Two of the most important laws applicable to companies seeking to go public in the U.S. capital markets are the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). The Securities Act requires foreign companies that want to offer and sell securities in the United States to register the transaction with the Securities and Exchange Commission (SEC) or to follow the requirements of an exemption from the registration requirements. The Exchange Act requires companies to register classes of equity securities in order to list these securities on a US national securities exchange unless certain asset and shareholder thresholds are met. The Exchange Act also requires companies to make periodic filings with the SEC to disclose information about their business operations, financial condition, and management.
In the discussion that follows, this overview outlines several things to be considered by foreign companies that want to raise profits or establish a presence for their securities in the United States, specifically with reference to foreign private issuers. Read More
Last month, the Fixing America’s Surface Transportation Act, or FAST Act became law. The FAST Act is primarily a transportation bill but there are changes to the federal securities laws which should assist in the capital raising process particularly for Emerging Growth Companies. The JOBS Act defines an Emerging Growth Company as an issuer with annual gross revenues of less than $1 billion during its most recent fiscal year. The FAST Act impacts the securities registration process and the use of Form S-1 registration statements in an issuer’s initial public offering (“IPO”). The new rule should ease some of the burdens for small companies during the going public process.
The FAST Act requires the SEC to scale or eliminate regulatory requirements to reduce regulatory burdens on certain types of filers, including Emerging Growth Companies, and to eliminate regulations that are duplicative, overlapping, outdated or unnecessary. The SEC has 180 days from the enactment of the FAST Act to complete this task.
Road Show Waiting Periods
The FAST Act reduces the waiting period for road shows by Emerging Growth Companies. Under the FAST Act, an Emerging Growth Company cannot commence its road show 15 days after publicly filing its initial public offering (“IPO”) registration statement. The former rule required the issuer wait 21 days before conducting its road show. Read More
Private companies seeking to go public often use a direct public offering (“Direct Public Offering”). Unlike an Initial Public Offering (“IPO”), a Direct Public Offering allows an issuer to sell its shares directly to investors without the use of an underwriter as part of its going public transaction.
Registration Statements and Direct Public Offerings
A Direct Public Offering involves registering securities with the Securities and Exchange Commission (“SEC”) on a Form S-1 (”S-1”) Registration Statement, either on its own behalf in a primary offering or on behalf of its selling security holders in a secondary offering. Direct Public offerings are frequently used to raise capital in connection with going public transactions that involve filing a registration statement on Form S-1.
All issuers qualify to register securities on Form S-1 and it is the most commonly used registration statement in going public transactions. Using Form S-1 eliminates many of risks and costs of reverse mergers and public shell companies including DTC Chills, Global Locks and SEC trading suspensions. Read More
The Securities and Exchange Commission (SEC) announced that on February 1, 2016, the Honorable Richard Seeborg of the United States District Court for the Northern District of California entered final judgments against defendants eAdGear Holdings Limited, eAdGear, Inc., Charles Wang, Francis Yuen, Qian Cathy Zhang, and relief defendant Laurata Chan. The final judgments order the defendants and relief defendant to pay a total of $26,539,280 in disgorgement, penalties, and prejudgment interest.
The SEC’s complaint, filed on September 24, 2014, together with a request to the court for emergency relief, charged the defendants with operating an international pyramid scheme to fraudulently raise more than $129 million from investors, in violation of the federal securities laws. The complaint alleged that defendants used money from new eAdGear investors to pay earlier investors, as well as to repay a personal loan and purchase million-dollar homes for the individual defendants. Read More
Form 10 is a Registration Statement used to register a class of securities pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”). This blog post addresses common questions we receive from clients about Form 10 registration statements.
Q. Which companies can register a class of securities on Form 10?
A. All companies can register securities on Form 10 regardless of whether they are public or private.
Q. Can an issuer voluntarily file a registration statement on Form 10?
A. Yes, an issuer can voluntarily file a Form 10.
Q. When does a registration statement on Form 10 become effective?
A. Form 10 registration statements become effective sixty days after the initial filing date regardless of whether there are outstanding SEC comments.
The Securities and Exchange Commission (SEC) announced that on January 28, 2016, a jury in the federal court in Boston Massachusetts, returned a guilty verdict against Watertown real-estate developer Robert Bray in a criminal trial prosecuted by the Massachusetts U.S. Attorney. The jury convicted Bray of engaging in insider trading, a type of securities fraud. U.S. District Court Judge William G. Young scheduled sentencing for May 4, 2016.The SEC previously charged Bray and Patrick O’Neill with insider trading in a civil action filed on August 18, 2014.
The criminal case is based on the same conduct underlying the SEC’s action. The SEC’s complaint alleged that O’Neill, a former senior vice president at Eastern Bank Corporation, learned through his job responsibilities that his employer was planning to acquire Wainwright Bank & Trust Company (“Wainwright”) and he then tipped Bray, a friend and fellow golfer with whom he socialized at a local country club. In the criminal trial, the government proved that the tip was passed on a napkin that O’Neill slipped to Bray over drinks at the country club bar two weeks before a public announcement about the planned acquisition. Read More
The Securities and Exchange Commission (SEC) filed an action to enforce compliance with document and testimony subpoenas served upon Jessica Gilbertson in an SEC investigation for possible violations of the securities laws captioned In the Matter of Dakota Plains Holdings, Inc. The case reflects a string of recent enforcement cases involving reverse merger issuers. According to the SEC and FBI, reverse mergers are often instruments of fraud and illegal activity by fraudsters.
According to the SEC’s application that was filed on December 10, 2015: Read More
On December 14, 2015 the Securities and Exchange Commission (SEC) charged a Pittsboro, North Carolina-based startup energy company and two executives with defrauding investors in an unregistered stock offering as they purported that a big influx of capital was on the way from a major investor.
According to the SEC’s complaint against CAUSwave Inc. and its principals Jeffrey Riggs and Diane Baldwin:
On December 9, 2015 the Securities and Exchange Commission (SEC) obtained a court order in its subpoena enforcement action against respondent Steve Karroum that requires Mr. Karroum to sign a written consent for the release of his e-mails from his internet service provider. On May 11, 2015 the SEC filed a subpoena enforcement action against Virginia-based FX & Beyond Corporation and its president, Mr. Karroum. After a hearing on the matter, on August 5, 2015 the Hon. Magistrate Judge Deborah Robinson issued an order requiring Mr. Karroum to, among other things, sign a consent for the release of his e-mails from his internet service provider to the SEC. On August 10, 2015 Karroum filed objections to the Magistrate Judge’s order. Read More
According to the SEC’s complaint:
- Seibert, who was previously charged by the SEC in 1993 with securities fraud and who has been convicted multiple times for securities-related offenses, owned and operated a Nevada limited liability company called Universal Stock Transfer (“UST”) out of Palm Desert, CA.
- Using the alias “John Grey,” Seibert, who has never been registered with the SEC, together with sales agents who identified themselves as “Ron Woods” and “Sebastian Wilson,” cold-called investors who ranged in age from 56 to 95 and encouraged them to buy from them a variety of stocks quoted on OTC Link, an inter-dealer quotation system for over-the-counter securities.
- Seibert and the UST agents told the elderly investors that the stocks they were selling would significantly increase in value shortly after purchase. Read More