In the wake of the stock market crash of 1929, the public had lost confidence in the entirely unregulated U.S. markets. Congress sought to restore it by creating a regulatory structure. The first step taken was passage of the Securities Act of 1933 (“Securities Act”), which required issuers of securities to provide accurate information about their business, the securities they sold, and the risks involved in investing in those securities. The following year, the Securities Exchange Act of 1934 (“Exchange Act”) was signed into law. The Exchange Act created the Securities and Exchange Commission (“SEC”), whose mission was and is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. Read More
Regulation A also known as Regulation A + provides an exemption from registration for sales of up to $50 million in a 12 month period. The exemption provide by Regulation A + offers numerous benefits to issuers seeking to go public or remain private. Regulation A+ provides issuers with two choices for their offerings. Tier 1 provides an exemption for an offering of up to $20 million in a 12-month period and Tier 2 provides an exemption for an offering of up to $50 million in a 12-month period. One aspect of Regulation A that should be considered is the impact of state blue sky laws on the offering as well as resales.
Regulation Tier 1 v Tier 2 – Regulation A State Blue Sky Compliance Read More
Regulation A provides an exemption from registration that can be used in combination with a Rule 506 private placement, a direct public offering and/or initial public offering by a private company or company seeking to go public. Since Regulation A was amended in 2015, it has gained notable market acceptance and has undergone a few changes. Regulation A has two offering tiers: Tier 1 and Tier 2 Tier 2 has evolved into a recognized method of Going Public particularly on the OTC Markets. Regulation A simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority (“FINRA”) while allowing the issuer to raise initial capital. This blog post addresses the most common questions we receive about Regulation A+.
How much can I raise with Regulation A+?
Tier 1 is available for offerings of securities of up to $20 million in a 12- month period, with no more than $6 million in offers by selling security holders that are affiliates of the issuer. Tier 2 is available for offerings of securities of up to $50 million in a 12-month period with no more than $15 million in offers by selling security holders that are affiliates of the issuer.
What securities can I register on Form 1-A pursuant to Regulation A+?
Regulation A can be used to register shares, warrants, and convertible equity securities. Read More
Regulation A Not Giving Warm Fuzzies to the SEC
In April of this year, NASDAQ submitted a proposal related to the Regulation A Offering Exemption which would require any Company listing on NASDAQ in connection with an offering under Tier 2 of Regulation A of the amended Securities Act of 1933, (the “Securities Act”), to have a minimum operating history of two years at the time of approval of its initial listing application.
Posted by Brenda Hamilton
Nasdaq’s Regulation A Proposal
The Nasdaq Stock Market LLC (“Nasdaq”) proposed a rule that would impose listing requirements for Regulation A companies pursuant to pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 19b-4 thereunder, to adopt a new initial listing requirement for any company applying to list on Nasdaq in connection with an offering under Regulation A of the Securities Act of 1933 (“Securities Act”).
On June 28, 2019, the SEC approved a change to Nasdaq Listing Rule 5210 to impose listing requirements for companies conducting offerings under Regulation A of the Securities Act of 1933 (the “Securities Act”). The amendment will take effect on July 28, 2019.
We’ve written several times about reverse mergers and Operation Shell Expel. Shell Expel is one of the Securities and Exchange Commission’s most successful enforcement initiatives to combat the use of shell companies for reverse mergers. Its object is to render useless and worthless dormant shell companies that might otherwise be hijacked, used in reverse mergers, and ultimately pumped and dumped. These companies are a real problem for the agency. If an issuer that’s an SEC registrant is abandoned by management, after a couple of years the SEC’s Enforcement Division can bring an administrative proceeding to revoke registration. Most targeted companies find they can’t really object, and when an initial order becomes effective, the public shell company becomes a private entity.
The SEC charged on May 9, 2019, Lloyd Schuman and Dane Janes for insider trading and for repeatedly traded and tipped on confidential information that they obtained through their respective employers.
The SEC’s complaint, filed in the U.S. District Court for the Western District of Tennessee, alleges that Lloyd Schuman, of Cordova, Tennessee, learned that his employer, Verso Corporation, had confidential plans to acquire privately-held NewPage Holdings Inc. According to the SEC’s Complaint, Lloyd Schuman purchased Verso shares before Verso publicly announced the acquisition. Lloyd Schuman also allegedly tipped a relative, who also purchased Verso shares before the public announcement. Immediately after the announcement, Lloyd Schuman sold all of his Verso shares realizing more than $107,000 in profits. His relative also sold his Verso shares, realizing more than $2,500 in profits. Read More
On May 9,2019, the SEC charged Danny Williams, the former President of Quality Companies, LLC, a former subsidiary of Indianapolis-based Celadon Group Inc., with an accounting fraud that allowed Celadon to avoid disclosing substantial losses and misrepresent its financial condition.
According to the SEC’s complaint, between mid-2016 and April 2017, Danny Williams, engaged in a scheme to sell used trucks at inflated prices to third parties, in return for buying trucks at comparably inflated prices. This scheme allegedly enabled Celadon to avoid recording losses on the truck sales. The complaint further alleges that, as a result of the scheme, Celadon overstated its pre-tax and net income and earnings per share in its annual report for the period ending June 30, 2016, and in its subsequent public filings for the first two fiscal quarters of 2017. According to the complaint, Danny Williams,aided and abetted Celadon’s violations, and lied to Celadon’s Board of Directors and auditor about the transactions with the third-party dealers. Read More
On May 3, 2019, a federal district court entered a final consent judgment against Rocco Roveccio, a broker who was charged with defrauding customers by making unsuitable and unauthorized trades and churning customers’ accounts, which enriched the broker at the customers’ expense.
The SEC’s complaint, filed in the Southern District of New York, alleges that from July 2012 to October 2014, Rocco Roveccio, a New Jersey resident, recommended to seven customers a pattern of high-cost, in-and-out trading without any reasonable basis to believe that his customers could make a profit. Rocco Roveccio’s recommendations resulted in losses for the customers and gains for Rocco Roveccio. Rocco Roveccio allegedly also lied to his customers about the potential for the accounts to profit. The complaint also alleges that Rocco Roveccio engaged in unauthorized trading and churning. Read More
On April 29,2019, the SEC charged James Siniscalchi, a New York City man with continuing a previously charged scheme, stealing millions of dollars from investors who were allegedly falsely promised their funds would be used for the purchase and resale of tickets to Broadway shows and a sporting event.
According to the SEC’s complaint, James Siniscalchi, Chief Compliance Officer of a company that claimed to have special access to profitable and highly sought-after event tickets, knowingly misused investor money to benefit himself and his extended family. The SEC alleges that James Siniscalchi and his business partners rebranded businesses formerly run by his cousin, Joseph Meli, who ultimately settled to SEC fraud charges and pled guilty to securities fraud in a parallel criminal action, and that this rebranding was done with Joseph Meli’s knowledge and help. Read More