Oh the Places You Will Go When Going Public
Oh the Places You’ll Go – Understanding the Going Public Process
The going public process involves a myriad of rules and regulations that issuers must consider before structuring their transactions.
While going public offers many benefits, it also comes with risks and quantities of regulations with which issuers must become familiar. Read More
What Are Form 10-K Exhibits ? By Brenda Hamilton, Lawyer
Some of the most valuable sources of information about a public company are Form 10-K exhibits. Item 601 of Regulation S-K identifies the documents to be filed as exhibits. Issuers are often unclear about the requirements of Item 601 particularly its provisions requiring issuers to file material agreements made outside the normal course of business.
Issuers typically generally incorporate by reference documents that they have previously filed as exhibits to other SEC filings. The most important documents that must be filed as exhibits to Form 10-K are the issuer’s material contracts. Read More
General Solicitation & the Rule 506 Private Placement Exemption
The Securities Act of 1933 (the “Securities Act”) provides for a private offering exemption from federal securities registration which is increasingly being used by both private and public companies to raise capital during market downturns and in times of market uncertainty. The Securities Act provides substantial guidance about the circumstances in which an offering will be deemed private.
One requirement for a private placement offering is that there can be no general solicitation or advertising of the offering. The most commonly used private offering exemption is Rule 506 of Regulation D.
The Role of the Direct Public Offering Attorney
The direct public offering (“Direct Public Offering“) has become the premier method used in going public transactions. A skilled Direct Public Offering attorney can guide a private company through the Direct Public Offering process. A Direct Public Offering allows a company to publicly offer and sell unrestricted securities directly to investors without the use of an underwriter.
A Direct Public Offering attorney will assist the issuer in preparing and filings its registration statement with the Securities and Exchange Commission (“SEC”) to register a securities offering under the Securities Act of 1933, as amended (the “Securities Act”). Read More
Form S-1 Financial Statements l Going Public Attorneys
Companies that register securities for direct public offering on Form S-1 as part of their going public transaction must provide audited financial statements to the Securities and Exchange Commission (“SEC”). These financial statements include a balance sheet, statement of shareholders’ equity, income statement and statement of cash flows.
SEC Disclosures for Smaller Reporting Companies
The SEC Disclosure rules allow smaller reporting companies to provide less comprehensive disclosures in their reports and filings so that compliance with the SEC’s disclosure requirements is less burdensome. These reduced disclosure requirements are especially beneficial to private companies who wish to go public but are unfamiliar with the requirements of SEC reporting. Read More
SEC Charges Heathrow Natural Food & Beverage and Michael Pagnano
On September 23, 2014, the Securities and Exchange Commission (the “SEC”) issued an order instituting cease and desist proceedings against Registrar and Transfer Company (“R&T”), a transfer agency registered with the SEC, and its President and CEO Thomas Montrone in connection with certain securities transactions related to Heathrow Natural Food and Beverage, Inc. Registrar and Transfer Company is located in New Jersey and has approximately 190 employees. It began acting as transfer agent for Heathrow in 2005.
Heathrow’s common stock is currently quoted as “HRNF” on OTC Link, OTC Markets Group’s electronic interdealer quotation system. In a separate action, the SEC has charged the company and its CEO Michael Pagnano with fraud. Read More
Direct Public Offerings After the JOBS Act
The Jumpstart Our Business Startups Act, or JOBS Act, is intended, among other things, to reduce barriers to capital formation, particularly for smaller companies in going public transactions. The JOBS Act relaxed the rules and regulations applicable to direct public offerings and the going public process. As explained below, the amendments relax the rules applicable to investors who are accredited investors and/or qualified institutional buyers. The Jobs Act eased the restrictions applicable to direct public offerings by making it easier for issuers to raise capital without an underwriter. Read More
Sponsoring Market Makers l Going Public Bootcamp
Securities Lawyer 101 Blog
One step in going public transactions is obtaining a stock trading or ticker symbol from the Financial Industry Regulatory Authority (“FINRA”). For a company to obtain a ticker, a sponsoring market maker must submit an application on Form 211 on the issuer’s behalf to the FINRA.
Sponsoring markets makers have become one of the most important players in the going public process because they are the only ones who can apply for a ticker symbol. This applies in initial public offerings and direct public offerings. Companies not qualifying for a stock exchange often elect to go public on the OTC Markets OTCQB or OTCQX which requires that the issuer locate a sponsoring market maker. Read More
The SEC’s Electronic Data Gathering and Retrieval System – EDGAR
Most documents filed with the Securities and Exchange Commission (the “SEC”), are required to be filed electronically using the SEC’s Electronic Data Gathering and Retrieval system (“EDGAR”). Additionally, public companies filing on EDGAR must tag their financial data using eXtensible Business Reporting Language (“XBRL”). Filings required to be filed on the EDGAR database include Forms 10-K, 10-Q and 8K, proxy statements, Forms 3, 4 and 5, Form D, Schedules 13D and 13G, all registration statements and most other SEC filings. Read More
What are Convertible Securities? l Securities Lawyer 101
A “convertible security” is often structured as a bond, note, preferred stock, or a wraparound agreement that results in the conversion of the debt obligation into common stock. The holder of the convertible security or the company may have the ability to determine when the holder of a convertible security must convert. In recent years, the penny stock markets have been plagued with dilution funders using various types of debt securities to issue unrestricted shares. Read More
Form 3, 4 & 5 Filing Requirements l By: Brenda Hamilton Attorney
After the recent sweep by the Securities and Exchange Commission(the “SEC”) charging 28 persons in connection with their failure to file insider reports, we have received requests for information about insider reporting obligations. This blog post addresses the insider reporting obligations that exist upon completion of a going public transaction. Each officer, director and 10% shareholder of a company with a class of securities registered under the Securities Act of 1934 must file a Form 3 disclosing the number of shares of the public company’s common stock he or she beneficially holds. Read More
Retweets of Social Media & Public Companies
Securities Lawyer 101 Blog
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.
Active Hyperlinks & Disclosure Obligations
The SEC addressed 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
FINRA Uses Rule 6490 To Stop Wash, Rinse, Repeat Issuers
In late 2009, the Financial Industry Regulatory Authority (“FINRA”) proposed changes to its Rule 6490. Until that time, the Rule had provided merely that the agency review and process certain corporate actions taken by companies not listed on exchanges, companies known to most as OTC securities. The changes imposed by Rule 6490, which became effective in 2010, gave FINRA more clout: it can now deny corporate actions in certain specific circumstances including reverse mergers. Read More
Integration During the Going Public Process – Securities Lawyer 101
Issuers often need to raise funds during their going public transactions to offset legal and accounting costs. The SEC integration rule addresses the circumstances under which an issuer can raise capital privately while a Form S-1 registration statement is pending during the going public process.
The integration rules were created to prevent companies from improperly avoiding registration by dividing a single securities offering into multiple offerings to take advantage of Securities Act exemptions that would not be available for the combined offering. Read More
Penny Stock Emails 101- Securities Lawyer 101
Often times investor relations firms touting microcap stocks use penny stock email containing newsletters and advertisements about a stock’s potential. Recent indictments and SEC cases have focused on the use of penny stock email lists that have been used to solicit investors. Read More
Craig Karlis Sentenced to 9 Years For Fraud Charges
The Securities and Exchange Commission (the “SEC”) announced that on September 16, 2014, the former owner of a Boston Trading and Research, LLC (“BTR”), was sentenced to nine years in prison after pleading guilty to charges that he and his business partner defrauded more than 700 investors out of more than $30 million. Craig A. Karlis, was sentenced to nine years in prison, three years of supervised release, and ordered to pay $4,378,306 in restitution to the fraud victims. In March 2014, Karlis pleaded guilty to nine counts of wire fraud, among other charges. Read More
SEC Charges 28 With Insider Reporting Failures
On September 10, 2014, the Securities and Exchange Commission (the “SEC”) announced enforcement actions and penalties of more than $2.6 million against 28 individual directors, officers, and beneficial owners and 6 issuers for failure to promptly report their holdings in Section 16(a) reports and Schedule 13D and Schedule 13G filings. Read More
Securities Lawyers Gone Wild – Svitlana Sangary
Business Lawyer Photoshops Her Way to a Six Month Suspension
Some wayward attorneys content themselves with writing fraudulent opinion letters, but Svitlana Sangary, a Los Angeles business lawyer, yearned for the red carpet. In an apparent attempt to convince prospective clients that she hobnobbed with the rich and powerful, she filled the “publicity” page at her website with photoshopped images of herself cozying up to a considerable number of celebrities and politicians. Read More
Zirk Englebrecht Indicted In Reverse Merger Scheme
On September 18, 2014, the Federal Bureau of Investigation announced that Izak Sirk De Maison (aka Izak Zirk Engelbrecht, aka Zirk Engelbrecht). Zirk Englebrecht, a self-described “merchant banker,” devised a scheme and artifice to defraud investors by creating public “shell” companies, executing a merger of an emerging business with the shell to create a publicly traded company, and then paying undisclosed kickbacks to brokers, including Wilshinsky, in exchange for using their clients’ funds to purchase shares of the resulting penny stock. One such company was Gepco Ltd. Read More
SEC Charges 8 in Pump and Dump Scheme
On September 18, 2014, the Securities and Exchange Commission (the “SEC”) announced charges against eight individuals for their roles in an alleged pump-and-dump scheme involving a penny stock company based in California that has repeatedly changed its name and purported line of business over the past several years.
The SEC alleges that the pump and dump scheme was orchestrated by Izak Zirk de Maison, who was named Izak Zirk Engelbrecht before taking the surname of his wife Angelique de Maison.
Both de Maisons are charged by the SEC in the case along with others enlisted to buy, sell, or promote stock in the company now called Gepco Ltd. Zirk de Maison installed some of these associates as officers and directors of Gepco while he secretly ran the company behind the scenes. Collectively, they amassed large blocks of shares of Gepco common stock while the de Maisons manipulated the market to create the appearance of genuine investor demand, allowing an associate to sell his stock at inflated prices to make hundreds of thousands of dollars in illicit profits. Read More
SEC Issues Multiple Trading Suspensions
On September 18, 2014, the Securities and Exchange Commission (the “SEC”) announced temporary trading suspensions of multiple issuers. The trading suspensions commenced at 9:30 a.m. EDT on September 18, 2014 and terminate at 11:59 p.m. EDT on October 1, 2014: Read More
SEC Issues Trading Suspension of Gepco Ltd.
On September 18, 2014, the Securities and Exchange Commission issued a temporary trading suspension of the securities of Gepco, Ltd securities due to concerns about the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in Gepco’s common stock. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act). Read More
Robert Bandfield, Andrew Godfrey and Jim Can Indicted
On September 9, 2014, the United States Attorney for the Eastern District of New York announced a multi-count indictment against six individual defendants: Robert Bandfield, a U.S. citizen; Andrew Godfrey, a citizen of Belize; Kelvin Leach, a citizen of the Bahamas; Rohn Knowles, a citizen of the Bahamas; Brian De Wit, a citizen of Canada; and Cem Can, a citizen of Canada; and six corporate defendants. The six corporate defendants are IPC Management Services, LLC; IPC Corporate Services Inc.; IPC Corporate Services LLC (collectively, IPC Corp); Titan International Securities, Inc. (Titan); Legacy Global Markets S.A. (Legacy); and Unicorn International Securities LLC (Unicorn).
The charges include conspiracy to commit securities fraud, tax fraud, and money laundering. Read More
What is a Secondary Offering? Going Public Lawyers
Going public transactions can be structured a variety of ways. Many going public transactions involve the filing of a registration statement with the Securities and Exchange Commission (“SEC”) registering shares held by existing stockholders so that the issuer can meet FINRA’s requirements. This type of offering is known as a secondary offering or resale registration statement. In a secondary offering, the issuer does not receive any proceeds from the sale of the securities subject to the registration statement and any proceeds from the sale are received by the selling stockholders. Read More
Bank Secrecy 101 By: Brenda Hamilton, Attorney
Securities Lawyer 101 Blog
Posted By: Brenda Hamilton Attorney
The Bank Secrecy Act (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering activity. The Act’s regulations apply to broker-dealers as well as to banks and other depository institutions. The BSA, also called the Currency and Foreign Transactions Reporting Act, was passed by Congress in 1970. Most people know that it requires the reporting of cash purchases of negotiable instruments greater than $10,000, but are unaware that its mandate is much broader, and that its implementation is entrusted to a number of government agencies and financial institutions. Read More
Panama and U.S. To Share More Than $36 Million in Forfeitures
In October of 2013, Deputy Attorney General James M. Cole and Panamanian Attorney General Ana Belfon signed an agreement to share more than $36 million in government forfeitures of criminal assets with the Government of Panama. Read More
Securities Lawyers Gone Wild – Justin Lee Charged in EB-5 Scheme
On September 3, 2014, the Securities and Exchange Commission (the “SEC”) charged an immigration and securities attorney, his wife, and his law firm partner with conducting an investment scheme to defraud foreign investors trying to come to the U.S. through the EB-5 Immigrant Investor Program. According to the allegations, Justin Moongyu Lee, Rebecca Taewon Lee and Thomas Kent raised nearly $11.5 million from investors seeking to participate in the EB-5 program. Read More
Can I Register An Equity Line In My Going Public Transaction?
In going public transactions, issuers consider many capital raising options. One capital raising option is the equity credit line. Most equity lines are structured so that the investor enters into an agreement with the Company giving it has the right, during the equity line term and subject to certain conditions, to put its securities to the investor. Equity credit lines are also commonly structured in private placements pursuant to Rule 506 of Regulation D with an obligation for the Company to file a registration statement on Form S-1 to register the resale of the securities sold under the equity line.
Where a Rule 506 offering is combined with a Form S-1 registration statement, due to the delayed nature of the investment, and because the investor’s funds are not at risk at the time the resale registration statement is filed, the SEC deems the registration to be an indirect primary offering. Read More
Rule 144’s Current Public Information Requirement
Rule 144 of the Securities Act provides a safe harbor from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) for resales of restricted and control securities if specified conditions are met. One of the requirements of Rule 144 is that the issuer have current public information available to the public at the time of the resale. When applicable, issuers must satisfy the current public informational requirements as set forth in Rule 144(c) at the time of each sale of securities in reliance on Rule 144.
What constitutes current information depends upon whether the issuer is an SEC reporting issuer or shell company.
SEC Reporting Issuers
SEC reporting issuers must have been subject to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) for at least 90 days. The 90 day period begins on the date of effectiveness of the issuer’s registration statement under Section 12 of the Exchange Act. If the issuer filed an S-1 registration statement under the Securities Act which precedes effectiveness of a Section 12 registration statement, the 90-day waiting period will commence on the effective date of the Form S-1. If an issuer is delinquent in its SEC reports it may not satisfy the current public information requirement because it provided SEC Rule 15c2-11 information.
Additionally, SEC reporting companies must have filed all reports required to be filed during the preceding 12 months or such shorter period that reports were required to be filed in order to have provided current public information.
Where an SEC reporting company fails to make a required SEC filing, the safe harbor of Rule 144 is not available for the resale of its shareholders’ shares. Shareholders relying upon Rule 144 must be selling until the current public information requirement is satisfied by the issuer.
Shareholders risk non-compliance with Rule 144 if they sell securities after an issuer files a Form 12b-25 because if the issuer fails to file the late report, any sales made during the delinquent period do not satisfy the requirements of Rule 144. Where a public company files the report late, sales made after the filing of the 12b-25 but before the late filing, must satisfy Rule 144’s current public information requirements.
Non-Reporting Issuers
A non-reporting issuer may satisfy the current public information requirement of Rule 144 by providing the information specified in Rule 15c2-11of the Exchange Act, making it publicly available and keeping the information current. Securities of issuers quoted by the OTC Markets with a Pink Sheet Current information disclosure tier satisfy the requirements of Rule 15c2-11.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com
