On May 5, 2015, the Securities and Exchange Commission (“SEC”) obtained a temporary restraining order against North Dakota Developments, LLC (“NDD”), Robert L. Gavin and Daniel J. Hogan in connection with an elaborate real estate development Ponzi scheme that defrauded vulnerable investors of millions of dollars. In addition, Judge Daniel Hovland ordered a freeze order of the assets held by the defendants and a number of other companies controlled by them.
DTC’s eligibility creates liquidity for companies after a going public transaction. DTC’s Issue Eligibility program allows newly issued securities as well as secondary offerings that meet DTC’s eligibility criteria to become eligible for the depository and book-entry services of The Depository Trust Company (DTC). DTC eligibility means that a security is freely tradable and fungible and is otherwise qualified to be held at DTC and traded and serviced through DTC’s electronic book-entry system. DTC’s eligibility criteria are more fully described in DTC’s Operational Arrangements.
DTC’s Depository services over the lifecycle of the security may include deposits, withdrawals, and a wide range of corporate action events such as dividend and interest payments, tender and rights offers, and corporate reorganizations. Read More
On May 3, 2015, The Financial Industry Regulatory Authority (FINRA) announced it has fined Morgan Stanley & Co. $2 million for short sale and short interest reporting and rule violations that spanned a period of more than six years, and for failing to implement a supervisory system reasonably designed to detect and prevent such violations.
Thomas Gira, Executive Vice President, FINRA Market Regulation, said, “Short interest reporting continues to provide investors with important transparency into the level of short selling in a particular issue. Accordingly, it is imperative that this information be timely and accurately reported. Similarly, a fundamental requirement for compliance with the short sale rule is that firms properly track their short positions.” Read More
On May 15, 2015, the Securities and Exchange Commission (SEC) announced charges and an emergency asset freeze in an alleged advance fee scam involving bogus prime bank instruments. The SEC complaint was filed on May 11, 2015, in the U.S. District Court for the District of Maryland. Advance fee scams solicit investors to make upfront payments before purported deals can go through, and perpetrators fool investors with official-sounding terminology to add an air of legitimacy to the investment programs.
According to the SEC’s complaint, which the Court unsealed yesterday at the SEC’s request, Thomas G. Ellis and Yasuo Oda, through their company, North Star Finance LLC, and Michael K. Martin and Sharon L. Salinas, through their companies, Capital Source Lending LLC and Capital Source Funding LLC, have collected approximately $5 million from defrauded investors since at least January 2013. Read More
On May 14, 2015, the Securities and Exchange Commission (SEC) announced that, Steven Palladino pled guilty to 25 counts of criminal contempt charged by the United States Attorney’s Office for the District of Massachusetts based on his repeated violations of court orders obtained by the Commission in its civil action filed in 2013 against Palladino and his Massachusetts-based company, Viking Financial Group, Inc. (collectively, “Defendants”). The SEC action charged that Defendants were operating a fraudulent Ponzi scheme. The court in the SEC action entered orders with certain preliminary relief beginning in April 2013, including an asset freeze against Defendants. The U.S. Attorney alleged in April 2014 that Palladino knowingly and willfully disobeyed court orders in the Commission’s action that froze all of Defendants’ assets and required that Defendants deposit all funds in their possession into a court-ordered escrow account. Based on his guilty plea to these contempt charges, Palladino, who is currently serving a prison sentence based on convictions in state court for the same conduct alleged in the SEC charges in its case, could face additional incarceration. Read More
On May 11, 2015, the Securities and Exchange Commission (“SEC”) instituted administrative proceedings against two penny stock companies, Visual Acumen, Inc., and First Xeris Corp. (FXER). The purpose of the actions was to establish grounds for imposing stop orders that would suspend registration of the companies’ stock.
First Xeris had filed a Form S-1 registration statement on April 22, 2013 to register an offering of 3 million common shares for a total of $39,000. The registration statement was amended several times, and finally deemed effective on January 8, 2014. Visual Acumen filed its own Form S-1 registration statement on February 5, 2014 to register an offering of 3 million common shares for a total of $33,000. The registration statement was amended once, and became effective on May 9, 2014. Read More
The last step in a going public transaction is for the company to receive a stock trading or ticker symbol from the Financial Industry Regulatory Authority (“FINRA”). For a company to obtain its ticker symbol, a sponsoring market maker (“Sponsoring Market Maker”) must sponsor the company’s application and submit a Form 211 to FINRA on the issuer’s behalf. Sponsoring Markets Makers have become one of the most important participants in the going public process when direct public offerings are used because they are the only ones who can apply for a ticker symbol. Read More
Moving with unusual speed, the Financial Industry Regulatory Authority (FINRA) halted trading in Riviera Tool Company (RIVT) after the closing bell on May 7, 2015. The action was a U3 Extraordinary Event halt. In a U3, “trading is halted because FINRA has determined that an extraordinary event has occurred or is ongoing that has had a material effect on the market for the OTC Equity Security or the security underlying an OTC ADR or has caused or has the potential to cause major disruption to the marketplace or significant uncertainty in the settlement and clearance process.” The halt may remain in place for up to 10 days, and can be extended beyond that should FINRA find reason to do so.
The walls are closing in on former securities attorney John Briner. In the past two months, he’s been criminally charged in the Provincial Court of British Columbia, sued by the U.S. Commodity Futures Trading Commission (“CFTC”), and disciplined by the Law Society of British Columbia. Briner’s new problems follow on a series of enforcement actions brought against him by the Securities and Exchange Commission (“SEC”) in the United States.
John Briner’s troubles began in March 2006, when OTC Markets Group (then the Pink Sheets) added him to its Prohibited Attorney List. The ban appears to have had to do with Briner’s role in a penny stock scam involving a company called Golden Apple Oil and Gas, Inc. In September 2009, the SEC charged Golden Apple; Briner; Jay Budd, the company’s president; and Ethos Investments, Inc., a company controlled by Budd, with a number of securities violations. Much earlier, in April 2006, the agency had issued a trading suspension of Golden Apple’s stock. Read More
The Securities and Exchange Commission (“SEC”) has published releases relating to Shell Companies that affect the use of Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), by shareholders of Shell Companies. In addition, the rules limit registration of securities on Form S-8 of the Securities Act and affect disclosures required in Form 8-K under the Securities Exchange Act of 1934, (the “Exchange Act”).
What is a Shell Company?
Securities Act Rule 405 and Exchange Act Rule 12b-2 define a Shell Company as a company, other than an asset-backed issuer, with no or nominal operations; and either:
- no or nominal assets;
- assets consisting of cash and cash equivalents; or
- assets consisting of any amount of cash and cash equivalents and nominal other assets.