Ask Securities Lawyer 101 l Financial Intermediaries
It is not unusual for a private or public company to be approached by financial intermediary (“Intermediary”) that offers to locate investors in exchange for a fee. Most Intermediaries are not registered as broker-dealers with the Securities and Exchange Commission (the “SEC”).
While many Intermediaries are aware of the factors that will determine whether their services will be deemed unregistered broker dealer activity, few are aware of the Read More
SEC Revokes Five Issuers to Prevent Reverse Merger Scams
On May 24, 2013, the Securities and Exchange Commission (“SEC”) revoked the registrations of Enercorp, Inc. (ENCP), FTS Group, Inc. (FLIP), Games, Inc. (n/k/a InQBate Corporation; INQB), Hartmarx Corporation (n/k/a XMH Corp. 1; (HTMXQ), and Penn Treaty American (PTYA) by default in order to avoid reverse merger scams. Read More
FINRA Prohibited Conduct l Broker-Dealer Lawyers
The Financial Industry Regulatory Authority (“FINRA”) require that broker-dealers and market makers observe “high standards of commercial honor and just and equitable principles of trade.” FINRA rules also prohibit broker-dealers and market makers from “any manipulative, deceptive, or fraudulent actions.”
Prohibited Conduct l Broker-Dealers l Market Makers
As a warning to the public, FINRA has drawn up a list of specific examples of activities that constitute serious violations of its rules and regulations. These violations harm investors and jeopardize the integrity of the securities markets. Some of the examples used by FINRA are self evident and apply to all market participants, not just those regulated by FINRA. Read More
Penny Stock CEO and Co-Conspirator Convicted of Securities Fraud
On May 3, 2013, in connection with an action that went unnoticed by most penny stock observers, the U.S. Attorney’s Office for the District of Massachusetts announced that John Jordan, of Cameron Park, California, and James Prange, of Greenbush, Wisconsin, Read More
Five Charged by SEC in Venezuelan Fraudulent Bond Kickback Scheme
In June 12, 2013, the Securities and Exchange Commission (“SEC”) brought an action against an additional defendant for his role in a frauduent kickback scheme involving the payment of millions of dollars in bribes to a Venezuelan finance official in order to obtain the bond trading business of a state-owned Venezuelan bank, the Banco de Desarrollo Económico y Social de Venezuela (“BANDES”).
In its latest SEC action, the SEC charged Ernesto Lujan of Miami, the former head of the Miami office of Direct Access Partners. The four original defendants named in Read More
SEC Revokes Registration of Sunrise Solar
Securities Lawyers Gone Wild Series
Sunrise Solar’s most recent financial report filed was a 10-Q for the period ended March 31, 2009.
According to the SEC action, Sunrise Solar purported to be in the solar power business, and was located in San Antonio, Texas. The Read More
SEC Brings Charges in California Alzheimer’s Scam
Company President Lies to Investors
Most people think of the Securities and Exchange Commission (“SEC”) as a regulator of publicly traded companies. But the SEC’s authority extends to any company or individual—public or private—that offers or sells securities. If the Read More
Securities Lawyers Gone Wild – Michael Stewart
On June 21, 2013, the Securities and Exchange Commission (“SEC”), suspended Michael Stewart, a California securities attorney, from practicing before the SEC. The sanction stemmed from an SEC enforcement action brought by the agency in May 2012; Stewart agreed to settle.
In it, the SEC charged Stewart, John J. Packard, Randall A. Smith, and Apartments Read More
San Diego Penny Stock Promoter Charged with Securities Fraud
In the latest twist to the Bermuda Short Sting of 2003, on June 19, 2013, the Securities and Exchange Commission (“SEC”) Division of Enforcement charged David F. Bahr of Rancho Santa Fe, California, with securities fraud for attempting to generate the appearance of market interest in a penny stock in an effort to cause investors to buy the stock. Unfortunately for Bahr, his problems didn’t end with the SEC’s investigation of his securities fraud.
Bahr’s target was iTrackr Systems (IRYS), a Florida company. According to the SEC’s Division of Enforcement, Barr participated in securities fraud by conspiring with a purported businessman who claimed to have access to a network of crooked brokers willing to help out with the fraudulent scheme in return for kickbacks in the amount of 30% of the price of stock they’d purchase through their customers’ accounts. Read More
SEC Revokes Registration of 8 Issuers to Prevent Corporate Hijackings
On June 17, 2013, the Securities and Exchange Commission (“SEC”) revoked the registrations of the securities of Avani International Group, Inc. (AVIT), Birch Mountain Resources Ltd. (BHMNF), Capital Reserve Canada Ltd. (CRSVF), Dynasty Gaming Inc. (n/k/a Blue Zen Memorial Parks, Inc., DNYFF), IXI Mobile Inc. (IXMO), Millennium Energy Corp. (MLME), Shannon International, Inc. (SHIR), and Read More
GenMedx Inc. Changes and Ticker Symbol l Securities Lawyer 101
Boca Raton, Florida, May 20, 2013, GenMedx, Inc., a Nevada corporation announced its new name and trading symbol. GenMedx, Inc. is now Pyramidion Technology Group, Inc. Effective June 19, 2013, the Company commenced trading on the OTCMarkets under the trading symbol “PYTG”. The previous trading symbol was GMDX. The name change from GenMedx, Inc. to Pyramidion Technology Group, Inc. was effected through a Certificate of Amendment filed with the state of Nevada. The name and symbol change was approved by the Financial Regulatory Authority, effective June 19, 2013. Read More
What Are Short Sale Failures to Deliver?
In recent weeks, it has been claimed that microcap issuers are the target of rumor mongering by stock bashers working in collusion with market makers and notorious short sellers. It is sometimes difficult to differentiate between legitimate short selling and unlawful manipulative short selling, and to determine whether a stock’s price has declined as the result of dilution or short sales, particularly in the penny markets. Regulation SHO addressed failures-to-deliver in short sales by imposing obligations on broker-dealers and attaching liability for non-compliance.
Rule 10b-21 of the Securities and Exchange Act of 1934 (the “Exchange Act”) provides liability for the short seller who fails to deliver under certain circumstances. Read More
How Do Reverse Splits Affect My Shares? Going Public
Reverse stock splits are often used by public companies to reduce the amount of securities outstanding. Reverse splits are also used by private companies in corporate restructurings. Typically in a reverse split, a company reduces the number of its outstanding shares in proportion to the ratio of the reverse stock split so that each stockholder the same percentage of the company’s outstanding shares immediately prior to and after the reverse split. If approved and effected, the reverse stock split will be realized simultaneously and in the same ratio for all of the company’s common stock. The reverse stock split will affect all holders of the company’s common stock uniformly and will not affect any stockholder’s percentage ownership interest in the company. Unfortunately, there is typically no set limit on the amount of shares a company may issue after a reverse split which would dilute investors. The reverse split reduces the shares outstanding thereby facilitating the issuer’s ability to issue more shares. Immediately upon a reverse split becoming effective, issuers often commence issuing new shares and diluting investors. Shares of issuers enacting reverse splits rarely hold the stock price seen upon effectiveness of the split.
Read More
OTCQX Eliminates Penny Stocks l Securities Lawyer 101
OTC Pink Sheets l Going Public Attorney
Private companies seeking to go public are opting to list on the OTC Markets OTC Pink Current tier. Companies seeking to public company status can list on the OTC Pink Current tier without filing a registration statement with the Securities & Exchange Commission (“SEC”) if they meet the minimal requirements of the OTC Markets.
The OTC Pink Current tier is available to issuers who do not file reports with the SEC, but voluntarily provide specific disclosures required by OTC Markets through its website located at Read More
FINRA Investor Alert l Alternative Funds Not Typical Mutual Funds
Today, the Financial Industry Regulatory Authority (“FINRA”) issued a new Investor Alert concerning investments in alternative hedge funds (“Alternative Funds”). In the altert, FINRA cautioned investors about the unique characteristics and risks of Alternative Funds which are not present in traditional investments Read More
SEC Suspends Polar Petroleum Corp. l Securities Lawyer 101
On June 10, 2013, the Securities and Exchange Commission (the “SEC”) suspended trading in the securities of Polar Petroleum Corp. (“POLR”), a company quoted on the OTC Read More
What is a Regulation S Offering? Going Public Lawyers
Foreign private issuers may raise capital in the U.S. by registering an offering registered on a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) or by selling securities that are exempt from the SEC’s registration requirements. Many foreign issuers are not familiar with the regulations imposed by U.S. securities laws, and so must take significant precautions when offering and selling securities pursuant to an exemption from registration, to ensure compliance with state and federal securities laws.
Foreign private issuers may make private or limited offerings of securities by relying on exemptions from the registration requirements of the Securities Act. Foreign issuers going public can rely upon the exemptions provided by Regulation D of the Securities Act as well as Regulation S to obtain the seed shareholders required by FINRA. Read More
Reverse Mergers l Corporate Hijacking Scams l Securities Lawyer 101
Corporate hijackings of public shell companies–also called corporate identity theft–has been around for more than two decades. The public companies taken over in hijackings have become a valuable assets for shell peddlers (frequently securities lawyers & accountants) seeking reverse merger companies for their clients. They have also become a new target for the SEC. Read More
Ask Securities Lawyer 101 l Rule 144 Q & A
What is Section 5 of the Securities Act of 1933?
Section 5 of the Securities Act states that all offers and sales of securities must be registered under the Securities Act or exempt from the registration requirements.
What is the “safe harbor” of Rule 144? Read More
OTCQX and OTCQB Recognized as Established Public Markets
On May 16, 2013 the Securities and Exchange Commission (the “SEC”) updated its Established Public Market policy concerning the OTCMarkets OTCQX and OTCQB in its Compliance and Disclosure Interpretations in question 139.13. The SEC confirmed that the OTCMarkets OTCQX and OTCQB are now considered “established public markets” for the purpose of determining the public market price when registering securities for resale with the SEC in equity line financings.
The SEC’s decision comes after a decade of changes and improvements in technology, transparency and regulation in the OTCMarkets OTCQX and OTCQB marketplaces. The SEC’s changes mark an important development for SEC reporting issuers trading on the OTCMarkets. Until now, these issuers have not been able to rely upon the stability, depth and breadth of broker-dealers quoting and trading on the OTCQX and OTCQB marketplaces to establish a public market price when raising capital. Read More
SEC Charges Laidlaw and Its CEO for Securities Violations
On June 5, 2013, the Securities and Exchange Commission (the “SEC”) charged penny stock issuer, Laidlaw Energy Group. According to the SEC charges, Laidlaw and its CEO, Michael B. Bartoszek sold more than two billion unregistered and non-exempt shares of Laidlaw’s common stock in 35 issuances to three commonly controlled buyers at heavily discounted prices. Laidlaw received $1.2 million in proceeds.
Laidlaw is purportedly a developer of facilities that generate electricity from wood biomass. According to the SEC, Laidlaw’s sole source of income was the illegal offering proceeds. According to the SEC charges, Laidlaw failed to disclose to investors that it had issued the large blocks of unrestricted shares to the three buyers or that it relied on the proceeds to fund all of its operations. Read More
Ask Securities Lawyer 101 l Rule 506 Q & A
Private placements are a cost effective and relatively quick way for private companies to raise capital prior to a going public transaction. They are an appealing option because they are much less expensive and do not require as much time as an initial public offering or registration statement. The most commonly used exemption in private placements is Rule 506 of Regulation D. This blog post addresses the common questions we receive about private placement offerings made in reliance upon Rule 506. Read More
Ask Securities Lawyer 101 l Short Sale Q & A
Short selling can be a legitimate trading strategy. It is often endorsed for its beneficial effects on the securities markets, which include increasing liquidity. It 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 a short sale is under what circumstances it becomes illegal. Read More
Ask Securities Lawyer 101 l Form D Q & A
Form D Question & Answer
The most common exemptions used by companies to sell stock prior to going public are those found in Regulation D of the Securities Act. Many private companies going public do not realize that a filing with the SEC is required even for offerings to initial shareholders in private placements made under Regulation D. This blog post addresses common questions we receive about Form D’s requirements.
Q. What Is a Form D?
OTC Markets Pink Sheet Lawyer Q & A
OTC Markets Pink Sheet
Q. What are the benefits of listing on the OTC Markets OTC Pink Sheets?
A. There are a couple of benefits for companies opting to list on the OTC Pink Sheets.
Pink Sheet listings are much less expensive and the disclosure requirements are less stringent than a listing on the OTC Markets OTCQB because audited financial statements are not required. Despite that audited financial statements are not required, issuers Read More
DTC Eligibility Question & Answer – Going Public Attorney
Q. What is The Depository Trust Company (DTC)?
A. DTC is the only stock depository in the United States.
Q. Why is DTC so important to public companies?
A. When DTC provides services as the depository for an issuer’s securities, its securities can trade electronically. Without DTC eligibility, it is almost impossible for an issuer to establish an active market in its stock.
Q. How do public companies obtain DTC eligibility?
A. Issuers must satisfy specific criteria to receive initial DTC eligibility, and to remain DTC eligible. In order to do so, the issuer must provide an opinion from its securities and/or going public attorney. Even after those securities become eligible, DTC may limit or terminate its services. Read More
SEC Issues Trading Suspensions of 61 Companies
In a follow-up to its mass trading suspension of 379 over-the-counter issues on May 14, 2012, the SEC today announced the second largest trading suspension in its history as it continues its “Operation Shell Expel” crackdown against the manipulation of microcap shell companies that are ripe for fraud as they lie dormant in the microcap market.
Dormant shells often become the victims of shell hijackers who fill fraudulent state court proceedings in order to obtain voting control of the entity. These proceedings most take the form of state receivership or custodianship actions. In addition to the use of fraudulent pleadings, the hijackers intentionally fail to provide the notices required by state law to the dormant company’s legitimate shareholders and management. Read More
Going Public Options for Foreign Companies
Foreign companies seeking access to the U.S. public markets have several options in going public transactions. Often, foreign companies seeking to raise capital from investors obtain public company status in the U.S. to attract investors.
Foreign companies that go public in the U.S. may complete a public offering by registering securities with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”).
Under SEC rules, foreign companies that qualify as “foreign private issuers” have the option but not the obligation to use rules available to foreign companies going public in the U.S.
Foreign Private Issuer Qualification Read More
Bradley Holcom Indicted in $50 Million Securities Offering l Securities Attorney 101
On May 15, 2013, the U.S. District Court for the Southern District of California charged Bradley Holcom with eight counts of mail fraud, four counts of wire fraud, and one count of securities fraud in connection with a $50 million securities offering he conducted between 2004 and 2010, to 150 investors. Read More
