Regulation A+ Q&A

Regulation A+ expands existing Regulation A. Existing Regulation A provides an existing exemption from registration for smaller issuers of securities. Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction allowing the issuer to avoid the risks of reverse merger transactions. Regulation A+ simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority while allowing the issuer to raise initial capital. This blog post addresses the most common questions we receive about Regulation A+.

Can All Companies Use Regulation A+?

No. Regulation A+ offerings can only be conducted by companies that are domiciled in and have their principal place of business in the United States or Canada. As such, foreign issuers may not conduct Regulation A+ offerings and must locate an alternative exemption for their unregistered offering.

What Securities Can Be Registered on Form 1-A Under Regulation A+?

Regulation A+ is limited to shares, warrants and convertible equity securities.

How Much Can I Raise with Regulation A+?

Tier 1 of Regulation A+ is available for offerings of securities of up to $20 million in a 12- month period, with no more than $6 million in offers by selling security- holders that are affiliates of the issuer. Tier 2 is available, for offerings of securities of up to $50 million in a 12-month period, with no more than $15 million in offers by selling security-holders that are affiliates of the issuer. Read More

Investment Banker in Insider Trading Scheme

According to the SEC, Woojae “Steve” Jung, an investment banker at Goldman Sachs, used confidential client information to trade in the securities of 12 different companies prior to the announcement of market-changing events. He used his access to highly confidential information, to place illegitimate and highly profitable trades in advance of deal negotiations in which the bank was providing investment banking services. He placed illegal trades and generate profits of approximately $140,000.

On May 31, 2018, The Securities and Exchange Commission (“SEC”) charged an employee of a well-known bank with frequently using his access to highly confidential information in order to place illegitimate and highly profitable trades in advance of deal negotiations in which the bank was providing investment banking services. Read More

Steven Pagartanis Charged for Defrauding Customers

On May 30, 2018, the Securities and Exchange Commission (“SEC”) charged a former Long Island registered representative with defrauding long-standing brokerage customers in an $8 million investment scam. According to the SEC, Steven Pagartanis, who was an associate with a broker-dealer in Long Island, NY, defrauded investor and retiree customers, that he would invest their funds in either a public or private land development company.   The SEC’s complaint, charges Pagartanis with violating the anti-fraud provisions of the federal securities laws.

The SEC alleges, Steven Pagartanis, who was an associate with a registered broker-dealer in Long Island, NY, he falsely told investor and retiree customers that he would invest their funds in either a public or private land development company.  He assured that the funds would be safe and promised guaranteed monthly interest payments on the investments.  Pagartanis’s directed his customers to write checks payable to an entity that Pagartanis secretly controlled.  As a result, the customers invested approximately $8 million to Pagaratanis. Pagartanis used the funds to pay personal expenses and make the promised “interest” payments to his customers.  To defraud customers,  Pagartanis created fake account statements reflecting ownership interests in the land development companies. The scheme became public earlier this year when Pagartanis quit making the phony interest payments to customers. Read More

Form S-1 Filing Requirements, Filing Form S-1, S-1 Offering, S-1 …

Private companies often file a registration statement on SEC Form S-1 in connection with their going public transaction.  The most commonly used registration statement form is Form S-1. All companies qualify to register securities on a Form S-1 registration statement. Private companies going public should be aware of the expansive disclosure required in registration statements filed with the SEC prior to making the decision to go public. A registration statement on Form S-1 has two principal parts which require expansive disclosures.  Part I of the registration statement is the prospectus, which requires that the company provide certain disclosures about its business operations, financial condition, and management. Part II contains information that doesn’t have to be delivered to investors.

Private companies often file a registration statement on SEC Form S-1 in connection with their going public transaction.  The most commonly used registration statement form is Form S-1.
All companies qualify to register securities on a Form S-1 registration statement. Private companies going public should be aware of the expansive disclosure required in registration statements filed with the SEC prior to making the decision to go public. A registration statement on Form S-1 has two principal parts which require expansive disclosures.  Part I of the registration statement is the prospectus, which requires that the company provide certain disclosures about its business operations, financial condition, and management. Part II contains information that doesn’t have to be delivered to investors. Read More

Constellation Healthcare Technologies Executives Charged with Fraud

On May 16th, 2018, the Securities and Exchange Commission (“SEC”) charged three former executives for Constellation Healthcare Technologies Inc. (Constellation), a Houston- based company, who falsified financial and other information they provided to a private firm while negotiating the private firm’s acquisition of a majority stake in Constellation. A little more than a year after the January acquisition, Constellation filed for bankruptcy in March.

According to the SEC, the executives persuaded a private firm to acquire a majority of Constellation’s equity and provided fake information, including financial statements for three fictitious subsidiaries supposedly acquired for more than $62 million. The complaint alleges that the former executives funded the bogus acquisitions with stock sales in London and then pocketed the proceeds for themselves.  The complaint charges former Constellation chief executive Parmjit (Paul) Parmar, former chief financial officer Sotirios (Sam) Zaharis, and former company secretary Ravi Chivukula. In September 2017, amid doubts about Constellation’s financial condition, Parmar resigned and Zaharis and Chivukula were put on administrative leave.  Similarly, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Parmar, Zaharis, and Chivukula. Read More

Chardan Capital Charged by SEC

On May 16, 2018, the Securities and Exchange Commission (“SEC”) charged Chardan Capital Markets LLC (Chardan Capital) and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), a New York City based brokerage firm, alleging the report of suspicious sales of 12.5 billions in penny stock shares.On May 16, 2018, the Securities and Exchange Commission (“SEC”) charged Chardan Capital Markets LLC (Chardan Capital) and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), a New York City based brokerage firm, alleging the report of suspicious sales of 12.5 billions in penny stock shares.

According to the SEC, from October 2013 to June 2014, Chardan, an introducing broker, liquidated more than 12.5 billion penny stock shares for seven of its customers and ICBCFS cleared the transactions.  Chardan failed to file any SARs even though the transactions raised red flags, including similar trading patterns and sales in issuers who lacked revenues and products.  The SEC found that ICBCFS similarly failed to file any SARs for the transactions despite ultimately prohibiting trading in penny stocks by some of the seven customers. As noted in the complaint, guidance for preparing SARs from the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) clearly states that “[e]xplaining why the transaction is suspicious is critical.” To help detect potential securities law and anti-money laundering practices, broker-dealers are required to file Suspicious Activity Reports (SARs) that describe suspicious transactions that take place through their firms. Read More

SEC Charges Gregory Bercowy with Market Manipulation Scheme

John Bocchino - FINRAOn April 4, 2018, the Securities and Exchange Commission today charged Gregory Bercowy with a fraudulent scheme to manipulate the stock price of Aureus, Inc., a penny stock company incorporated in Nevada.

The SEC alleges that between August 4 and August 15, 2016, Gregory Bercowy, who is associated with a state-registered investment adviser, sold shares of certain Fortune 500 companies, including Abbott and Apple, in his relative’s brokerage account in order to buy over three million shares of Aureus at a total cost of more than $2.8 million. According to the SEC’s complaint, while Gregory Bercowy was accumulating these shares of Aureus, he entered (and later cancelled) a large number of orders to buy Aureus shares at prices higher than the then-current price of the stock. The orders allegedly were intended solely to maintain or boost the stock’s price. The price per share of Aureus securities increased from $0.52 on August 4, 2016, to $1.62 on August 16, 2016. According to the SEC’s complaint, Gregory Bercowy stated in recorded phone calls with a representative of a brokerage firm that he and others were trying to boost Aureus’s stock price. Read More

SEC Charges Andrew Kandelapas in Penny Stock Fraud Scheme

Anthony Portelli - SEC ChargesOn April 13, 2018, the Securities and Exchange Commission charged Andrew Kandelapas with making false and misleading statements in the company’s SEC filings and press releases and with manipulating the company’s stock.

The SEC’s complaint against Andrew Kandalepas, the CEO of Wellness Center USA, Inc. (Wellness), filed in the U.S. District Court for the Northern District of Illinois, alleges that Andrew Kandelapas took $450,000 in unauthorized withdrawals from the company and then concealed his actions by causing Wellness to characterize his withdrawals as salary, prepayments, or loans in false and misleading Forms 10-K and 10-Q. The complaint further alleges that Andrew Kandelapas caused the company to issue false and misleading press releases touting non-existent sales of medical devices by a Wellness subsidiary.

According to the complaint, Andrew Kandelapas also manipulated the market for Wellness stock through secret trading in a friend’s brokerage account and pocketed more than $130,000 from his secret trading. According to the complaint, Andrew Kandelapas coordinated trading with Matthew Mushlin, who Andrew Kandelapas hired as an unregistered broker to solicit investments in Wellness through private placement agreements.

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John Milne Sentenced to Two Years Imprisonment for Failing to Pay Millions to SEC

Woodbridge - Corporate DocumentsOn April 17, 2018, a federal district court sentenced the John Milne to two years imprisonment for violating the conditions of his supervised release by failing to pay court-ordered disgorgement in a civil action brought by the Securities and Exchange Commission.

In 2008, the SEC charged John Milne and others with fraud for engaging in a series of fraudulent transactions to meet URI’s forecasts and analyst expectations. A federal grand jury in the District of Connecticut also indicted John Milne in a parallel criminal action. John Milne subsequently pleaded guilty and agreed to settle the SEC’s charges. The judgment entered against John Milne in the SEC’s action ordered him, among other things, to pay disgorgement and interest of $6.25 million. Before John Milne was sentenced, he paid $1 million to the SEC. As part of John Milne’s criminal sentence, the court ordered him to pay the remaining $5.25 million to the SEC as a condition of his supervised release.

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SEC Charges Clifton Stanley in Multimillion Dollar Ponzi Scheme Targeting Seniors

Marc Celello - Ponzi SchemeOn April 6, 2018, the Securities and Exchange Commission charged Clifton Stanley in a $2.4 million Ponzi scheme and in a related, $1.4 million offering fraud targeting retirees.

The SEC’s complaint alleges that, from 2010 to 2017, Clifton Stanley ran a Ponzi scheme through his retirement planning and real estate investment business, The Lifepay Group, LLC. Clifton Stanley is alleged to have lured at least thirty elderly victims to invest approximately $2.4 million of their retirement savings with baseless promises and claims of outsized investment returns. He kept the scheme afloat for years by paying early investors with later investors’ funds and by convincing investors to roll over their investments. The SEC further alleges that Clifton Stanley pilfered from the estate of an elderly woman’s family trust, diverting nearly $100,000 to fund the Lifepay Ponzi scheme. In addition, the SEC’s complaint alleges that, beginning in 2015, Clifton Stanley and Michael E. Watts orchestrated a second offering fraud through a company they controlled, SMDRE, LLC. Clifton Stanley and Watts allegedly used a collection of misrepresentations and empty promises to convince a group of predominantly elderly victims to invest roughly $1.4 million in SMDRE. Read More