Business Identity Theft: State of the Industry Report

What Are They and How to Protect Your Company From Thieves

By Ralph Gagliardi

Identity thieves don’t just target people – they prey on businesses, too. Their schemes vary widely, from the unimaginably complex to the absurdly simple. But in every case, their effects can be devastating to the business involved and its personnel.

Business identity theft is when criminals hijack a business’s name to plunder its assets, credit and/or reputation. The crime comes in a variety of forms, from scammers merely impersonating a business to fraudsters filing fraudulent paperwork to take over a company. However it’s done, the goal is always the same: To exploit the business for the criminal’s financial gain. That can mean purchasing luxury cars or dozens of cell phones on company credit and selling them for a quick profit. It can mean seizing company assets, like a piece of property stashed in a holding company, and transferring it to another business entity, where it’s sold to an unsuspecting third party. Or it can be masquerading as your business to exploit your good reputation and defrauding your current or potential customers. Read More

AmTrust and Ronald E. Pipoly, Jr Charged with Faulty Loss Reserves Disclosures

On June 17th, 2020, the Securities and Exchange Commission (the “SEC”) charged international insurance company AmTrust Financial Services, Inc. and its former CFO Ronald E. Pipoly Jr. with failing to disclose material facts about how the company estimated its insurance losses and reserves. They have agreed to pay a combined $10.5 million to settle the SEC’s charges. Read More

SEC Obtains Final Judgments Against Daniel Adams, Michael Flanders, Spiderworx Media LLC, and An L.A. Minute LLC

SEC Action Daniel Adams Michael Flanders SEC Action Daniel Adams Michael Flanders

On June 16, 2020, the Securities and Exchange Commission (the “SEC”) has obtained final judgments against movie director and convicted felon Daniel Adams, music producer Michael Flanders, and companies under their control for defrauding two investors in connection with financing the movie entitled An L.A. Minute. Read More

SEC Says Dilution Funder John Fierro is a Dealer Not a Trader

Dilution 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 Act of 1934 (“Exchange Act”). Informally known as “toxic lenders” or “dilution funders” because the terms of their financing agreements contain provisions that almost always result in harm to investors and issuers alike, they’re considered by many to be the scourge of the penny stock market. Typically, the notes they buy can be converted at any time, often at a discount to market price of 70 percent or more. As the lender converts and sells, stock price drops. To avoid making insider filings to the SEC, the lender's financing agreements specify that he may own no more than 4.99 percent of the company’s stock at any time. But that in no way stops him from converting his note continuously, in a succession of tranches. Since the conversion ratio is pegged to the security’s recent average bid price, every time he converts, he gets more stock than the time before. As he sells tranche after tranche, the company’s stock price enters freefall. Sometimes the only remedy for the issuer is a large reverse split.
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 Act of 1934 (“Exchange Act”). Informally known as “toxic lenders” or “dilution funders” because the terms of their financing agreements contain provisions that almost always result in harm to investors and issuers alike, they’re considered by many to be the scourge of the penny stock market. Typically, the notes they buy can be converted at any time, often at a discount to market price of 70 percent or more. As the lender converts and sells, stock price drops. To avoid making insider filings to the SEC, the lender’s financing agreements specify that he may own no more than 4.99 percent of the company’s stock at any time. But that in no way stops him from converting his note continuously, in a succession of tranches. Since the conversion ratio is pegged to the security’s recent average bid price, every time he converts, he gets more stock than the time before. As he sells tranche after tranche, the company’s stock price enters freefall. Sometimes the only remedy for the issuer is a large reverse split.
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SEC Obtains Judgment Against Giga Entertainment, Inc. CEO Gary Nerlinger

On June 2, 2020, the U.S. District Court for the Eastern District of New York entered a final judgment as to monetary relief against the former de facto CEO of Giga Entertainment Media, Inc., Gary S. Nerlinger, whom the Securities and Exchange Commission (the “SEC”) previously charged in connection with a scheme to mislead investors. Read More

SEC Settles with Three Defendants in Boiler Room Scheme

On June 11, 2020, the Securities and Exchange Commission (the “SEC”) announced that it has obtained final judgments by consent against Ronald Hardy, Anthony Vassallo, and Sergio Ramirez charged for their roles in a $10 million boiler room scheme. The SEC’s complaint, filed on July 12, 2017, alleged that Ronald Hardy and Anthony Vassallo, through boiler rooms they controlled, and together with Sergio Ramirez and other employees, engaged in a fraudulent scheme using threatening and deceitful sales tactics to pressure retail investors to purchase penny stocks. The defendants used information they learned about the victims’ purchase orders to facilitate the placement of opposing sell orders to dump shares owned by participants in the fraudulent scheme. Read More

SEC Reaches Settlements with Traders in Newswire Hacking and Trading Scheme

 

On June 10, 2020, the Securities and Exchange Commission (the“ SEC”) announced  that it has obtained court approval of settlements with eight defendants: Arkadiy Dubovoy, Igor Dubovoy, Southeastern Holding and Investment Company LLC, APD Developers, Inc., Leonid Momotok, Aleksandr Garkusha, Vladislav Khalupsky, and Memelland Investments Ltd, charged in connection with an international scheme to trade on hacked news releases.

In August 2015, the Commission filed a civil action and then an amended complaint in New Jersey federal court charging the eight settling defendants, together with more than 20 others, with securities fraud. According to the amended complaint, Ukrainian hackers used advanced techniques to hack into newswire services and steal hundreds of corporate earnings releases before the newswires released them publicly. Read More

What Is a Control Person? Control Securities, Resale Requirements

Control Person Control Securities Going Public Law Firm

What are Control Securities?

Sales of securities by affiliates and control persons of publicly traded companies are subject to requirements not applicable to other sellers under federal securities laws. Rule 405 of the Securities Act of 1933, as amended (the “Securities Act”) contains definitions of each.

  • An “affiliate” of, or person “affiliated” with, a specified person, is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.
  • The term “control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.

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SEC Form 3, Insider Reporting Requirements

Insider Reporting Form 3

 

Anyone who is an insider of a public company subject to SEC reporting requirements (“SEC Reporting Company”) must file a Form 3 with the Securities and Exchange Commission (“SEC”) under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Certain events make a person a Section 16 insider:

  • When the issuer first lists on the New York Stock Exchange (“NYSE”) or NASDAQ stock market (“NASDAQ”) pursuant to Section 12(b) of the Exchange Act,
  • Upon the company’s first registration statement under Section 12(g) of the Exchange Act becoming effective, or
  • Upon a person becoming a director or officer or beneficially owning 10% of the company’s securities, directly or indirectly.

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SEC Trading Suspensions Under the Securities Exchange Act

 

SEC Trading Suspension

SEC Trading Suspensions under Exchange Act Section 12(k)

Section 12(k)(1)(A) of the Exchange Act, grants the SEC the authority to issue trading suspensions for up to 10 business days if it believes the trading suspension is in the public interest protects investors. When the SEC issues a trading suspension pursuant to Section 12(k), trading in the security is halted for the period set forth in the order which is typically the full 10 days. Once the trading suspension is over, few companies resume normal trading activity.

If issuer’s securities are listed on a national securities exchange such as the NYSE or NASDAQ, they will resume trading after the trading suspension ends. For companies quoted on the OTC Markets, resuming trading is not as easy.  OTC Markets issuers must locate a market maker to submit a Form 211 in compliance with FINRA Rule 15c2-11. Few market makers are willing to assume the liability of filing a Form 211 for a company that has been suspended by the SEC. Read More

SEC Charges Jason C. Nielsen in Manipulative Trading Scheme Involving Covid-19 Claims

On June 10, 2020,the Securities and Exchange Commission (the “SEC”) charged Jason C. Nielsen, a penny stock trader in Santa Cruz, California, with conducting a fraudulent pump-and-dump scheme in the stock of a biotechnology company by making hundreds of misleading statements in an online investment forum, including a false assertion that the company had developed an “approved” COVID-19 blood test. Read More

SEC Enters Final Judgment Against Brandon Copeland, E.B. & Copeland Capital, Inc.

 

On June 17th, 2020, the Securities and Exchange Commission (the “SEC”) charged international insurance company AmTrust Financial Services, Inc. and its former CFO Ronald E. Pipoly Jr. with failing to disclose material facts about how the company estimated its insurance losses and reserves. They have agreed to pay a combined $10.5 million to settle the SEC’s charges. Read More

SEC Obtains Preliminary Injunction Against Paul Horton Smith, Sr., Northstar Communications, LLC, Planning Services, Inc. and eGate

On June 3, 2020, the United States District Court for the Central District of California entered a preliminary injunction and orders freezing assets and imposing other relief against California-registered investment adviser Paul Horton Smith, Sr. and his entities in connection with a Ponzi scheme targeting senior citizens. Read More

SEC Obtains Judgements Against Stiefel Laboratories and Charles Stiefel

SEC Action

On June 5, 2020, the Securities and Exchange Commission (the “SEC”) announced that it has obtained final judgments of $37 million against Stiefel Laboratories and Charles Stiefel. According the the SEC, Stiefel and Stiefel Labratories  defrauded shareholders, who were mostly company employees, by having Stiefel Laboratories buy back their stock at severely undervalued prices.

The SEC alleged that Stiefel Laboratories and Charles Stiefel used artificially low valuations for stock buybacks and failed to disclose information that would have alerted employee shareholders their stock was worth much more than the price the company paid them. For example, according to the complaint the company failed to disclose negotiations for the sale of the company that ultimately resulted in GlaxoSmithKline PLC purchasing Stiefel Laboratories for a share price more than four times higher than the share price the company paid to employee shareholders.

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Is My Dilution Funder a Dealer? – SEC Toxic Financing Actions

On March 4, 2020, the SEC issued an order providing conditional regulatory relief and assistance to reporting companies impacted by 2019 novel coronavirus disease (COVID-19). On March 25, 2020, the SEC extended an earlier March 4, order providing companies an additional 45 days to comply with their SEC reporting requirements under the Securities Exchange Act  of 1934, as amended (the “Exchange Act”) for filings and reports with deadlines between March 1, 2020 and July 1, 2020, if:
How Dilution Funders Operate

Everyone interested in penny stocks, either as an investor or an observer, knows that nearly all microcap issuers are in perpetual need of financing. Reputable banks are usually uninterested in lending, and government entities like the Small Business Association are slow to process applications. In the end, a great many small public companies turn to what are sometimes called toxic or dilution funders to meet their needs. In these  dilution financings, the lenders’ terms contain special features that almost always result in harm to investors, and to the company itself. These funders operate by purchasing convertible promissory notes from their client companies using documents drafted by their sometimes complicit lawyers. Typically, the notes can be converted at any time into the companies’ common stock. Worse yet, when the lender converts, he receives an amount of stock fixed at a pre-negotiated discount to market that can be as large as 70 percent. The notes often contain default and penalty provisions providing lenders with the ability to receive even more shares if the stock price drops below a certain level, or upon the occurrence of certain events, such as non-compliance with SEC reporting requirements or other obligations. Read More

SEC Freezes Assets Against Daniel Putnam, Jean Paul Rico, and Angel Rodriguez

On June 5, 2020, the Securities and Exchange Commission (the “SEC”) announced that it has obtained an asset freeze and other emergency relief against Daniel F. Putnam, of Utah, Jean Paul Ramirez Rico, of Colombia, and Angel A. Rodriguez, of Utah, who allegedly defrauded investors of more than $12 million in two cryptocurrency-related schemes.

The SEC’s complaint, unsealed today in federal court in Salt Lake City, alleges that, beginning in at least July 2017, Putnam operated a multilevel marketing business known as “Modern Money Team” and sold interests in a purported cryptocurrency mining operation to nearly two hundred investors. According to the complaint, Putnam misappropriated some of these investor funds and spent them on a condominium and other personal expenses. The complaint alleges that Putnam, Ramirez, and Rodriguez, then raised additional funds by offering so-called “cryptocurrency trading packages” to investors with the potential for high returns. In reality, as alleged, the defendants misappropriated investor funds for personal use and to make Ponzi-like distributions to earlier investors. According to the complaint, the defendants conducted these fraudulent schemes through two Utah companies controlled by Putnam, MMT Distributions, LLC and R & D Global, LLC. Read More

Regulation CF Crowdfunding and SEC Reporting After the Offering

As with offerings under Regulation A, there are ongoing reporting requirements after a successful Regulation CF offering is completed. With Regulation CF, these ongoing requirements consist of only one filing annually.  Regulation CF Issuers Required to File an Annual Report on Regulation C-AR Any company that has raised money under Regulation CF must file an annual report unless one of the following occurs:

After an issuer completes a Regulation CF crowdfunding offering, it must comply with certain ongoing reporting obligations. Unlike public company SEC reporting requirements, Regulation CF’s ongoing reporting requirements consist of only one filing annually. 

Regulation CF Issuers Required to File an Annual Report on Regulation C-AR

An issuer that sold securities in a Regulation Crowdfunding offering must submit an annual report on Form C-AR to the SEC through Edgar no later than 120 days after the end of its fiscal year. Form C-AR must be also be posted on the company’s website. Form C-AR requires information similar to what is required in the Form C offering statement which we discuss here; however, the issuer is not required to obtain an audit or review of its financial statements. Read More

Rule 504 Offerings – Regulation D Attorneys

Regulation D Rule 504
RULE 504 – LIMITED CROWDFUNDING

Securities offerings under Rule 504 of Regulation D of the Securities Act may prove useful to founders of startup and small companies.  One of the most difficult times for these companies is when the company is founded. Often the founders will have limited capital with which to fund their new business. Under Rule 504,  the company can raise up to $5 million in a 12  month period without filing the offering with the SEC prior to sale. One important limitation of Rule 504 is that it is  not available to public companies subject to SEC reporting requirements.

Unlike securities sold in an offering registered with the SEC on Form S-1, companies offering securities in reliance upon Rule 504 submit an SEC filing  on Form D 15 days after the first sale of securities. Issuers must still comply with state blue sky requirements. Issuers conducting offerings under Rule 504 should follow the rules below to avoid disqualification of their offering exemption. Read More

SEC Provides Form S-3 Coronavirus Relief – Securities Lawyer 101

The SEC’s Division of Corporate Finance recently provided new COVID-19 related guidance in the form of Frequently Asked questions for issuers using Form S-3 registration statements.  The SEC previously provided relief to issuers impacted by coronavirus which  are unable to file timely because of “circumstances related to COVID-19 ( the “COVID-19 SEC Order”).

The SEC’s relief included conditional 45-day extensions to submit certain SEC reports and filings that had original deadlines between March 1 and July 1, 2020.  The new SEC guidance provides relief to issuers relying on Form S-3 registration statements to register securities. For issuers who qualify, Form S-3 is the most cost- and time-efficient registration statement to prepare because it allows issuers to incorporate certain disclosures previously filed with the SEC.  Read More

Public Company SEC Reporting Requirements -SEC Requirements to Go Public

PUBLIC COMPANY SEC REPORTING LAWYERS

A public company with a class of securities registered under either Section 12 or which is subject to Section 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) must file reports  (“Public Company SEC Reporting Requirements”) with the Securities and Exchange Commission (the “SEC”). These Public Company SEC Reporting Requirements keep investors and market participants informed about important information about the issuer.  Reports and filings made with the SEC can be viewed by the general public without charge on the SEC’s website.

Companies subject to Public Company SEC Reporting Requirements must file Annual Reports on Form 10-K, Quarterly Reports on Form 10Q’s and Current Reports on Form 8-K.  As discussed below, certain issuers must file proxy statements and other reports and their officers, directors and certain large shareholders must file beneficial ownership reports with the SEC. Read More

What is a SEC Trading Suspension? Securities Lawyer 101

SEC Trading Suspensions

Securities Lawyer 101 Blog

The Securities Exchange Act of 1934, as amended (the “Exchange Act”) authorizes the Securities and Exchange Commission (“SEC”) to issue a trading suspension for up to ten business days. The SEC will order a trading suspension if it determines it is necessary to protect investors. For other securities that are traded in the over-the-counter market, broker-dealers are prohibited from publishing quotes for the security until the company has provided adequate public information.  Under most circumstances,  the issuer must  locate a sponsoring market maker to file a new Form 211 with the Financial Industry Regulatory Authority (“FINRA”). 

The reality is an SEC trading suspension is the kiss of death for investors and the issuer.   Read More

Expedited Regulation Crowdfunding Offering Rules For Coronavirus Impacted Issuers

Before starting a new offering, companies must consider a series of crowdfunding rules and regulations.  Regulation CF's crowdfunding rules are found in Section 4(a)(6) of the Securities Act of 1933, as amended (the "Securities Act"). These rules have made it easier for companies to raise money from a wider range of investors than ever before. Traditional crowdfunding models may or may not involve the offer and sale of a security, but if so, the issuer must comply with federal and state securities laws. One notable benefit of Regulation CF is that state blue-sky laws are preempted.

SEC Provides Rules Allowing Expedited Regulation Crowdfunding Offerings

On May 4, 2020, the Securities and Exchange Commission (the “SEC”)  temporary conditional relief for certain  companies affected by COVID-19 that may seek to meet their funding needs using Regulation Crowdfunding aka Regulation CF. The rules are designed to expedite the crowdfunding offering process for eligible companies by providing them with relief from certain rules with respect to the timing of Regulation Crowdfunding offerings and the financial statements requirements.

To use the temporary rules, a company must meet enhanced eligibility requirements and provide clear, prominent disclosure to investors about its reliance on the relief. The relief will apply to offerings launched between the effective date of the temporary rules and August 31, 2020. Read More

Section 4(a)(7) Resale Exemption – FAST ACT

 

Section 4(a)(7)
Reselling Restricted Securities – SEC Exemption Section 4(a)(7) – FAST ACT

The Fixing America’s Surface Transportation Act (FAST Act), which was enacted on December 4, 2015, includes a resale exemption for private placements of securities. Under Section 76001 of the FAST Act, Congress codified an exemption for certain resales of restricted securities as Section 4(a)(7) of the Securities Act. The FAST Act provides that any sale made in compliance with Section 4(a)(7) will not be a distribution under Section 2(a)(11) of the Securities Act. The Section 4(a)(7) exemption is available for private resales of restricted securities to “accredited investors” where no general solicitation is used and certain information concerning the issuer and the transaction is provided to the Purchaser.

One significant benefit of Section (a)(7) is that unlike the Section 4(a)(1½) exemption, state blue sky laws are preempted. Read More

The Section 4(a)(2) Exemption – Exempt Offerings

Section 4-a-2 Exemption

Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) provides an exemption from the SEC’s registration statement requirements for transactions by an issuer and do not involve a public offering of securities. Section 4(a)(2) is also known as the private placement exemption and is the most widely used exemption for securities offerings in the U.S. The exemption allows an issuer to raise an unlimited amount of capital in private transactions from sophisticated investors who are able to fend for themselves. Both private and publicly traded companies can rely on the Section 4(a)(2) exemption. Shares sold in reliance upon Section 4(a)(2) are restricted securities and may not be resold by purchasers in the offering absent SEC registration or an exemption therefrom.

In SEC v. Ralston Purina Co., 346 U.S. 119 (1953), the U.S. Supreme Court confirmed the position of the SEC that offers and sales to a large number of Ralston Purina’s employees under its stock grant plan did not qualify for the exemption provided by Section 4(a)(2). The Ralston Purina decision provides important factors to consider when relying on the Section 4(a)(2) exemption from SEC registration: Read More

Rule 12b-25 Q & A – SEC Reporting Requirements

Rule 12b-25 Attorney Form 12b-25 Lawyers

Securities Lawyer 101 Blog

Form 12b-25 and Rule 12b-25 provide relief for issuers unable to meet SEC reporting requirements on time. Rule 12b-25 adopted by the SEC under the Securities Exchange Act of 1934, provides an extension of the SEC’s reporting due dates for certain periodic reports such as Form 20-F, Form 10-K or Form 10-Q.

What must an issuer do if it misses the filing due date for a quarterly or annual report?

Rule 12b-25 requires an issuer that is subject to SEC reporting requirements that is unable to file all or any portion of a quarterly report on Form 10-Q, an annual report on Form 10-K and certain other reports within the prescribed time period to file a Form 12b-25 (informally known as an NT 10-Q, or NT 10-K) with the SEC. Read More

What Is SEC Form 5 – SEC Reporting Requirements- Securities Lawyer 101

Form 5 SEC Reporting Requirements

After a company becomes subject to SEC reporting requirements by registering a class of equity securities under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), insiders are required to submit certain reports and filings with the SEC.  Section 16 is not applicable to companies that have reporting obligations under Section 15(d) because of filing a Form S-1 or other registration statement under the Securities Act of 1933, as amended (the “Securities Act”).

Under Section 16(a) requires certain insiders to report his or her initial ownership of the company’s equity securities on Form 3 after an initial triggering event. Section 16 insiders must report any changes to the amount of securities subsequently owned on Form 4. Section 16 insiders must also file an Annual Statement of Changes in Beneficial Ownership on Form 5 if there are any transactions in the company’s equity securities that the Section 16 insider engaged in during the company’s most recently completed fiscal year that were not previously reported on a Form 4, other than transactions that are exempt from Form 5’s SEC reporting requirements. Read More

Form S-1 Selling Shareholders Disclosures – Going Public Lawyers

Selling Shareholder Disclosure

Securities Lawyer 101 Blog

Companies going public have a variety of structures for their transactions. Companies can sell shares in reliance upon Rule 506 of Regulation D and file a selling shareholder registration statement with the Securities and Exchange Commission (“SEC”) to register the resale of those shares on Form S-1.  A selling shareholder registration statement can be combined with a capital raising transaction to provide capital to offset going public costs.

Item 507 of Regulation S-K of the Securities Act of 1933, as amended sets forth the requirements for selling shareholder disclosures. Read More

What Is a Seed Stockholder? Going Public Lawyers

These initial investors are commonly referred to as "Seed Stockolders" or "Seed Shareholders".

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 subject to the reporting requirements of the Securities and Exchange Commission (“SEC”).  Even companies that are not subject to SEC reporting requirements must meet certain requirements to have their shares publicly traded.  One requirement is that the issuer obtain sufficient stockholders to establish a trading market. These initial investors are commonly referred to as “Seed Stockolders” or “Seed Shareholders”.

Seed Stockholders Requirements in Going Public Transactions

The first step in a going public transaction is most often obtaining the number of Seed Stockholders 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. Generally, shares in the public float must either be subject to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”) or an exemption from such registration must be available.

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Why Form 10 Shells Are High Risk – Form 10 Reverse Mergers

Form 10 Shell

What Isn’t Wrong With a Form 10 Shell?

Registration Statement (“Form 10 Shell”) under the Securities Exchange Act of 1934, (the “Exchange Act”), are being marketed as a method for private companies to obtain public company status. More often than not, Form 10 Shells are not a timely solution or cost effective method for a private company to obtain public company status.  

Most Form 10 Shells are not structured properly for a going public transaction because unlike registration statements filed under the Securities Act of 1933, as amended (the “Securities Act”), a Form 10 cannot be used to create unrestricted shares. A purchaser of a Form 10 Shell may incur the expenses of SEC reporting yet may derive no benefit because the securities are not publicly traded.  As a result, the cost of Form 10 Shell exceeds the expenses of a direct public offering and listing. Read More

CAN-SPAM Issuers and Investor Relations – Securities Lawyer 101

CAN-SPAM INVESTOR RELATIONS SPAM EMAIL - SECURITIES LAWYER 101

If you use email in your business, you should be aware of the requirements of the CAN-SPAM Act (“CAN-SPAM”). For years, issuers have hired promoters who use used spam investor relations materials to increase their stock price. Many businesses including investor relations firms may not fully understand what constitutes spam. The definition of spam is much broader than most businesses realize. CAN-SPAM establishes requirements for commercial messages, gives recipients the right to have you stop emailing them, and spells out significant penalties for violations.

Many recipients would agree that most penny stock promotional email does not comply with CAN-SPAM. Issuers should also be cautious of CAN-SPAM’s requirements. Even if an issuer hires another company to handle  stock promotion, it remains responsible. The issuer can’t contract away its legal responsibility to comply with the law. Both the issuer whose shares are promoted and the investor relations provider that actually sends the email messages are legally responsible. Read More