Short Selling: What It Is, and What It Isn’t
Short selling, the practice of betting a stock will go down, not up, has been controversial since it was invented more than 400 years ago in the Netherlands. In the early 1600s, there was only one stock in Holland, or anywhere else. It was the Dutch East India Company, or VOC (Verenigde Oostindische Compagnie). Formed on March 20, 1602, it enjoyed a 21-year monopoly on trading in Asia granted by the Dutch government. Shares in the company could be purchased by any resident of the Netherlands, and then bought and sold in outdoor secondary markets. The company was extremely powerful, possessing quasi-governmental powers, but successful trading depended on many things: well-built ships, competent captains and efficient crews, good weather, peaceful trading partners, and so on. Insurance existed at the time and offered protection, but a few real disasters could cause the VOC’s stock price to plummet.
Short selling was invented by Isaac le Maire. He’d been one of the founders of the VOC in 1602 and served as a director for three years. In 1605, he was sacked amid accusations of fraud and embezzlement. He wasn’t imprisoned but was forced to sign a non-compete agreement, pledging not to become involved with companies of any nationality that traded beyond the Cape of Good Hope or the Strait of Magellan. He was cut off from involvement in the Asia trade, the business he loved and knew best. Read More
SEC Charges Dozy Mmobuosi, Tingo Group Inc, AgriFintech Holdings Inc. (f/k/a Tingo Inc.), and Tingo International Holdings Inc with Running a Massive Fraud
On December 18, 2023, the Securities and Exchange Commission (the “SEC“) announced charges against Mmobuosi Odogwu Banye, a/k/a Dozy Mmobuosi, and three affiliated U.S.-based entities of which he is the CEO– Nasdaq-listed Tingo Group Inc., OTC-traded Agri-Fintech Holdings Inc. (fka Tingo Inc.), and Tingo International Holdings Inc.–in connection with an alleged multi-year scheme to inflate the financial performance metrics of these companies and key operating subsidiaries to defraud investors worldwide. The SEC is seeking emergency relief to prevent the defendants’ continued dissemination of materially false information to investors and to protect corporate and investor assets.
The SEC’s complaint, filed on December 18, 2023, alleges that, since at least 2019, Mmobuosi spearheaded a scheme to fabricate financial statements and other documents of the three entities and their Nigerian operating subsidiaries, Tingo Mobile Limited and Tingo Foods PLC. The complaint further alleges that Mmobuosi made and caused the entities to make material misrepresentations about their business operations and financial success in press releases, periodic SEC filings, and other public statements. For instance, Tingo Group’s fiscal year 2022 Form 10-K filed in March 2023 reported a cash and cash equivalent balance of $461.7 million in its subsidiary Tingo Mobile’s Nigerian bank accounts.
In reality, those same bank accounts allegedly had a combined balance of less than $50 as of the end of fiscal year 2022. According to the SEC’s complaint, the defendants also fabricated the customer relationships that formed the basis of their purported businesses. The complaint alleges that Mmobuosi and the entities he controls have fraudulently obtained hundreds of millions in money or property through these schemes and that Mmobuosi has siphoned off funds for his personal benefit, including purchases of luxury cars and travel on private jets, as well as an unsuccessful attempt to acquire an English Football Club Premier League team, among other things. Read More
New SEC Exemption from Registration for M&A Brokers
M&A BROKERS EXEMPTION
In December of 2022, President Biden signed the Consolidated Appropriations Act of 2023 into law. The new law includes a “policy rider” for certain mergers and acquisitions brokers (M&A brokers) in Division AA, Title V, Small Business Mergers, Acquisitions, Sales and Brokerage Simplification.
As a result, M&A brokers have the benefit of a federal exemption from SEC registration as a securities broker so long as a shell company is not involved in the transaction. The M&A exemption became effective in March of 2023. Read More
Raymond Pirrello, Jr, Founder and Executive of Prior2IPO and Late Stage, Charged in Investment Fraud
On December 6, 2023, a three-count indictment was unsealed in federal court in Brooklyn charging Raymond John Pirrello, Jr., also known as “Ray John,” with securities fraud conspiracy, wire fraud conspiracy and securities fraud relating to a scheme to defraud investors and prospective investors in securities offered by Late Stage Management, LLC through several sales offices, including Prior2IPO which he controlled.
The Indictment accuses Pirrello Jr, together with others, of engaging in a scheme to defraud investors and prospective investors in securities offered by Late Stage, between March 2016 and March 2023, through material misrepresentations and omissions related to, among other things, the existence and amount of fees paid by investors in stock offered by Late Stage and the methodology of setting prices for shares of stock offered by Late Stage. Read More
Swiss Private Bank, Banque Pictet, Admits To Conspiring With U.S. Taxpayers To Hide Assets And Income In Offshore Accounts And Agrees to Pay More Than $122.9 Million
On December 4, 2023, Swiss private bank Banque Pictet et Cie SA admitted to conspiring with U.S. taxpayers and others to hide more than $5.6 billion in 1,637 secret bank accounts in Switzerland and elsewhere and to conceal the income generated in those accounts from the IRS.
As part of the resolution, Banque Pictet entered into a deferred prosecution agreement and agreed to pay approximately $122.9 million to the U.S. Treasury. The case has been assigned to U.S. District Judge Edgardo Ramos for the Southern District of New York. Read More
Why are Microcaps Trading on the NASDAQ and NYSE Exchanges?
In the past three years, some important changes have occurred to how “penny stocks” or “microcaps” trade and are regulated. By the early 2000s, they’d moved from the obscurity of the National Quotation Bureau’s Pink Sheets to a new trading platform, Cromwell Coulson’s Pink Link.
The accompanying website, initially called Pink Sheets, made quotations much easier for interested traders to access and, as time passed, also offered the kind of detailed information about many non-reporting issuers that had never been available in the past. The Pink Sheets also published quotes and SEC filings for the so-called “OTCBB” issuers that did report to the regulator. Pink Sheets’ efforts were so successful that little more than a decade later, the OTCBB, which had been operated by the Financial Industry Regulatory Authority, went out of business.
As the second decade of the new century began, Pink Sheets had been renamed “OTC Markets Group,” and “Pink Link” was called “OTC Link.” Coulson’s business had grown and was by then a public company itself, trading in its own marketplace. Penny stocks were enormously popular with the increasingly large number of people who managed their investments on the Internet, and online brokerages like E*TRADE, TD Ameritrade, and Fidelity commanded a growing share of the securities markets. Read More
LG Capital Funding Loses Motion to Dismiss
On November 13, 2023, United States District Judge William F. Kuntz, II, of the United States District Court of the Eastern District of New York made his decision in LG Capital Funding LLC’s Motion to Dismiss the Securities & Exchange Commission’s complaint against LG Capital.
On June 7, 2022, the SEC filed a complaint against Defendants LG Capital and John Lerman (50% owner and managing partner), as well as against Daniel Gellman (25% owner and managing partner), Boruch Greenberg (25% owner and managing partner), and Eli Safdieh for alleged violations of Section 15(a)(1) of the Exchange Act of 1934, 15 U.S.C. § 78o(a)(1) (the “Exchange Act” or the “Act”).
The Complaint generally alleges the defendants acted as securities dealers, engaged in the business of buying and selling large volumes of penny stocks for their own account, without being registered with the SEC and without Lerman, LG Capital’s control person, associating with an SEC-registered dealer. Read More
Overview of Regulation D, Rule 506(b), Rule 506(c) and other Capital-Raising Exemptions
Each offer and sale of a security must be (a) registered with the Securities and Exchange Commission (SEC); or (b) subject to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”). The offer and sale of securities are complicated. Both private and publicly traded companies raise money by registering their shares on Form S-1 or other registration statement under the Securities Act. The Securities Act also provides exemptions from these registration requirements. The exemptions provide efficient methods for companies seeking capital. Often exemptions assist issuers in establishing a shareholder base in connection with a going public transaction.
The SEC offers several options for companies to raise capital by offering and selling securities without registration, known as an exempt offering. The following chart (provided by the SEC and available here) summarizes the key metrics for the exemptions from registration that are most frequently used. Read More
Current Reports on Form 8-K – What Are SEC Disclosures and Reporting Requirements?
Under applicable SEC rules for periodic reporting, an SEC reporting issuer must generally report certain current events on Form 8-K within four business days after a triggering event has occurred. Current Reports on Form 8-K provide investors with information to enable them to make informed investment decisions. Form 8-K SEC Disclosure and Requirements include that the issuer provide “material” information. This means that there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision.
The table below lists the line item disclosures required in Form 8-K and certain events that trigger each separate disclosure item. Read More
The Evolving SEC Actions Against Toxic Lenders
Convertible Financing
For decades, microcap issuers on the OTC Markets in need of financing have largely been forced to turn to what are known as “toxic funders” or “toxic lenders.” The money they offer comes with a hefty price tag. It’s paid in exchange for convertible securities that are almost invariably market-adjustable. That means the toxic funder will purchase from the issuer a specific number of instruments—promissory notes, warrants, or preferred stock—that will, after the shares have been registered with the SEC or the holding period required by Rule 144 has expired, be converted into common stock and sold into the market. Theoretically, holding the shares creates risk for the funder because the price of the issuer’s common shares could decline dramatically while the funder waits to sell.
But in reality, the lender runs almost no risk because the conversion price of the lender’s securities isn’t at a fixed price from the outset. Instead, it’s market adjustable, which means it will be determined based on the stock’s price (often its bid price) a few days before the conversion is to take place. Usually, the toxic lender will convert and sell in tranches on an ongoing basis. That is done for two principal reasons: (1) to increase the toxic lender’s profit and (2) to make it possible for the lender to avoid being considered an affiliate or control person.
The toxic lender accomplishes the latter through an “equity blocker” clause in its contract with the issuer. They limit the amount of common stock—but not convertible securities—the toxic lender may own at any one time to no more than 9.99 percent (or sometimes 4.99 percent) of the issuer’s shares outstanding shares. So, the toxic lender is free to convert and sell successive tranches on an ongoing basis within a short period of time, if he wishes.
The toxic funder’s sales will be dilutive and will likely drive down the stock price. If that happens, thanks to the market adjustable feature of the convertibles, the toxic funder will receive stock at a lower price and even more stock the next time the toxic funder converts, and even more thereafter.
If more than one toxic funder is involved, the dilution may become catastrophic within a fairly short time. Those additional toxic funders may have anti-dilution clauses in their own contracts, which will worsen the situation for the issuer. Eventually, the company may be forced to consider a stock reverse split. Read More
SEC Provides Rule 15c2-11 Relief to Broker-Dealers for Fixed Income Securities
SEC Provides Rule 15c2-11 Relief to Broker-Dealers
Securities and Exchange Commission (“SEC”) Rule 15c2-11 prohibits broker-dealers from publishing or submitting securities of private issuers on the OTC Markets, unless the issuer has publicly filed current financial and other information.
On October 30, 2023, the SEC issued an order providing broker-dealers with an exemption from certain requirements of SEC Rule 15c2-11 of the Securities Exchange Act of 1934 (the “Rule 15c2-11 Exemption”). The SEC Rule 15c2-11 Exemption applies to fixed-income securities that are in compliance with the requirements of the safe harbor provided by Rule 144A. The SEC order for the Rule 15c2-11 Exemption excludes broker-dealers from the requirement that they provide certain public disclosures prior to submitting or maintaining quotations on such securities in the OTC Markets.
SEC Adopts new Rule 10c-1a to Increase Transparency in the Securities Lending Market
On October 13, 2023, the Securities and Exchange Commission (the “SEC“) adopted new Rule 10c-1a, which will require certain persons to report information about securities loans to a registered national securities association (RNSA) and require RNSAs to make publicly available certain information that they receive regarding those lending transactions. The rule is intended to increase the transparency and efficiency of the securities lending market.
Rule 10c-1a will require certain confidential information to be reported to an RNSA to enhance the RNSA’s oversight and enforcement functions. Further, the new rule requires that an RNSA make certain information it receives, along with daily information pertaining to the aggregate transaction activity and distribution of loan rates for each reportable security, available to the public. The Financial Industry Regulatory Authority (FINRA) is currently the only RNSA. Read More
SEC Adopts Amendments to Rules Governing Beneficial Ownership Reporting
On October 10, 2023, the Securities and Exchange Commission adopted rule amendments governing beneficial ownership reporting under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934. The amendments update Regulation 13D-G to require market participants to provide more timely information on their positions to meet the needs of investors in today’s financial markets.
The update to the rules that first went into effect more than 50 years ago tightens the time investors have to disclose 5% ownership stakes in companies they intend to control, shortening the allowed window from 10 calendar days to five business days. Read More
Form S-1 Registration Statements Going Public NASDAQ NYSE and OTC Markets
What is a Form S-1 Registration Statement?
A Form S-1 Registration Statement is the most commonly used registration statement form for the offer and sale of securities under the Securities Act of 1933, as amended (the “Securities Act”) with the Securities and Exchange Commission (“SEC”). Form S-1 is available here. In addition to the form, companies should consider the General Instructions to Form S-1, Regulation S-K, Regulation S-X and Regulation C when using the form.
Which Companies Qualify to File Form S-1 Registration Statements?
All issuers qualify to use a Form S-1 Registration Statement to register the offer and sale of securities. Form S-1 may be used by a U.S. issuer seeking to register an initial public offering (“IPO”), direct public offering (“DPO”), or the resale of shares held by existing selling shareholders. Companies listed or seeking to list on the NASDAQ Stock Exchange, New York Stock Exchange or those quoted or seeking quotation on the OTC Markets may all register securities on Form S-1. Read More
SEC Charges Stock Squirrel and John Feloni in $1.6 Million Securities Fraud
On September 29, 2023, the SEC charged Massachusetts-based company Stock Squirrel, Inc. and John Feloni, its president and CEO, with defrauding investors of approximately $1.6 million in an unregistered securities offering. According to the SEC’s complaint Feloni and Stock Squirrel deceived approximately 180 retail investors into investing approximately $2.5 million into Stock Squirrel. The SEC complaint alleges that Feloni and Stock Squirrel falsely claimed they would use investors’ money for Stock Squirrel’s business, principally by developing a smartphone application offering financial services to the fast-growing youth sector, and that Feloni would not take a salary from Stock Squirrel. Instead, according to the complaint, Feloni misappropriated approximately $1.6 million of investor funds—66% of the total amount raised from investors—for his own use. Read More
SEC Charges Adam R. Long, L2 Capital, LLC and Oasis Capital LLC, as Unregistered Dealers
On September 28, 2023, the Securities and Exchange Commission (the “SEC“) filed charges against Adam R. Long of Dorado, Puerto Rico, and two companies Long owns and controls for acquiring and selling nearly 6 billion shares of microcap stock without registering as a securities dealer with the SEC.
The SEC’s complaint alleges that from at least November 2018 to August 2021, Long and his companies, L2 Capital LLC, and Oasis Capital LLC, purchased at least 20 convertible notes from at least 15 penny stock or microcap issuers, converting those notes into shares of stock at a large discount from the market price, and selling the newly issued shares into the market at a significant profit.
The SEC alleges that Long and his companies obtained at least $20 million in profits after they sold nearly six billion newly issued shares into the market. The complaint also alleges that at the time of the conduct, the defendants were not registered with the SEC as dealers, in violation of the mandatory registration provisions of the federal securities laws. The SEC further alleges that by failing to register, the defendants avoided certain regulatory obligations for dealers that govern their conduct in the marketplace, including regulatory oversight, financial reporting requirements, and maintaining required books and records. Read More
SEC Charges Philip Verges, James D. Tilton, Jr., Robert F. Malin and Linda Malin
On September 26, 2023, the Securities and Exchange Commission (the “SEC“) filed charges against Texas resident Philip Verges (“Verges”), James D. Tilton, Jr. (“Tilton”), Robert F. Malin, Linda Malin, Esq., and Blue Citi, LLC (“Blue Citi”) for their roles in an alleged scheme to pump-and-dump more than $112 million of stock in five penny stock companies, Alternet Systems, Inc. (“ALYI”), Priority Aviation, Inc. (“PJET”), Puration, Inc. (“PURA”), Vaycaychella, Inc. (“VAYK”), and WaterPure International, Inc. (“WPUR”) (collectively, the “PSCs”). The SEC also named four relief defendants, including three companies owned and controlled by Verges (SMEA2Z, LLC, 143 Partners LLC, and West Cucharras, LLC) and one entity owned and controlled by Tilton (JDT Trading, LLC).
The SEC’s complaint alleges that, between at least June 2017 and June 2022, Verges orchestrated the scheme so that Blue Citi, JDT Trading LLC (“JDT”), and other accomplices that Verges nominated (collectively with Blue Citi, Tilton, and JDT, the “Nominees”) received at least 5.2 billion shares of stock in the PSCs, with an aggregate conversion price of approximately $15 million. These shares had an aggregate market value of over $112 million at the time of issuance, representing a significant discount (86.64%) below the market price. Read More
SEC Charges Wilson J. Rondini, III and two companies Rondini controls for Operating as Unregistered Broker-Dealers
On September 18, 2023, the Securities and Exchange Commission (the “SEC“) announced charges against Florida resident Wilson J. Rondini, III and two companies Rondini controls, Falcon Capital LLP and Falcon Capital Partners Limited, alleging that all three operated as broker-dealers who were required to register as such with the Commission but failed to do so.
According to the SEC’s complaint, filed in the United States District Court for the Southern District of Florida, Rondini, Falcon Capital LLP, and Falcon Capital Partners Limited acted as brokers and dealers, engaged in the business of both effecting transactions in securities for the accounts of others and buying and selling securities for their own accounts. Read More
OTC Markets OTC Pink Common Disclosure Issues
In 2021, OTC Markets Group provided guidance about public disclosures that companies are required to provide to reach the current information tier on the OTC MARKETS OTC Pink. Today, that information is just as relevant as ever.
OTC Markets Group requires public disclosure from the officers and directors of public companies on the OTC Pink so that investors can have the opportunity to analyze company disclosures, check other information sources, and do their own due diligence in researching companies and the people involved before making any investment. Below is an overview, as provided by OTC Markets Group, of the procedures and some of the common reasons why reports published on the OTC Markets platform do not qualify a company to move up to the OTC Pink Limited or OTC Pink Current Information tiers – even when a company has filed a recent financial report. Read More
SEC Enforcement Issues Wells Notices for Meta Materials Execs
As summer peaked at the end of July, Meta Materials (MMAT) popped back into the news. What had happened? The company filed a Form 8-K explaining that MMAT, its CEO George Palikaras. and John Brda, the former CEO of Torchlight Energy Resources, the company with which Meta had merged in order to list quickly on the Nasdaq Stock Market, had received Wells notices from the Securities and Exchange Commission.
Wells notices are not good news. The SEC explains them as part of what it calls the “Wells process”:
A Wells notice is a communication from the staff to a person involved in an investigation that: (1) informs the person the staff has made a preliminary determination to recommend that the Commission file an action or institute a proceeding against them; (2) identifies the securities law violations that the staff has preliminarily determined to include in the recommendation; and (3) provides notice that the person may make a submission to the Division and the Commission concerning the proposed recommendation. Read More
SEC Charges Digital World Acquisition Corporation SPAC for Material Misrepresentations to Investors
On Thursday, July 20, 2023, the Securities and Exchange Commission (the “SEC“) announced settled fraud charges against Digital World Acquisition Corporation (DWAC), a special purpose acquisition company (SPAC), for making material misrepresentations in forms filed with the SEC as part of DWAC’s initial public offering and proposed merger with Trump Media & Technology Group Corp. (TMTG). The Commission finds that DWAC misled investors and the SEC by failing to disclose that it had formulated a plan to acquire and was pursuing the acquisition of TMTG prior to DWAC’s IPO.
The purpose of a SPAC is to identify and acquire an operating business. As such, steps taken by a SPAC in furtherance of a particular acquisition are important to investors. According to the SEC’s order, DWAC filed an amended Form S-1 in support of its IPO in early September 2021 that stated that neither DWAC nor its officers and directors had had any discussions with any potential target companies prior to the IPO. But, as found in the SEC’s order, dating back to February 2021, an individual who would later become DWAC’s CEO and Board Chairman, and others involved with DWAC, had extensive SPAC merger discussions with TMTG. Read More
SEC Charges James P. Anglim in Connection with Fraudulent Scheme to Manipulate Stock Prices
On Monday, July 17, 2023, the Securities and Exchange Commission (the “SEC”) charged New Jersey resident and former broker-dealer registered representative, James P. Anglim, for engaging in multiple deceptive and manipulative schemes to assist various people who controlled large blocks of public company stock (“Control Persons”) to sell that stock to investors in companies traded on the over-the-counter (or “OTC”) markets while concealing that they were behind those sales.
According to the SEC complaint, from November 2016 to February 2022, while Anglim was employed as a registered representative of two different United States-based brokerage firms that engaged in “market making” activities, Anglim abused his position as a trader to facilitate the illegal sale of stock into the public markets by several Control Persons in at least five different public companies.
FINRA broker records show that from 2016 – 2019, Anglim worked for Spartan Securities Group Ltd., and from 2019 – 2022, Anglim worked for Paulson Investment Company LLC.
According to the SEC, Anglim’s conduct helped the Control Persons to dump large quantities of stock into the public markets while concealing that they were the source of all of those sales, thus avoiding disclosure requirements imposed by the federal securities laws. Read More
Former SEC Attorney and Recidivist Securities Violator Phillip W. Offill Sentenced to Prison Again
On July 12, 2023, former securities attorney Phillip W. Offill was sentenced today to six years in prison and ordered to pay $1.385 million in restitution to victims for his role in a conspiracy to defraud over 1,000 investors in a penny-stock scheme.
According to court filings, from at least November 2016 through October 2018, Phillip W. Offill, 64, of Dallas, and others conspired to misappropriate millions of shares of a publicly traded company, Mansfield-Martin Exploration Mining Inc (MCPI), using aliases and fake paperwork.
The co-conspirators then fraudulently marketed MCPI shares to the public through call centers that made materially false statements to potential investors, including false claims that efforts were underway to list the stock on a national exchange.
Employees at call centers also omitted material information, including the fact that the co-conspirators were paying large commissions to the callers to peddle the stock to victim investors. Offill and his co-conspirators also pumped up demand by manipulating the market so that MCPI stock appeared to be trading more actively than it actually was, and by causing the publication of false press releases regarding millions of dollars in funding that the co-conspirators knew would never come.
As a result of the scheme, victim investors lost over $1.3 million. Read More
SEC Arrives Too Late; Ponzi Scheme Polka Ends in Murder-Suicide
On February 1, 2023, three Minnesota men met in a parking lot in Bloomington, about 10 miles from Minneapolis, to discuss business. Richard B. Myre, 44, arrived first, in his black Ford F-150. He pulled into the lot for France Place, an office building, at around 4:15 p.m. He parked and waited for his partners, father and son Dale and Dominick Dahmen, aged 55 and 25. They turned up shortly after, in a minivan, and joined Myre in his truck, Dale in the front passenger seat and Dominick in the back.
Surveillance video of the scene shows that the three men spent the next 90 minutes talking, when there was a sudden “commotion” in the truck, according to the authorities. Myre pulled a handgun and shot the elder Dahmen twice in the head. Dominick put up a fight, but Myre shot him seven times, and then, perhaps horrified by what he’d done, shot himself. By the time the police arrived, all three men were dead. Ten shots had been fired, and 10 shell casings were found in the truck, along with Myre’s gun. The Dahmens had been unarmed. Clearly, there’d been no mystery assailant. Read More
Crypto Community Takes Aim at SEC Chair Gary Gensler
As this year’s long Fourth of July holiday began, surprising “news” about Gary Gensler, chairman of the Securities and Exchange Commission, spread across social media. Its source was a blog called CryptoAlert. The headline was an attention grabber: “SEC Sources Confirm Gary Gensler Resignation.” No such move had been announced, or even hinted at, by Gensler or the regulatory agency itself. Read More
Hester Peirce Asks: Are SEC Penny Stock Bars Fair?
On June 21, 2023, the SEC announced the resolution of four administrative proceedings that had been filed against unregistered broker-dealers and associates of unregistered broker-dealers in 2019. All four respondents had defaulted on the Orders Instituting Proceedings served on them. For the offenses they failed to defend, they were permanently enjoined from violating the registration provisions of the federal securities laws. The SEC also found it in the public interest to bar them from “association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization [… and] from participating in any offering of a penny stock, including acting as a promoter, finder, consultant, agent, or other person who engages in activities with a broker, dealer, or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.”
Only one of the five Commissioners had a problem with these unremarkable adjudications particularly the penny stock bar. Hester Peirce, often controversial and always clever, immediately produced a statement titled “Perpetual Personal Penny Stock Prohibitions: Statement on the Recent Orders Imposing Penny Bars in the Public Interest”. What was the difficulty? Peirce explained: “I do not agree that the records in these matters establish that imposing a complete and permanent penny stock bar on each respondent is in the public interest, I dissented from the imposition of the bars.” Her reasons are more complicated than one might expect. Read More
FINRA Presents the Warning Signs of a Ramp and Dump Scheme
Just about everybody knows what a “pump-and-dump” scheme is. It’s a type of price manipulation where bad actors use falsified, heavily promoted news, financial statements or other marketing communications to increase volume and manipulate the market price of a stock while simultaneously selling their cheap stock into the market.
In a “ramp-and-dump” scheme, which is a new twist on the classic pump-and-dump scheme, the price manipulation is primarily the result of controlled trading activity conducted by the bad actors behind the scam. Ultimately, the outcome for unsuspecting investors is the same—a catastrophic collapse in share price that leaves investors with unrecoverable losses.
According to the Financial Industry Regulatory Authority (“FINRA”), there have been notable significant, unusual price increases on the day of or shortly after the IPOs of certain small-cap issuers, most of which involve issuers with operations outside the U.S. Regulators suspect some of these IPOs might have been manipulated in a ramp-and-dump scheme. Read More
SEC Charges Convertible Note Dealer, BHP Capital NY Inc, and Its Owner, Bryan Pantofel, for Failure to Register
On Thursday, June 16, 2023, the Securities and Exchange Commission (the “SEC”) announced settled charges against a convertible note dealer, BHP Capital NY, Inc., and its managing member, Bryan Pantofel, for failing to register with the SEC as securities dealers.
As part of the settlement, Pantofel and BHP Capital agreed to pay more than $2.5 million in monetary relief and have BHP Capital surrender for cancellation the securities it allegedly obtained from its unregistered dealer activity.
The SEC’s complaint, filed in the U.S. District Court for the Southern District of Florida, alleges that, between December 2017 and mid-2022, BHP Capital purchased more than 100 convertible notes and associated warrants from 47 microcap issuers, and converted the notes into approximately four billion newly issued shares of stock at a large discount from the market price. It then allegedly sold the newly issued shares into the market at a significant profit.
As alleged, neither BHP Capital nor Pantofel was registered as a dealer with the SEC or associated with a registered dealer, as their activities required them to be. Read More
SEC Charges Auctus Fund Management LLC and Its Co-Owners, Louis Posner and Alfred Sollami, with Acting as Unregistered Securities Dealers
On June 1, 2023, the Securities and Exchange Commission (the “SEC”) announced charges against Auctus Fund Management, LLC (“Auctus Management”) and its co-owners Alfred Sollami of Brookline, Massachusetts and Louis Posner of Mansfield, Massachusetts, for failing to register as securities dealers with the SEC.
Auctus Management, Sollami, and Posner allegedly bought and sold billions of newly-issued shares of microcap securities through their fund Auctus Fund, LLC (“Auctus Fund”), generating millions of dollars in profit, without registering as dealers or associating with a registered dealer, as required by the federal securities laws.
The SEC’s complaint, filed in federal district court in Boston, Massachusetts, alleges that from 2013 through 2021, Auctus Management, Sollami, and Posner engaged in the business of purchasing convertible notes and associated warrants from microcap issuers, converting the notes into shares of stock at a large discount from the market price, and selling those newly issued shares into the market at a significant profit.
Auctus Management, Sollami, and Posner allegedly purchased through Auctus Fund notes from more than 150 separate issuers and sold more than 60 billion shares of newly issued stock into the market, generating gross stock sale profits of over $100 million between 2017 and 2021 alone. Read More
Form S-3 Registration For NASDAQ, NYSE and OTC Markets Public Companies
Registration Statements on Form S-3 is a short form registration statement under the Securities Act of 1933, as amended (the “Securities Act”), which may be used by NASDAQ, NYSE and OTC Markets public companies for follow-on offerings and public resales of a company’s securities by selling shareholders. Form S-3 is commonly used a year after the completion of their going public transaction.
Securities registration on Form S-3 is only available to issuers and offerings that meet certain eligibility requirements. For public companies who meet the requirements, Form S-3 registration statements provide a time and cost-effective method of registering public resales of a company’s securities by selling shareholders. Form S-3 shelf registration statements are automatically effective upon filing and are not subject to SEC review and comment, allowing an offering to commence immediately after the Form S-3 registration statement and prospectus supplement is filed with the SEC. Read More