Short Sales Q & A
A short sale transaction can be part of a legitimate trading strategy. It is often endorsed for its beneficial effects on the securities markets, which include increasing liquidity. Short selling is also criticized. Short sellers profit by identifying companies that are weak or overvalued, and companies whose shares have been manipulated to rise to artificially high share prices. The most widely misunderstood aspect of short selling is under what circumstances it becomes illegal. We created this Securities Lawyer 101 Series to address the most common questions we receive about Short Sales. Read More
The Securities Act of 1933, as amended (the “Securities Act”) requires the sale of a security to be registered under the Securities Act, unless the security or transaction qualifies for an exemption from registration. Rule 144 of the Securities Act provides a safe harbor that permits holders of “restricted securities” to resell their securities in the public market if specific conditions are met.
This Securities Lawyer 101 Series discusses the most common questions we receive about Rule 144’s Safe Harbor.
Q. What is Section 5 of the Securities Act of 1933 (the “Securities Act”)?
A. Section 5 of the Securities Act requires that all offers and sales of securities be registered with the Securities and Exchange Commission (the “SEC”) or exempt from the registration requirements.
Q. What is the “safe harbor” provided by Rule 144?
A. Rule 144 provides a safe harbor from the registration requirements of Section 5 of the Securities Act to certain holders of securities, if certain requirements are met. The requirements of Rule 144 vary depending upon whether the holder of the shares is an affiliate or non-affiliate of the issuer. Read More
A Private Placement Memorandum (“PPM”) is also referred to as a confidential offering circular or memorandum. PPM’s are used by private companies in going public transactions and by existing public companies to raise capital by selling either debt or equity in an exempt offering. Most exempt offerings are private placements.
Q. What Disclosures Are Required in Private Placement Memorandums?
A. PPM disclosures vary depending on a couple of factors, including whether the investor is accredited or non-accredited and whether the Company is subject to the Securities and Exchange Commission’s (“SEC”) reporting requirements, and a few other factors. Read More
On March 25, 2015, the Securities and Exchange Commission (“SEC”) adopted amendments to Regulation A pursuant to the mandate of Section 401(a) of the JOBS Act. These amendments included revamping Form 1-A for Regulation A offerings.
Amended A+ was adopted to facilitate capital-raising by smaller companies. Regulation A+ expands existing Regulation A. Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings as part of a going public transaction. The exemption simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority (“FINRA”) while allowing the issuer to raise initial capital. Regulation A also provides issuers with the opportunity to test the waters using social media or their preliminary offering circular prior to qualification of their offering.
Form 1-A Offering Statements
Issuers using Regulation A+ to conduct their offerings must file and qualify an offering statement with the SEC. The offering statement is intended to be a disclosure document that is similar to Form S-1 with scaled down disclosures. A notice of “qualification” is similar to a notice of effectiveness for a Form S-1 registration Statement. Read More
The Massachusetts Division of Securities has adopted an emergency intrastate crowdfunding exemption. The new exemption was developed to stimulate job growth for small Massachusetts companies by removing restrictions and allowing greater access to capital with fewer restrictions.
The Massachusetts Emergency Crowdfunding Exemption
The new exemption is available to entities formed and operating in Massachusetts, and allows the issuers to: Read More
FINRA is proposing new rules that will impact algorithic trading strategies. If an individual performs a trade on another person’s behalf, that associated person is required to register with FINRA as an equity trader. The Financial Industry Regulatory Authority (FINRA) believes that certain associated persons who are involved in creating automated systems should also be registered. FINRA recently issued Regulatory Notice 15-06 requesting comments on a new proposal that would require associated persons involved in the design, development or modification of algorithmic trading strategies to register with FINRA. This, says FINRA, will help ensure that trading programs comply with applicable securities laws.
The proposals are designed to increase the scope of trading information FINRA receives, provide market participants and investors with more transparency into trading activities, and require employees at firms engaged in electronic trading to be trained, educated, and accountable for their role in algorithmic trading strategies. Read More
On April 14, 2015, the operator of a website at Cashflowbot.com was charged in a ponzi scheme. According to the SEC charges, the perpetrator of the ponzi scheme raised money from more than 3,000 investors between January 2012 and April 2014. According to the SEC’s complaint, James A. Evans, Jr.,operated a website at “Cashflowbot.com,” and operated under the business name “DollarMonster”. According to the SEC action, Evans falsely promoted DollarMonster as a “private fund” with an “opaque investment strategy” where investors could make “big profits.”
According to the SEC’s Division of Enforcement, Evans was running a ponzi scheme. Among other things, Evans misrepresented to investors that DollarMonster: (a) paid out investment returns that exceeded the amount of money investors had contributed to the fund; (b) was a “financial advisor” with more than 120 management teams and $38 million in assets under management; (c) managed a hedge fund that purchased stocks on behalf of investors in the fund; (d) was a “Private Holding Company” that invested in assets such as gold, silver, real estate, stocks and bonds, and (e) had used investor funds to profitably invest in stocks with a market value of $3.2 million. Read More
In May of 2014, the OTC Markets Group approved new listing requirements for companies seeking quotation of their securities on the OTCQB® Venture Stage Marketplace. To be quoted on the OTCQB® issuers must have an initial and ongoing $0.01 per share minimum bid price, submit an initial OTCQB application, pay annual fees, and submit annual certifications to the OTC Markets. Companies that do not meet all of these requirements are demoted to the OTC Markets Pink® Marketplace. While the number of issuers listing on the OTCQB will decrease, there will be an increase in the number of issuers quoted with the OTC Pink listing tier. Read More
On March 25, 2015, the Securities and Exchange Commission (“SEC”) adopted amendments to Regulation A pursuant to the mandate of Section 401(a) of the JOBS Act. Amended Regulation A known as “Regulation A+”, expands and modernizes former Regulation A, creating a manageable capital raising solution for small businesses. Prior to the amendments, Regulation A, offerings by an issuer could not exceed $5 million in any 12-month period. Unlike shares offered and/or sold in offerings exempt under Rule 506 of Regulation D, securities issued in Regulation A offerings were not “covered securities” under the National Securities Markets Improvement Act (“NSMIA”). Read More