed an enforcement action against John Fife, an unregistered dealer and 5 companies he controlled including St. George Investments LLC and Tonaquint, Inc. According to the SEC, Fife and his companies had acted for years as securities dealers, but failed to register with the SEC and with the Financial Industry Regulatory Authority (“FINRA”) as the…
Read MoreDilution Funders and Dilution Financings Challenged by SEC We recently wrote about two interesting SEC enforcement actions that examine the question of whether the individuals and entities that purchase convertible promissory notes from public companies are “dealers” according to the definition established in Section 15(a)(1) of the Securities and Exchange A…
Read MoreDilution Funders and Dilution Financings Challenged by SEC
Read MoreDilution Funders have been charged by the SEC as unregistered dealers in violation of the Securities Exchange Act. Justin Keener and his company, JMJ Financial and John Fierro and his company, JDF Capital, Inc. are...
Read MoreDebt & Equity Securities Offerings Debt and equity securities offerings are fundamental tools for companies seeking to raise capital, whether through borrowing or selling ownership stakes. These offerings involve complex regulatory requirements and strategic considerations that can impact both issuers and investors.
Read MoreOn August 19, 2024, the United States Court of Appeals for the Second District in New York ruled in the case of Darkpulse, Inc., Social Life Network, Inc. and Redhawk Holdings Corp. v. Crown Bridge Partners LLC and its managing members, Soheil Ahdoot and Sepas Ahdoot. The Plaintiffs were appealing the ruling of the United […]
Read MoreOver the past seven years or so, we’ve followed the Securities and Exchange Commission’s efforts to rein in the excesses of predatory lenders who purchase convertible notes, preferred stock, debt, and sometimes warrants from issuers desperate for the cash needed to keep their businesses afloat. On July 23, 2024, a federal judge in Minnesota gave […]
Read MoreOn January 23, 2024, the Securities and Exchange Commission (the “SEC”) announced the filing of an enforcement action against Aryeh Goldstein, a resident of Florida and New York, and two entities he controls, Adar Bays, LLC, located in Florida, and Adar Alef, LLC, doing business in Florida and New York, for failing to register as […]
Read MoreIn the past three years, some important changes have occurred to how “penny stocks” or “microcaps” trade and are regulated. By the early 2000s, they’d moved from the obscurity of the National Quotation Bureau’s Pink Sheets to a new trading platform, Cromwell Coulson’s Pink Link. The accompanying website, initially called Pink Sheets, made quotations much [&…
Read MoreOn September 28, 2023, the Securities and Exchange Commission (the “SEC“) filed charges against Adam R. Long of Dorado, Puerto Rico, and two companies Long owns and controls for acquiring and selling nearly 6 billion shares of microcap stock without registering as a securities dealer with the SEC. The SEC’s complaint alleges that from at…
Read MoreOn November 17, 2022, the Securities and Exchange Commission (the “SEC”) charged Jeffrey K. Galvani, Stuart A. Jeffery, and two New York-based entities they controlled with operating as unregistered broker-dealers that facilitated more than $1.2 billion of securities trading, primarily in penny stocks. The SEC’s complaint alleges that Galva…
Read MoreOn September 20, 2022, the Securities and Exchange Commission (the “SEC”) charged recidivists Manhattan Transfer Registrar Company (“Manhattan Transfer”), a registered transfer agent based in Port Jefferson, New York, and its former principal, John C. Ahearn, a resident of Erie, Colorado, for violations of a Commission order issued against them o…
Read MoreOn May 24, 2022, United States District Judge Katherine Menendez filed her Order in response to Carebourn Capital, L.P.’s Motion for Judgement on the Pleadings to dismiss the Securities and Exchange Commission (“SEC”) case filed against the penny stock financier, denying all of Carebourn’s claims. The SEC filed charges against Carebou…
Read MoreOn September 24, 2021, the Securities and Exchange Commission (“SEC”) charged Carebourn Capital, L.P. and its managing partner Chip Rice of Maple Grove, Minnesota, with acting as unregistered securities dealers in connection with their buying and selling of billions of newly-issued shares of microcap securities, or “penny stocks,” whi…
Read MoreOn May 20, 2021, Ted Brent Alexander and Jon Darrell Seawright both of Jackson, Mississippi, were indicted by a federal grand jury for their roles in a large multi-million dollar Ponzi scheme that adversely affected hundreds of victims across multiple states over about eight years.
Read MoreOn October 24, 2019, the Financial Industry Regulatory Authority (FINRA) announced a settled enforcement action involving BNP Paribas Securities Corp. and BNP Paribas Prime Brokerage, Inc. A lengthy FINRA investigation found that although the firms did a brisk business in penny stocks between February 2013 and March 2017, their anti-money laundering (AML) p…
Read MoreOn March 26, 2019, the Securities and Exchange Commission (SEC) announced settled actions against Reverse Merger Shell Brokers, James K. McKillop, attorney James M. Cassidy, and Cassidy’s firm Tiber Creek Corp. The agency accused both men of acting as unregistered brokers and of failing to file required beneficial ownership forms with Edgar. While that may…
Read MoreOn December 17, 2018, John Hurry broker dealer, Scottsdale Capital Advisers Corporation sued the Financial Industry Regulatory Authority (“FINRA”), for breach of contract in the U.S. District Court for the District of Columbia. Scottsdale and its sister company, Alpine Securities, Inc., are broker-dealers controlled by John Hurry and his wife Justine Hurry…
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