Illinois Court Orders Production of Documents By Navistar in SEC Investigation
On June 30, 2015, United States Magistrate Judge Sidney I. Schenkier issued an order requiring production of certain documents that Navistar International Corporation (Navistar) claimed to be privileged in response to investigative subpoenas issued by the Securities and Exchange Commission (SEC). The SEC filed an Application for an order Compelling Compliance with the SEC Subpoenas against Navistar in December 2014 and filed an Amended Application in January 2015.
According to the Application, the SEC is investigating possible fraud relating to statements made by Navistar regarding its efforts to obtain a certificate of conformity from the U.S Environmental Protection Agency, certifying that Navistar’s engines complied with certain provisions of the Clean Air Act. Pursuant to investigative subpoenas, Navistar was obligated to produce documents to the SEC. Navistar produced documents in response to the SEC’s subpoenas, but it also has redacted and withheld other documents on privilege grounds. In the Application, the SEC requested that the Court overrule Navistar’s privilege claims over certain documents that the SEC alleged involved lobbying and communications firms retained by Navistar, communications among only non-attorneys, and draft documents.
SEC Charges Former Stockbroker with Conducting Ponzi Scheme
On July 1, 2015, the Securities and Exchange Commission (SEC) charged a former stockbroker in Pennsylvania with conducting a Ponzi scheme and stealing investor money to purchase a condominium in Florida, funding his own vacations and other personal expenses.
The SEC alleges that Malcolm Segal fraudulently sold so-called certificates of deposits (CDs) to his brokerage customers by falsely claiming that he could get them higher interest rates of return on FDIC-insured CDs, than what is otherwise available to the general public. In some instances, Segal purchased CDs on behalf of investors but secretly redeemed them early and took the proceeds. In other incidences, Segal did not purchase CDs at all despite telling customers he had. He raised approximately $15.5 million from at least 50 investors. Besides spending investor money on himself, Segal used it in Ponzi scheme fashion for purported interest payments and principal repayments to earlier investors.
Form 10 vs Form 8-A Registration Statements
Simultaneously or subsequent to the effectiveness of a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) for an initial public offering (IPO) or direct public offering (DPO), issuers can file a registration statement under the Securities Exchange Act of 1934 (“Exchange Act”), covering a class of securities. This allows the issuer to list the securities registered in the initial or direct public offering on a national securities exchange. An Exchange Act registration statement cannot be used to go public or register a DPO or IPO and it does not create unrestricted shares. Read More
SEC Charges Participants In EB-5 Offering Scheme
On July 6, 2015, the Securities and Exchange Commission (SEC) charged individuals in connection with an EB-5 offering program. According to the SEC complaint, Bingqing Yang and Luca International Group operated a $68 million Ponzi scheme and affinity fraud that targeted the Chinese-American community in California and investors in Asia.
The SEC complaint alleges that Bingqing Yang knew that Luca International Group was earning no profits and sinking under a mountain of debt, yet she made presentations to investors portraying a successful oil and gas operation with millions of barrels of oil reserves and billions of cubic feet in gas reserves. Despite this, Yang falsely projected investment returns ranging from 20 to 30 percent annually.
According to the SEC complaint, Yang commingled investor funds to prevent the ponzi scheme from collapsing and used money from new investors to make purported profit payments to earlier investors. Yang also diverted $2.4 million of investor funds through her brother’s company in Hong Kong to purchase a 5,600-square-foot home. According to the SEC Complaint, Yang also spent investor funds on personal expenses including a family vacation to Hawaii.
SEC Action: Silverleaf Financial and Dwight Shane Baldwin Charged
On June 25, 2015, the Securities and Exchange Commission (SEC) filed a civil injunctive action against Silverleaf Financial, LLC and its sole principal Dwight Shane Baldwin in connection with an alleged fraudulent offering. The SEC action alleges that from at least June 2010 through late 2011, Baldwin and Silverleaf offered and sold off promissory notes and investment contracts, raising at least $8 million from 3 investors introduced to him by friends, acquaintances and family members.
According to the SEC action, Baldwin and Silverleaf have been in the business of purchasing defaulted commercial real estate notes at a discount from banks since at least mid-2010. Baldwin and Silverleaf lacked the funds to pay the full purchase price of the defaulted loans, and as such, raised funds from investors in order to purchase the loans. Baldwin typically created a single purpose entity, managed by Silverleaf, and either offered investors membership units in this entity or sold promissory notes to investors. The investment was structured to provide for returns as high as a ten percent within thirty days.
Neal Goyal Sentenced to Six Years For Ponzi Scheme
On July 3, 2015, former investment fund manager, Neal Goyal was sentenced to six years in prison for his role in a Ponzi scheme. In addition, Goyal was ordered to pay more than $9.2 million in restitution to the victims of the scheme.
On May 29, 2014, Goyal was charged by a criminal information for a scheme in which he fraudulently obtained more than $11.3 million from more than 35 investors who invested in the private funds Goyal controlled. While Goyal represented that the funds invested in equities and significantly outperformed the market, Goyal never invested the vast majority of the money he raised from investors, and the limited trading that Goyal did perform was unsuccessful and resulted in significant losses.
From Congress To The SEC: Get Moving On Crowdfunding
The JOBS Act was signed into law in April 2012. As its full name—the Jumpstart Our Business Startups Act—suggests, its purpose was to provide new, uncomplicated, and inexpensive ways for small companies to raise money. One of the most important provisions of the bill was to allow such companies to sell equity through crowdfunding efforts. In recent years the crowdfunding concept had captured the imaginations of many as a way to raise funds for disaster relief and political campaigns, but the federal securities laws prohibited its use for the sale of stock. The idea seems innocent enough: a large number of people making small investments can be as useful raising capital as a small number of people making large investments.
Regulation A+ Forms Published- Securities Lawyer 101
On June 19, 2015, Regulation A+ became effective. The new rule imposes certain filing requirements with the Securities and Exchange Commission (SEC). Regulation A+ requires certain offering information be reported on Form 1-Z and it imposes ongoing reporting requirements for issuers that conduct Tier 2 offerings. Form 1-Z requires information about the amount of securities qualified and sold, as well as the price, fees, and net proceeds.
Issuers conducting Regulation A, Tier 2 offerings may report offering information on Form 1-Z or, depending on when the offering is terminated, in their annual report on Form 1-K. Issuers conducting Tier 2 offerings must file annual reports on Form 1-K, semi-annual reports on Form 1-SA and current information reports on Form 1-U. Read More
Golfer Convicted of Securities Fraud – Going Public Attorney
On June 17, 20-15, a federal jury convicted amateur golfer, Eric McPhail and Douglas Parigian. McPhail was convicted of conspiracy and securities fraud for his role in an insider trading ring that traded on inside information about American Superconductor Corporation. The criminal charges against McPhail arose out of the same fraudulent conduct for which the Securities & Exchange Commission instituted a securities fraud action against him and others during July 2014. The U.S. Attorney’s Office indicted McPhail and another defendant, Douglas Parigian, in July 2014. The indictment alleged that McPhail had a history, pattern and practice of sharing confidences with an individual who had material, nonpublic information concerning American Superconductor’s quarterly earnings and other business activities (the “Inside Information”). Read More
Exchange Act Registration & Going Public For Foreign Issuers
Foreign companies going public in the United States must file a registration statement covering a class of securities pursuant to the Securities Exchange Act of 1934, as amended (“Exchange Act”) if the class of securities will be listed on a United States national securities exchange such as NASDAQ. A foreign private issuer must register a class of equity securities under the Exchange Act unless the exemption provided by Exchange Act Rule 12g3-2(b) is available. If the foreign private issuer has assets in excess of $10 million and the class of securities is held of record by either (i) 2,000 persons or (ii) 500 persons who are not AIs (in both cases, of whom at least 300 are residents in the United States). Read More
The Laws That Apply To Going Public & Being Public
The first laws that apply to going public transactions are contained in the Securities Act of 1933 (the “Securities Act”). The Securities Act was followed by the Securities Exchange Act of 1934 (the “Exchange Act”). Going Public attorneys must be familiar with both the Securities Act and the Securities Exchange Act. Both are the foundation of securities regulations, and have been amended to adopt to our changing markets. in going public transactions where shares are registered with the SEC, the issuer must comply with the disclosures required by the Securities Act.
The Securities Act of 1933 l Form S-1 Regulation
The Securities Act is often called the “truth in securities” law. It has two basic objectives: to require that investors receive financial and other important information about securities being offered for sale, and to prohibit deceit, misrepresentation, and other fraud in the sale of securities. The Securities Act obligates issuers to file a registration statement for any shares they’re selling, or to avail themselves of an appropriate exemption from registration. When a company files a Securities Act registration statement such as a Form S-1, it must provide copious information about itself, its business plan, its risk factors, financial reports and more. Issuers filing a Securities Act registration statement are registering an offering, not a class of stock. Read More
When Can Public Companies Use Social Media? Going Public Lawyers
The use of social media is a growing concern with new exemptions that allow issuers to engage in general solicitation and advertising of their unregistered offerings. The Securities and Exchange Commission has made its position on the use of social media sites like Facebook and Twitter by public companies clear. The SEC has stated that social media may be used to report key information in compliance with Regulation Fair Disclosure (Regulation FD), as long as investors are alerted to the specific social media that will be used to disseminate such information. Regulation FD requires that SEC reporting companies disseminate material information in a manner reasonably designed to get the information out to the general public broadly and non-exclusively. Read More
Going Public: Pros and Cons- Going Public Lawyers
A Going Public Lawyer is an important part of the overall going public process. A Going Public Lawyer in the beginning of the process assists the issuer in structuring its transaction the most time and cost effective way to obtain public company status. Changes resulting from the JOBS Act, made going public transactions an appealing option for private companies seeking to raise capital. Rule 506(c) allows companies to conduct private placements prior to going public to offset their going public costs. In going public transactions, these privately placed shares are registered on Form S-1 and become the public float. A Going Public Lawyer in a Rule 506 offering assists the issuer with verification of investors and filing its Form D.
One traditional method of going public remains an Initial Public Offering (“IPO”). The IPO is rarely used by small companies as most will not meet the eligibility requirements to trade on a national securities exchange such as the New York Stock Exchange (“NYSE”) Euronext, NASDAQ, or NYSE MKT. Moreover, the traditional IPO process involves locating an underwriter to sell the company’s offering something most small companies are not able to accomplish. In an IPO, the Going Public Lawyer provides the legal opinion for the Form S-1 registration statement and transfer agent. Read More
Nicholas Lattanzio Charged in Hedge Fund Fraud
On June 10, 2015, the Securities and Exchange Commission announced that it had charged Nicholas Lattanzio, the manager of Black Diamond Capital Appreciation Fund for falsely promising small businesses that he would arrange project financing for them and generate substantial returns on money they invested in his fund. According to the SEC’s complaint, Lattanzio told small business owners that they could withdraw their money if the promised project financing didn’t materialize. Lattanzio also allegedly claimed his hedge fund had as much as $800 million under management and a proven track record of producing double-digit returns.
OTC Markets Prepares For Regulation A+ – Going Public
On March 25, 2015, the Securities and Exchange Commission (“SEC”) adopted amendments to Regulation A. The new rules, known as “Regulation A+,” update and expand the existing Regulation A, and are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act passed in 2012. Regulation A+ is effective on June 19, 2015. The rule is expected to have a significant impact on the capital raising process for small companies by allowing issuers to raise up to $50 million without all of the requirements of a public offering but potentially providing many of the benefits. OTC Markets Group recently published proposed amendments to the OTCQB Standards to conform to the SEC’s recent amendments. The OTC Markets proposed rules are scheduled to become effective July 10, 2015.
Eligibility – Regulation A Offerings
The use of Regulation A+ is limited to companies organized in and with their principal place of business in the United States or Canada. Regulation A is not be available to companies that: Read More
The SEC’s Pay Versus Performance Proposals
The proposals require SEC reporting companies to disclose the relationship between compensation “actually paid” to their named executive officers and the company’s financial performance, measured as total shareholder return (TSR). The proposed disclosure would consist of a table reflecting compensation and TSR amounts including a discussion of the relationship between performance and the amounts paid to executive officers. Pay versus Performance Proposals.
Disclosure Table – Executive Compensation Amounts
The disclosure table would include:
- the applicable year for which the information is presented,
- the total compensation paid to the company’s principal executive officers as presented in the summary compensation table,
- the compensation actually paid to the principal executive officers,
- the average total compensation to the company’s other named executive officers as set forth in the summary compensation table,
- the average total compensation actually paid to the other named executive officers,
- the company’s TSR, and
- for other than smaller reporting companies, the issuer must provide peer group TSR.
Who Can Conduct A Regulation A+ Offering? Going Public
On March 25, 2015, the Securities and Exchange Commission (“SEC”) adopted amendments to Regulation A known as Regulation A+. Regulation A+ was adopted to facilitate capital-raising by smaller companies. Regulation A+ offerings cannot be undertaken by all companies or used to offer and sell all types of securities. This blog post addresses eligibility requirements of Regulation A+ offerings.
Securities Eligible For Regulation A+ Offerings
Only equity securities, including warrants, options, debt securities and debt securities convertible into or exchangeable for equity interests, can be offered and sold in Regulation A+ offerings. Read More
Raising Capital: Equity Offerings v. Debt Offerings
Both private and public companies seeking to raise capital by selling securities, do so by offering either debt or equity securities to investors. Companies can also offer a combination of debt and equity through the sale of units comprised of common stock and a convertible note.
What is an Equity Offering?
A company selling equity is most often accomplished through the sale of common stock or membership interest for a limited liability company. In return for the investment, the investor receives a form of equity ownership of the Company typically represented by shares of stock. Read More
States Challenge Regulation A+ – Securities Offerings
The recent amendments to Regulation A (often called Regulation A+) provide a manageable exemption for raising capital. The exemption can be used by both private and non-reporting trading companies such as OTC Pink listed issuers. Regulation A provides two tiers of securities offerings, with the filing obligations determined by the size of the offering. For offerings up to $20 million, “Tier 1” allows companies to raise capital without audited financials. Tier 2 offerings allow an issuer to raise up to $50 million and audited financial statements must be provided. Read More
Why Stay Private? The Assault On Small Business
For many, the American Dream is about having the opportunity to create and own a business. Small businesses, often described as the backbone of our economy, employ one out of two workers in the United States. Once established, small companies seeking to develop and expand their business often do so by going public. Unfortunately, there are few safeguards in place to protect mom-and-pop companies seeking access to the public markets. More often than not, small business owners are not familiar with the capital markets and the regulations that apply to capital raising activity and the going public process, making them easy prey for reverse merger purveyors given “licenses to swindle” at their expense. Read More
SEC Freezes Profits From Avon Stock Manipulation Scheme
On June 4, 2015, the Securities and Exchange Commission (SEC) announced an emergency asset freeze of two U.S. brokerage accounts connected to schemes to manipulate the securities of Avon and other stocks, thwarting any ability for fraudsters to cash in on ill-gotten proceeds. According to the SEC complaint, it tracked a filing made on its EDGAR system about a false Avon tender offer to a foreign entity using an IP address located in Sofia, Bulgaria.
According to the SEC charges, a Bulgarian trader named Nedko Nedev controlled at least one of the two now-frozen brokerage accounts, and his account held a substantial position in Avon contracts-for-difference (CFDs) that had lost value in recent months. The SEC charges allege that Nedko Nedev generated approximately $5,000 in excess profits by selling almost half of the account’s Avon CFDs at inflated prices after the EDGAR filing led to a 20-percent increase in the value of Avon stock on May 14. Read More
What is a Reverse Stock Split? Securities Lawyer 101
Reverse stock splits are often used by public companies to reduce the amount of securities outstanding. A reverse stock split can also be used by private companies in corporate restructurings. Typically in a reverse split, a company reduces the number of its outstanding shares in proportion to the ratio of the reverse stock split so that each stockholder the same percentage of the company’s outstanding shares immediately prior to and after the reverse split. If approved and effected, the reverse stock split will be realized simultaneously and in the same ratio for all of the company’s common stock. The reverse stock split will affect all holders of the company’s common stock uniformly and will not affect any stockholder’s percentage ownership interest in the company. Unfortunately, there is typically no limit on the amount of shares a company may issue after a reverse split which would dilute investors. The reverse split reduces the shares outstanding thereby facilitating the issuer’s ability to issue more shares. Immediately upon a reverse split becoming effective, issuers often commence issuing new shares and diluting investors. Shares of issuers enacting reverse splits rarely hold the stock price seen upon effectiveness of the split.
BrokerCheck Announces PR Campaign
On June 1, 2015, the Financial Industry Regulatory Authority (FINRA) announced that it had launched a campaign promoting BrokerCheck (brokercheck.finra.org). BrokerCheck allows investors to access information about a broker’s employment history, certifications and licenses, as well as regulatory actions, violations or complaints made against them. BrokerCheck does not include information about all brokers registered with FINRA. Additionally, some fraudster brokers have discovered they can avoid disclosure of negative information on BrokerCheck simply by changing their name. Read More
SEC Charges Four With Insider Trading Ahead of Secondary Offerings
On June 3, 2015, the Securities and Exchange Commission announced insider trading charges against four individuals stealing confidential information from investment banks and their public company clients in order to trade in advance of secondary stock offerings. The scheme allegedly involved at least 15 stocks and generated more than $4.4 million in illegal trading profits.
The SEC charges allege that a former day trader living in California, Steven Fishoff, schemed with two friends and his brother-in-law to pose as legitimate portfolio managers and induce investment bankers to bring them “over the wall” and share confidential information about an upcoming secondary offering. After promising they wouldn’t disclose the nonpublic information to others or trade an issuer’s stock before an offering was announced, they violated the agreements and tipped each other about the upcoming offerings expected to inherently depress the price of the issuer’s stock. Read More
Retired Teachers Scammed In Ponzi Scheme
On June 1, 2014, the Securities and Exchange Commission (SEC) announced it had brought charges in a Ponzi Scheme. According to the SEC Charges, the scheme was orchestrated by an investment adviser who took siphoned money from his investment fund and defrauded investors, including several local teachers and law enforcement officers. The SEC complaint alleges that Phil Donnahue Williamson conducted a Ponzi scheme with money he raised for the Sterling Investment Fund, which purportedly invested in mortgages and properties in Florida and Georgia. Read More
Boiler Rooms Booming In 2015
Over the past few weeks, we have had multiple requests from investors to review information they received after calls from boiler room sales persons. No doubt the increase in phone rooms has resulted from Rule 506(c) which allows generals solicitation of unregistered offerings if certain conditions are met, including that the issuer verify that all purchasers are “accredited investors”. Everyone who’s seen the movie “Boiler Room” is familiar with how these operations work; for once, the film makers had no need to exaggerate. Real-life boiler rooms are run by unscrupulous con artists who hire cold callers to sell stocks and other securities to their naïve and unwary victims, using extremely high-pressure sales tactics. Because of the large number of retirees in South Florida, its investors are prime targets for boiler room solicitations.
The classic boiler room is run by a broker-dealer that claims to be independent, specializing in stocks chosen by their “analysts,” who, they say, have conducted extensive due diligence on the issues. In reality, the boiler room usually colludes with company management and/or insiders. Often they own large blocks of stock obtained at very low prices; sometimes they paid nothing at all. They will sell into their own promotion. Read More
Securities And Exchange Commission Announces Agenda
On May 28, 2014, the Securities and Exchange Commission released the agenda for its Advisory Committee on Small and Emerging Companies meeting which is scheduled for June 3. The SEC’s meeting will focus on public company disclosure effectiveness, intrastate crowdfunding, venture exchanges, and the treatment of “finders.” The SEC Advisory Committee also is expected to vote on a recommendation to the SEC with respect to the “Section 4(a)(1½) exemption,” which would allow shareholders to resell securities sold in private placements. The SEC meeting will be held at the SEC’s headquarters, and is open to the general public.
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 and compliance 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
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com
Receiver Appointed in North Dakota Developments Ponzi Scheme
We’ve so far written twice about North Dakota Developments (“NDD”), a real estate Ponzi scheme operated by Daniel J. Hogan and Robert L. Gavin. In the course of the scam, Gavin and Hogan, who are United Kingdom citizens, relieved investors of more than $62 million. The pair persuaded their victims, many of them elderly and vulnerable, to purchase interests in “units” at what are called “man camps”–workers’ housing—in properties to be built in the Bakken oil fields of North Dakota and Montana.
The interests purchased were not actual real estate, but securities. The Securities and Exchange Commission (“SEC”) therefore had jurisdiction of them and of NDD and its managers Gavin and Hogan. On May 5, 2015, it acted, obtaining a temporary restraining order against the company and the perpetrators. Judge Daniel Hovland also ordered an asset freeze of the defendants’ bank accounts and those of other companies they controlled. Read More
Douglas Parigian Pleads Guilty in Amateur Golfers Scheme
On May 13, 2015, the Securities and Exchange Commission (SEC”) announced that Douglas Parigian pled guilty to criminal charges of conspiracy and securities fraud for his role in an insider trading ring involving trading in the stock of American Superconductor Corporation. The criminal charges against Parigian arose out of the same fraudulent conduct alleged in an SEC action for securities fraud filed against Parigian and others in July 2014.
On July 9, 2014, the U.S. Attorney’s Office for the District of Massachusetts indicted Parigian and another defendant, Eric McPhail, for conspiracy and securities fraud and, for Parigian only, lying to FBI agents. The U.S. Attorney charged that McPhail had a history, pattern and practice of sharing confidences with a senior executive at American Superconductor. Between 2009 and 2011, the senior executive provided McPhail with material, nonpublic information concerning the company’s quarterly earnings and other business activities (the “Inside Information”) with the understanding that it would be kept confidential. Read More
EDGAR Prepares For Regulation A+ – Going Public Attorneys
The SEC’s EDGAR system is being updated to prepare for Regulation A+. On April 23, 2015, the SEC adopted changes to Volume I and Volume II of the EDGAR Filer Manual. Revisions include:
- The revisions to the SEC’s EDGAR filer manual reflect recent amendments to Regulation A to accept Regulation A forms including DOS, DOSLTR, 1-A, 1-A/A, 1-A POS, 1-A-W, 1-A-W/A, 253G1, 253G2, 253G3, 253G4, 1-K, 1-K/A, 1-SA, 1-U, 1-U/A, 1-Z, 1-Z/A, 1-Z-W and 1-Z-W/A.
- Additionally, an issuer filing on EDGAR for the first time in a going public transaction can select a “Regulation A” offering option on their Form ID to reflect it is submitting the Form ID application for EDGAR access to file Regulation A draft offering statements. Forms submitted pursuant to Regulation A can be accessed at a “File Regulation A Forms” tab.
- Issuers filing draft offering statements under Regulation A+ must prepare and submit their draft offering statements using EDGAR form types DOS and DOS/A, and must use the submission type Draft Offering Statement Letter (DOSLTR) to submit correspondence related to their draft offering statements.
- Issuers which file confidential draft Regulation A offering statements can publicly file previously submitted drafts by selecting the “Disseminate Draft Offering Statement” tab on the “File Regulation A Forms” page of the EDGAR website.
