Securities & Going Public Blog

What is a Penny Stock Email Campaign ?

Going Public Lawyers - What is a Penny Stock Email Campaigne?

In our digital age, sensible people know they should be wary of unsolicited financial advice, but there are still many who can’t resist the allure of the “guaranteed profits” that will be generated by a “once in a lifetime opportunity” received in a penny stock email campaign.  There are different kinds of scams involving penny stock email.  Some may present what appears to be an analysis of a specific penny stock company, and offer recommendations as well as price predictions or opportunities to get in on the ground floor of an investment.  Most penny stock email campaigns are in the form of an investment newsletter. Read More

SEC Charges Vincente Garcia Under FCPA

Foreign Corrupt Practices Act Lawyers

On August 12, the Securities and Exchange Commission (SEC) announced that a former executive at a worldwide software manufacturer has agreed to settle charges that he violated the Foreign Corrupt Practices Act (FCPA) by bribing Panamanian government officials through an intermediary to procure software license sales.

An SEC investigation found that Vicente E. Garcia, the former vice president of global and strategic accounts for SAP SE, orchestrated a scheme that violated the FCPA. According to the allegations, Garcia paid $145,000 in bribes to one government official and promised to pay two others in order to obtain four contracts to sell SAP software to the Panamanian government.

He essentially caused SAP, which is headquartered in Germany and executes most of its sales through a network of worldwide corporate partners, to sell software to a partner in Panama at discounts of up to 82 percent.  Read More

SEC Charges Microcap Stock Promoters

Microcap Stock Promoters

Last month, the Securities & Exchange Commission (SEC) charged a trio of alleged microcap stock promoters with defrauding investors by disseminating promotional investor relations e-mails and newsletters exhorting readers to immediately buy purportedly hot stocks so they could secretly sell their own holdings at a substantial profit.

The SEC alleges that the three men, who live in Israel, obtained shares in several penny stock companies and pumped the prices as high as 1,800 percent before dumping the shares for at least $2.8 million in illicit proceeds.  Read More

Regulation D and PPM Lawyers – Going Public

PPM Lawyers - Going Public

A private placement memorandum (“PPM”) is also referred to as a confidential offering circular or memorandum.  PPM’s are used by private companies  in going public transactions and by existing public companies to raise capital by selling either debt or equity in an exempt offering.  In registered direct public offerings, the resale of these shares are often registered on Form S-1. These exempt offerings are usually  private placements. PPM disclosures vary depending on a couple of factors including whether the investor is accredited or non-accredited and whether the Company is subject to the SEC’s reporting requirements, and a few other factors.

When a Company sells equity, it most often offers common shares to investors who then become shareholders of the Company. Read More

Signator Investors Settles SEC Charges

Signator Investors - Securities Lawyers

On August 13, 2015, the Securities & Exchange Commission (SEC) announced that three Maryland men have agreed to settle charges that they defrauded investors in a company that owns and operates residential and commercial real estate.  Boston-based Signator Investors Inc. and one of its supervisors agreed to settle separate charges that they failed to supervise two of the men who worked in Signator’s Maryland office.

The SEC alleges that James R. Glover orchestrated the fraud by enticing family, friends, and fellow church members to become his clients at Signator and invest in Colonial Tidewater Realty Income Partners, which he co-managed.  Most of Glover’s clients were financially unsophisticated and relied on him for investment guidance.   Read More

What Are Fiduciary Duties? Going Public Attorneys

Fiduciary Duty-Going Public Attorneys

A fiduciary duty exists where trust and confidence is placed in another. Fiduciary duties arise in many different contexts in securities matters and the going public process. Fiduciary duties also arise from a written agreement that authorizes another to act as the grantor’s agent. The existence and scope of a fiduciary duty is based on the nature of the relationship between the parties.  Securities attorneys, auditors, brokers and investment advisors, investment companies and public companies are fiduciaries. Breach of fiduciary duty claims in securities matters most often arise from broker-dealer activity.

When a broker recommends an investment, the broker-dealer has a duty to:

  • Understand the nature of the investment’s risks, rewards, and strategy before recommending the investment to its client;
  • Make only suitable recommendations to its client based upon the investor’s objectives, needs, and circumstances;
  • Furnish information to the client that would be material to the client’s decision about the recommendation; and
  • Be truthful and not misrepresent or omit material information.

Read More

Aegis Capital Corporation fined $950,000 By FINRA

Aegis Capital-FINRA Attorneys

Aegis Capital Corporation has been fined $950,000 by the Financial Industry Regulatory Authority over allegations of improper sales of unregistered penny stocks of five issuers and anti-money laundering supervisory failures. As a result, Aegis is also required to retain an independent consultant to review its supervisory and AML systems and procedures. In addition, Charles D. Smulevitz and Kevin C. McKenna, who served successively as Chief Compliance and AML Compliance Officers at the time of the violations, agreed to 30- and 60-day principal suspensions, and fines of $5,000 and $10,000, respectively, for their supervisory and AML failures. In a separate proceeding, Robert Eide, Aegis’s President and CEO, was suspended for 15 days and fined $15,000 for failing to disclose more than $640,000 in outstanding liens.

The unregistered penny stock issuers are China Crescent Enterprises, Inc., TAO Minerals Ltd., New Market Technology, Inc., Numobile, Inc., and AlterNet Systems, Inc. All five issues were listed on the OTC Markets.

Brad Bennett, Executive Vice President and Chief of Enforcement, said, “Firms who open their doors to penny stock liquidators must have robust systems and procedures to ensure strict adherence to the registration and AML rules given the significant risk of investor fraud and market manipulation. The compliance officers sanctioned in this case were directly responsible for supervising sales of restricted securities but failed to conduct a meaningful inquiry in the presence of significant red flags indicating the sales could be illicit distributions of unregistered stocks.” Read More

Going Public Shareholder Requirements l Going Public Lawyers

The Laws That Apply To Going Public

The going public process involves a number of steps that vary depending on the characteristics of the private company wishing to go public, and whether it will become a Securities and Exchange Commission (“SEC”) reporting company. All companies seeking public company status must meet certain requirements in order for their securities to be publicly traded. This holds true for both reporting and non-reporting companies. An experienced going public lawyer can assist the company in complying with the SEC’s stringent requirements.

Shareholder Requirements in Going Public Transactions

The first step in a going public transaction is most often obtaining the number of shareholders required by the Financial Industry Regulatory Authority (“FINRA”). The shares issued to them must be unrestricted at the time of the filing of the Form 211 with FINRA, so that a public float will exist when the company’s stock begins trading. Read More

Disclosure Obligations in Regulation A+ Offerings

Regulation A+ Attorneys Disclosures
The Anti-Fraud Provisions And  Regulation A+ 

On March 25, 2015, the Securities and Exchange Commission adopted final rules amending Regulation A. The new rules are often referred to as Regulation A+. These rules are designed to facilitate smaller companies’ access to capital.  Regulation A+’s new rules provide investors with more investment choices and issuers with more capital raising options during their going public transactions. The rules adopting Regulation A+ are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act.

Regulation A+ can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction.  The exemption simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority while allowing the issuer to raise initial capital.

Form 1- A sets forth line item disclosures that must be provided in Regulation A+ offerings. These line item disclosures are the minimum disclosures required. In addition to these line item disclosures, the anti-fraud provisions mandate disclosure of certain information to investors.  Section 10(b) of the Securities Exchange Act of 1934, (the “Exchange Act”) prohibits the use of any manipulative or deceptive device in contravention of the Securities & Exchange Commission’s rules and regulations.  Rule 10b-5, was adopted pursuant to Section 10(b), and prohibits fraudulent devices and schemes, material misstatements and omissions of any material facts, and acts and practices that operate as a fraud or deceit on any person in connection with the purchase or sale of a security.

This means that each participant in a company’s offering, including the company, itself and its officers, directors, consultants, advisors, underwriters, accountants and others are potentially liable under this provision.  Section 20(a) of the Exchange Act imposes liability on any person who directly or indirectly controls any person liable under Section 10(b) or Rule 10b-5, to the same extent as the controlled person. Persons conducting Regulation A+ Offerings can mitigate their risk exposure by completing a comprehensive due diligence review and making appropriate disclosures to investors. Read More

What In The World Is A Security? Going Public Lawyers

What Is A Security? Going Public Lawyers

A company going public must understand which capital raising methods involve a “security”. A company is only subject to federal and state securities laws if it is selling what is defined as a “security.”  If you are selling stock in your initial public offering or a direct public offering, you know you are selling a security.  But Section 3(a)1 of the Securities Act of 1933 tells you all kinds of other instruments you sell may also be securities, as follows:

The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, …, or, in general, any interest or instrument commonly known as a “security.” Read More

SEC Charges Phillip Kueber – Going Public Attorneys

Phillip Kueber - CYNK

On July 31, 2015, the Securities and Exchange Commission (the “SEC”) announced it had charged Phillip Kueber, Canadian citizen with conducting a scheme to conceal his control and ownership of penny stock, Cynk Technology Corp.  On July 11, 2014, the SEC suspended trading in the stock, Cynk Technology Corp., rose to more than $21 from less than 10 cents per share. According to its SEC filings, CYNK’s assets never exceeded $1,400.

The SEC alleges that Kueber was behind a false and misleading registration statement filed by Cynk and enlisted a small group of straw shareholders and sham CEOs to conceal his control of purportedly non-restricted shares in Cynk stock.  The complaint alleges that the straw shareholders – mainly Kuber’s family members and associates in British Columbia and California – never received the shares they “purchased.”   Read More

Securities Law & Going Public Attorneys

 

Going Public AttorneyGoing 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. market remains one of the most attractive sources of capital in the world for companies seeking capital. Going public is a complicated process, and it is important to have an experienced securities attorney to help your company navigate through the process and deal with the Securities & Exchange Commission the (“SEC”), Financial Regulatory Industry Authority (“FINRA”) & Depository Trust Company (“DTC”). Read More

Regulation A+ Lawyers – Sponsoring Market Maker Attys

 

Regulation A+ Lawyers

Do I Need A Sponsoring Market Maker To Get A Ticker After My Regulation A+ Offering Is Qualified?

Regulation A+’s new rules provide investors with more investment choices and issuers with more capital raising options during their going public transactions. Some confusion has arisen about whether SEC qualification of a Regulation A+ offering will result in the assignment of a stock ticker or trading symbol.  Companies conducting Regulation A+ offerings must submit Form 1-A to to the Securities and Exchange Commission (SEC). Form 1-A is subject to SEC review and the SEC may issue comments to the filing. Once the SEC is satisfied that the required disclosures comply with the securities laws, it will qualify the offering and the company can offer and sell the securities covered by the Form 1-A. The Regulation A+ qualification process is similar to the SEC comment process that applies to registration of securities offerings on Form S-1. regulation a+ lawyers

Regulation A+ expands existing Regulation A, dramatically, opening new doors for capital raising for smaller issuers. Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction.  The exemption simplifies the process of obtaining the seed stockholder required by the Financial Industry Regulatory Authority (FINRA) while allowing the issuer to raise initial capital. Upon qualification of a Regulation A+ offering, companies seeking to obtain a stock trading symbol must locate a sponsoring market maker to file a Form 211 with FINRA.  a+ lawyers

Read More

Oppenheimer Employees Settle Penny Stock Charges

SEC Penny Stock Charges
On July 23, 2015, the Securities and Exchange Commission (SEC) announced that three former employees of Oppenheimer & Co. Inc. have agreed to settle charges stemming from the unregistered sales of billions of shares of penny stocks on behalf of a customer.  The actions involve a portion of the conduct announced in January in a settled enforcement action against Oppenheimer in which the broker-dealer admitted wrongdoing and paid $20 million to the SEC and the Treasury Department’s Financial Crimes Enforcement Network. The SEC’s actions were instituted against Scott A. Eisler, a former registered representative at Oppenheimer’s branch in Boca Raton, Florida, his former branch manager and supervisor Arthur W. Lewis, and Lewis’s supervisor Robert Okin, a former head of Oppenheimer’s Private Client Division.

Read More

Regulation A+ Primer – Going Public Attorneys

Regulation A+ - Securities LawyerOn March 25, 2015, the Securities and Exchange Commission adopted final rules amending Regulation A. The new rules are often referred to as Regulation A+. These rules are designed to facilitate smaller companies’ access to capital.  Regulation A+’s new rules provide investors with more investment choices and issuers with more capital raising options during their going public transactions. The rules adopting Regulation A+ are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act.

Regulation A+ can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction.  The exemption simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority while allowing the issuer to raise initial capital. Read More

Regulation A+ Attorneys – Avoid Reverse Mergers

Regulation A+ Attorneys

How To Use Regulation A+ To Go Public Without A Reverse Merger

On March 25, 2015, the Securities and Exchange Commission (the “SEC”) adopted amendments to Regulation A pursuant to the mandate of Section 401(a) of the JOBS Act.  The amended rules known as Amended A+ were adopted to facilitate capital-raising by smaller companies. Regulation A+ expands existing Regulation A.  Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings as part of a going public transaction.  The exemption simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority (“FINRA”) while allowing the issuer to raise initial capital enabling small companies to go public without a reverse merger.

Both public and private companies can use Regulation A+ but the exemption cannot be used by companies that are subject to the SEC’s reporting requirements. Regulation A+ may prove to be a popular exemption for private companies in going public transactions where the issuer seeks to ease into the public company reporting process without using a reverse merger. For years, small companies have been the victims of reverse merger purveyors because they had few options available for going public. Regulation A+ changes this by allowing companies to easily meet the requirements for going public with a direct public offering/DPO.

Read More

Regulation A+ Adds Two New Bad Actor Disqualification Triggers

Bad Actor Disqualification Triggers

The final Regulation A+ rules amend Rule 262 to include bad actor disqualification provisions as adopted under Rule 506(d) of Regulation D.  Consistent with the disqualification provisions of Rule 506(d), the final rules add two additional disqualification triggers to those existing in Regulation A.

The two new disqualification triggers are Securities & Exchange Commission cease-and-desist orders for violations of scienter-based anti-fraud provisions of the federal securities laws or the registration provisions of Section 5 of the Securities Act and the final orders and bars of certain state and other federal regulators.

The new additional disqualification triggers should strengthen investor protection from potential fraud in Regulation A+ offerings. The bad actor disqualification provisions in Regulation A+ will likely cause most issuers to restrict bad actor participation in their offerings.  Issuers that are disqualified from using amended Regulation A may experience an increased cost of capital or a reduced availability of capital, which could have negative effects on capital formation. Disclosure of triggering events may also make it more difficult for issuers to attract investors and issuers may experience some or all of the impact of disqualification as a result. Some issuers may, accordingly, choose to exclude involvement in the Regulation A+ offering by prior bad actors to avoid providing damaging bad actor disclosures. Read More

What are SEC Comments? Going Public Attorneys

Going Public Attorneys - What Are SEC comments?

Securities offerings are regulated by the Securities Act of 1933, as amended, (the “Securities Act”).  Section 5 of the Securities Act requires that securities offerings be registered with the Securities and Exchange Commission (the “SEC”) or be exempt from the SEC’s registration requirements.  Private companies seeking to go public are often unaware of the SEC comment process.  The SEC comment process applies to registration statements filed by companies who go public using an initial public offering (“IPO”) as well as to companies conducting a direct public offering.

Read More

SEC Halts Ponzi Scheme Targeting Spanish and Portuguese Communities

SEC Halts Ponzi Scheme - Going Public Lawyers

On June 30, 2015, the Securities and Exchange Commission (SEC) announced securities fraud charges and an asset freeze against the operators of a pyramid and Ponzi scheme falsely promising a gold mine of investment opportunity to investors in Spanish and Portuguese-speaking communities in Massachusetts, Florida, and elsewhere in the U.S.

The SEC alleges that DFRF Enterprises, and its founder Daniel Fernandes Rojo Filho, claimed to operate more than 50 gold mines in Brazil and Africa, but the company’s revenues came solely from selling membership interests to investors and not from mining gold.  With the help of several promoters, they lured investors with such false promises as their money would be fully insured, DFRF has a line of credit with a Swiss private bank, and one-quarter of DFRF’s profits are used for charitable work in Africa.  The scheme raised more than $15 million from at least 1,400 investors by recruiting new members in pyramid scheme fashion to keep the fraud afloat, and commissions were paid to earlier investors in Ponzi-like fashion for their recruitment efforts.  The SEC charges allege that Filho has withdrawn more than $6 million of investor funds to buy a fleet of luxury cars among other personal expenses. Read More

Tweeting Your Regulation A+ Offering – Going Public Attorneys

SEC Provides Guidance For Twitter In Regulation A+ Offerings– Testing the Waters

On June 19, 2015, new rules expanding Regulation A became effective.  The expanded rules are commonly known as Regulation A+. The new rules which were promulgated under the Jumpstart Our Business Startups Act (JOBS Act), create two Tiers of exempt offerings, both of which allow securities to be offered and sold to the general public. Tier 1 offerings allow the issuer to offer and sell up to $20 million in a 12-month period. Tier 1 offerings do not preempt state Blue Sky laws. Tier 2 offerings allow the issuer to raise up to $50 million in a 12-month period. A notable advantage of Tier 2 over Tier 1 offerings is preemption of state Blue Sky laws. As discussed below, the new rules allows issuers to determine investor interest known as “Testing the Waters” before conducting their Regulation A+ offerings.

The Testing the Waters provisions of Regulation A+ allow a company to publish statements about its offering in determining investor interest right up to the time of SEC qualification of their Form 1-A Offering Circular. While there are no limitations to the type of communications used, the company must include the language set forth in Rule 255 under all circumstances.  Once its Offering Statement is “qualified” by the SEC,  it may only use its final Offering Circular to make written offers. 

The SEC recently provided guidance in a Compliance and Disclosure Interpretation (CD&I) about the use of hyperlinks in social media communications when Testing the Waters in contemplated Regulation A+ offerings.

The SEC set forth several conditions that must be followed when using social media to promote a  Regulation A+ offering on platforms that have limitations on the number of characters that may be used such as Twitter.  Under these circumstances, the tweet must provide an active hyperlink to the required statements satisfying Rule 255 and, where possible, the tweet must prominently convey, through introductory language or otherwise, that important or required information is available at the hyperlink provided.  The full CD&I is found at Question 182.09 set forth below: Read More