NASAA’s Proposal to Exempt M&A Brokers
Posted by Brenda Hamilton, Securities and Going Public Lawyer
Recently, the North American Securities Administrators Association (“NASAA”) published a notice of request for comment on a proposed uniform State Model Rule (“State Model Rule”) that would exempt merger and acquisition brokers (“M&A Brokers”) from state securities registration if certain conditions were met. Comments on the State Model Rule were required to be submitted to NASAA by February 16, 2015.
NASAA’s proposed State Model Rule has some similarities to a January 2014, SEC No-Action letter that addressed M&A Brokers and the M&A Brokers exemption contained in HR 37 passed by the House of Representatives on June 14, 2015 (H.R. 37) and it also includes meaningful differences as well. Read More
Retweets, Social Media & Being Public – Going Public Lawyers
Posted by Brenda Hamilton, Securities and Going Public Lawyer
It has become almost routine for public companies to use social media to interact with their shareholders, and customers. The Securities and Exchange Commission (the “SEC”) has provided guidance in compliance and disclosure interpretations addressing the use of Twitter, Facebook, and other forms of social media. It is important that public companies and companies engaged in going public transactions familiarize themselves with the SEC’s rules concerning social media.
Active Hyperlinks & Disclosure Obligations
The SEC has stated that the use of social media and hyperlinks using social media platforms, such as Twitter, that limit the number of characters or amount of text that can be included in the communication, effectively making it impossible for firms to include the required legends and other disclosures. Read More
Going Public Strategies – Going Public Attorneys
Posted by Brenda Hamilton, Securities and Going Public Lawyer
Going Public can involve a variety of structures depending upon each company’s specific needs. Companies seeking to Go Public can involve an Initial Public Offering (IPO), Direct Public Offering (DPO), Form 10 transaction, Slow Public Offering and/or a Reverse Merger. It is critical that companies seeking public company status select the right going public attorneys for their transaction. A skilled going public attorney can assist issuers seeking to “Go Public” without an underwriter or reverse merger by using a Direct Public Offering and obtaining their own stock ticker symbol. This holds true for company seeking to Go Public on the NYSE, AMEX, NASDAQ, OTC Markets OTCQB, OTCQX or OTC Pink Sheets.
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Short Swing Profits Q & A By: Brenda Hamilton Securities Lawyer
Posted by Brenda Hamilton, Securities and Going Public Lawyer
The “Short Swing Profit” rules were created to prevent insiders, who have greater access to material company information, from taking advantage of information for the purpose of making short-term profits from trading an issuer’s securities. This Securities Lawyer 101 Q & A addresses the most common questions we receive about Short Swing Profits. Read More
Caledonian Securities & Caledonian Bank Seized by Cayman Officials
Posted by Brenda Hamilton, Securities and Going Public Lawyer
Following an action by the Securities and Exchange Commission (SEC) last week and an asset freeze order, the Cayman Islands Monetary Authority has taken control of Caledonian Bank and Caledonian Securities. According to charges by the SEC on February 7, 2014, Caledonian, Clear Water Securities, Legacy Global Markets S.A., and Verdmont Capital S.A. functioned as affiliates, unregistered brokers, dealers, and underwriters, in connection with four penny stock issuers: Swingplane Ventures (SWVI), Goff Corp. (GOFF), Nostra Energy (NORX) and Xumanii Inc. (now Imerjn Inc., IMJN).
DTC Eligibility Explained By The Going Public Attorneys
Posted by Brenda Hamilton, Securities and Going Public Lawyer
Q. What is The Depository Trust Company (“DTC”)?
A. DTC is the only stock depository in the United States.
Q. How do public companies obtain a DTC eligibility?
A. Issuers must satisfy specific criteria to receive an initial DTC eligibility, and to remain DTC eligible. Even after those securities become eligible, DTC may limit or terminate its services. Read More
Does FINRA Approve Going Public Transactions? Going Public Attorneys
By The Going Public Attorneys – The Financial Institution Regulatory Authority (FINRA) plays an important role in going public transactions. While filing a registration statement on Form S-1 will make a company reporting with the Securities and Exchange Commission, it will not cause the company’s stock to trade and it will not result in a ticker symbol. Only FINRA can assign a stock ticker symbol. FINRA is the largest non-governmental regulator of broker-dealers in the U.S. FINRA oversees nearly several thousand brokerage firms, hundreds of thousands of their branch offices as well as their registered securities representatives. Read More
Penny Stock Lawyers, Auditors & Nominees Charged by SEC
On January 15, 2015, the Securities and Exchange Commission (SEC) announced charges against penny stock lawyers, auditors, and others allegedly involved in a microcap scheme involving bogus Form S-1 registration statements filed with the SEC. According to the SEC, John Briner, a Canadian Attorney and stock promoter caused the companies to file 20 bogus Form S-1 registration statements with phony cookie cutter business plans. According to the SEC, because John Briner had been suspended from practicing law before the Commission, he recruited clients and associates to become nominees while he secretly controlled the companies from behind the scenes. The registration statements falsely stated that each CEO was solely running the company when in fact Briner was making all material decisions. Read More
SEC Suspends Modern PVC -MPVC- Securities Lawyer 101
On February 6, 2015, the U.S. Securities and Exchange Commission (“SEC”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of trading of the securities of Med Pro Venture Capital, Inc., f/k/a Modern PVC, Inc. (“MPVC”), at 9:30 a.m. EST on February 6, 2015, and terminating at 11:59 p.m. EST on February 20, 2015. Read More
SEC Charges Oppenheimer For Penny Stock Sales
Last week, the Securities and Exchange Commission (“SEC”) announced charges against Oppenheimer & Co. for violations of federal securities laws for improperly selling penny stocks in unregistered offerings on behalf of customers. Oppenheimer agreed to admit wrongdoing and pay $10 million to settle the SEC’s charges. Oppenheimer will pay an additional $10 million to settle a parallel action by the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). Read More
SEC Issues Investor Alert on Cybersecurity
On February 3, 2015, the Securities and Exchange Commission (“SEC”) addressed cybersecurity at brokerage and advisory firms and provided suggestions to investors on ways to protect their online investment accounts. “Cybersecurity threats know no boundaries. That’s why assessing the readiness of market participants and providing investors with information on how to better protect their online investment accounts from cyber threats has been and will continue to be an important focus of the SEC,” said SEC Chair Mary Jo White. “Through our engagement with other government agencies as well as with the industry and educating the investing public, we can all work together to reduce the risk of cyber attacks.” Read More
Can I Afford To Go Public on the OTCQB? – Going Public Lawyer
Going public requirements vary for companies seeking to go public on the OTC Markets, OTC Pink, and OTCQB marketplace. The biggest difference is that most of the time (but not always) companies who go public on the OTCQB provide more transparency to investors than OTC Pink Sheet companies because they file reports with the Securities and Exchange Commission (the “SEC”).
As of May 2014, the OTC Markets imposed new requirements for OTCQB companies who must now pay initial and continuous listing fees and maintain a bid price above $0.01 per share. Not every company can afford the expense of being a SEC reporting company. To be quoted on the OTCQB, the company must be reporting with the SEC and pay an initial and annual listing fees to the OTC Markets. Reporting Companies not paying the listing fee to the OTC Markets will be quoted with an OTC Pink tier. Thus, OTC Pink companies are both reporting and non-reporting issuers. Read More
Roadmap For a Successful Direct Public Offering
Preparing for a direct public offering or an initial public offering (“IPO”) or takes both a commitment of time and money. Unlike an Initial Public Offering, a direct public offering does not involve an underwriter. While it often takes a year or longer to plan for and complete an IPO, a direct public offering can be completed in as little as 90 days, using Form S-1. Unlike a Form 10 registration statement, Form S-1 will create unrestricted securities.
Money and time are not the only things required for a successful direct public offering. Having the right Going Public Attorney is critical to the direct public offering process. Some companies begin planning for their direct public offering months before the process begins. This allows the issuer to consider a variety of factors including confidential submission of the registration statement and other matters. During this time, the company prepares for the audit process, develops its plan of operations and obtains its shareholder base. Read More
Medbox & The License to Swindle – Peter Berney Shells
Down the Rabbit Hole We Go
We were recently asked to review a penny stock company called Medbox Inc. (MDBX). The Medbox story has been of considerable interest over the past two years, for the most part because of its colorful founder, P. Vincent Mehdizadeh, its involvement in the nascent medical marijuana industry, and its unusually high stock price. But for those willing to dig into the past, it also illustrates why receivership and custodianship shells are the greatest enforcement failure impacting the microcap markets in the last decade.
Corporate Law 101 – Securities Lawyer
Because only issuers can go public and have their securities publicly traded, it is necessary for many unincorporated businesses to set up corporate entities before beginning their going public transactions. Companies going public should have a basic understanding of corporate law and what it means to conduct business through a corporate entity. This blog post addresses the most common questions we receive from small businesses about setting up and operating a business as a corporate entity.
What Does It Mean To Be A Corporation?
A corporation is a distinct legal entity separate and apart from its shareholders or owners. Corporations are incorporated pursuant to the state law in which the Corporation is formed. Corporations can take various forms including C-Corporation, S-Corporation, Limited Liability Company, and Professional Corporation (also known as a Professional Association). A Corporation’s existence is perpetual, unless dissolved by its Board of Directors or the state where it is formed, as for failure to pay required annual fees and/or file annual reports. Read More
Foreign Issuers Going Public and How? Securities Attorney
Foreign issuers seeking to go public have several options for their transactions. Foreign issuers seeking to go public in the U.S. may complete an initial public offering or direct public offering by registering an offering of securities with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (“Securities Act”). Under SEC rules, foreign issuers that qualify as “foreign private issuers” have the option but not the obligation to use rules available to foreign issuers going public in the U.S.
Foreign Private Issuer Qualification
In order for a foreign company to qualify as a foreign private issuer under SEC rules, it must satisfy the definition contained in Securities Exchange Act Rule 3b-4(c) of the Exchange Act.
Rule 3b-4(c) provides that the following do not qualify as foreign private issuers:
♦ An issuer with more than 50% of its outstanding voting securities held by U.S. residents;
♦ An issuer with a majority of its executive officers or directors that are U.S. citizens or residents; Read More
Can I Put Graphics In My S-1? Going Public Lawyers
A common question we receive as going public lawyers is what graphics can be used in the issuer’s Form S-1 registration statement. Last week the Securities and Exchange Commission (“SEC”) addressed the use of graphics and/or images that are non-searchable in SEC reports and filings in Compliance & Disclosure Interpretation (C&D) 118.01 of Regulation S-T. The C&D provides that “a filer may present required information using graphics that are not text-searchable and still comply with Rule 304(e) if the filer also presents the same information as searchable text or in a searchable table within the filing.” Read More
Can I Amend My Form 10-K? Going Public Attorneys
A company may desire to change information presented in its Annual Report on Form 10-K for a number of reasons. Form 10-K amendments can be used to correct any material inaccuracies, misstatements or omissions that a company subsequently discovers. As such, the SEC allows a company to file an amendment to its Form 10-K. Read More
What Is a Consent of Auditor? Going Public Lawyers
Item 601 of Regulation S-K requires issuers to file a Consent of Auditor as an exhibit to certain forms and files with the SEC including registration statements under the Securities Act of 1933, as amended (“Securities Act”). A company’s Independent registered public accounting firm must provide a Consent of Auditor (an auditor’s consent and audit report) in the Securities Act registration statements and Annual Reports on Form 10-K. Read More
SEC Amends Related Party Disclosure Rules – Going Public Lawyers
Annual reports on Form 10-K are just around the corner for companies with a December 31, year-end. We have received several questions concerning recently adopted Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 18, Related Parties. The new rule applies to all issuers and SEC registered broker-dealers and become effective for audits of financial statements for fiscal years beginning on or after December 15, 2014. The new rules are designed to increase auditor identification and evaluation of companies’ significant unusual transactions and to enhance understanding of companies’ financial relationships and transactions with their executive officers. Read More
What Is The Section 1145 Exemption? Securities Lawyer 101
Securities law issues are an important consideration in structuring a Chapter 11 reorganization, particularly where the debtor is a public company. Section 1145 of the Securities Act of 1933, as amended (“Securities Act”) provides issuers in Chapter 11 reorganizations with an exemption from registration that eases some of the burdens of Chapter 11 reorganization. An important requirement of the Section 1145 exemption is not available to an underwriter. Read More
Six Years Later – U.S. v Ross Mandell
In July 2009, Ross Mandell, founder of Sky Capital Holdings, Ltd., a venture capital firm and brokerage, was arrested by the Federal Bureau of Investigation and charged with violating the Securities Exchange Act of 1934. According to the U.S. Attorney’s Office for the Southern District of New York, he and a number of co-defendants had used Sky Capital to run a boiler room operation, and had defrauded investors of $140 million between 2001 and 2006. The firm had been raided by the FBI in late 2006, but was permitted to carry on with its business. Mandell sold his stake in it to a group of clients from the U.K., who renamed it Granta Capital. Read More
Can I Issue Free Trading Shares Under Rule 504? Going Public Lawyers
Despite numerous SEC enforcement actions, Rule 504 of Regulation D of the Securities Act remains a commonly misused exemption particularly in dilution schemes. The popularity of Rule 504 is simple – the Rule 504 exemption provides a way for dilution funders to issue illegally free trading shares using baseless legal opinions. Any experienced going public lawyer will tell you that Rule 504 does not allow a company to issue unrestricted shares. Read More
SEC Charges Frederick Elm and Elm Tree Investment Fund LP
On January 21, 2015, the Securities and Exchange Commission (the “SEC”) announced fraud charges and an asset freeze against a Fort Lauderdale, Florida-based investment advisory firm, its manager, and three related funds in a scheme that raised more than $17 million since November 2013.
The SEC’s complaint filed in federal court in the Southern District of Florida charged Elm Tree Investment Advisors LLC, its founder and manager, Frederic Elm, and Elm Tree Investment Fund LP, Elm Tree “e”Conomy Fund LP, and Elm Tree Motion Opportunity LP. According to the complaint, Elm, formerly known as Frederic Elmaleh, his unregistered investment advisory firm, and the three funds misled investors and used most of the money raised to make Ponzi-like payments to the investors. Read More
Who Has To File Form 144?
Rule 144 of the Securities Act of 1933, as amended provides a safe harbor for certain public resales of securities, if certain conditions are met. Rule 144 applies to unregistered shares acquired directly from an issuer, (“restricted securities”), and unrestricted shares held by an affiliate of the issuer (“control securities”). Under some circumstances, persons who rely on Rule 144 must file a “Notice of Sale” on Form 144 with the Securities and Exchange Commission (the “SEC”). This blog post addresses some recent questions we received about the SEC’s requirements for filing a Form 144 – Notice of Sale. Read More
Just What Is A Security Anyway? – Going Public Lawyers
Below is a teaser from the new e-book by Michael T. Williams, a going public lawyer and Best-Selling Amazon E-Book author. The book will be available to the public in a few weeks.
Your are only subject to federal and state securities laws if you are selling what is defined as a “security.” If you are selling stock in your IPO Alternative transaction, you know you are selling a security. But Section 3(a)1 of the Securities Act of 1933 tells you all kinds of other instruments you sell may also be securities, as follows:
The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, …, or, in general, any interest or instrument commonly known as a “security.” Read More
What Happens If I Forget To File My Form D? Going Public Lawyers
The most common exemptions from registration for both public companies and private companies seeking to go public are those provided by Regulation D of the Securities Act of 1933, as amended (“Securities Act”). Many issuers who go public do not realize that the filing of a Form D with the Securities and Exchange Commission (the “SEC”) is required in Regulation D offerings. Form D is a notice of an exempt offering of securities in reliance upon Regulation D (or Section 4(6) of the Securities Act). Form D requires specific information about the issuer and the offering it is conducting. This information includes (i) the issuer’s identity, (ii) its principal place of business and contact information, (iii) its state of domicile, (iv) the names and addresses of its executive officers and directors, (v) the specific exemption claimed under the Securities Act, and (vi) the identity and contact information of any broker-dealer, finder or other person receiving any commission or other similar compensation relating to the sale of securities in the offering. Read More
Do I Have to Disclose Payments To a Finder?
Companies seeking capital are frequently approached by intermediaries who offer to locate investors in exchange for a fee. Most intermediaries also known as “finders” are not registered as broker-dealers with the Securities and Exchange Commission (the “SEC”). These intermediaries wear many hats and may refer to themselves as fund managers, receivers, turnaround experts, investment bankers, stock promoters, placement agents, business brokers, investor relations firms or consultants. They may be attorneys, CPAs, insurance brokers, custodianship shell purveyors or other market participants. Often these intermediaries claim that they do not need to be registered with the SEC or FINRA as broker-dealers because of a “finder’s exemption”. Read More
How Do I Spin-Off My Subsidiary? Going Public Lawyer
A spin-off (“Spin-off”) involves a transaction in which a parent company (“Parent”) distributes shares of its subsidiary (“Subsidiary”) to the Parent’s shareholders so that the Subsidiary becomes a separate, independent company. Spin-off shares are usually distributed on a pro-rata basis. A going public lawyer can assist the company in determining whether state corporate law and the rules of stock exchanges require shareholder approval of the spin-off. Read More
FINRA Expels John Thomas Financial & Bars Tommy Belesis
On January 9, 2015, The Financial Industry Regulatory Authority (“FINRA”) announced that a hearing panel expelled John Thomas Financial, and barred its Chief Executive Officer, Anastasios “Tommy” or “Thomas”) Belesis, from the securities industry for violations in connection with the sale of penny stock issuer, America West Resources, Inc. (“AWSR”) common stock, including trading ahead of customers’ orders, recordkeeping violations, violating just and equitable principles of trade, and for providing false testimony. The FINRA hearing panel also ordered John Thomas Financial and Belesis to pay $1,047,288, plus interest. Additionally, John Thomas Financial and Belesis were suspended for two years and jointly and severally fined $100,000, and John Thomas Financial’s Chief Compliance Officer Joseph Castellano was suspended for one year and fined $50,000, for harassing and intimidating registered representatives. Read More
