SEC Proposes Improvements to Governance of National Market System

National Market System

The Securities and Exchange Commission (SEC) wants to improve the regulation surrounding market data plans. They are seeking public comment on a proposed order that would modernize the governance of National Market System (NMS). According to Wikipedia, “The National Market System (NMS) is the national system for trading equities in the United States. The System includes all the facilities and entities which are used by broker-dealers to fulfill trade orders for securities. This includes: Major stock exchanges, such as NYSE and Nasdaq.” The SEC is hoping to improve how the NMS disseminates data from trading venues.

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Form S-1 Registration Statement Requirements – Going Public

Form S-1 registration statements are the most commonly used registration statement form.  It allows issuers to register various types of offerings and the form can be used by both public and private companies engaged in going public transactions.  A Form S-1 registration statement has two principal parts which require expansive SEC disclosures.  Part I of the Form S-1 registration statement is the prospectus which requires that the company provide certain disclosures about its business, financial condition, and management.

Form S-1 registration statements is the most commonly used registration statement form. Form S-1 permits issuers to register various types of offerings and the form can be used by both public and private companies engaged in going public transactions.  A Form S-1 registration statement has two principal parts which require expansive line item SEC disclosures.  Part I of the Form S-1 registration statement is the prospectus which requires that the company provide certain disclosures about its business, financial condition, and management. Read More

SEC Proposes to Modernize Auditor Independence Rules

auditor independence

On December 30, 2019, just before the start of the new year, the Securities and Exchange Commission (SEC) “announced that it is proposing amendments to codify certain staff consultations and modernize certain aspects of its auditor independence framework.” These proposals would update certain aspects of the almost twenty-year-old auditor independence rule set to more effectively structure the independence rules and analysis so that relationships and services that would threaten an auditor’s objectivity and impartiality do not result in non-substantive rule breaches or force a commitment of too much time to an audit committee review of non-substantive matters.

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Dead Stock Walking | Dormant Issuers and Reverse Merger Risks

 SEC Trading Suspension Attorney
In recent years, the SEC has issued trading suspensions and revoked the registration of numerous publicly traded companies many of which were dormant tickers at one time.
These SEC enforcement proceedings were brought under Section 12(j) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Section 12(j) authorizes the SEC to suspend or revoke registration of an SEC reporting company if it fails to comply with its obligation to file quarterly and annual reports.This authority arises from the Exchange Act, if the SEC finds that a suspension or revocation is in the public interest or necessary for the protection of investors.

The SEC staff argues that these proceedings are necessary to discourage the investing public–by which they mean potential, not current, investors–from buying securities of companies about which there is no current information. Read More

What is Form 10 Information? Going Public Attorneys

Form 10 Registration Statement Lawyers
Securities Lawyer 101 Blog

Form 10 is a Registration Statement used to register a class of securities pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”).  This blog post addresses common questions we receive from clients about Form 10 registration statements. All companies can register a class of securities on Form 10 regardless of whether they are private companies or publicly traded.  This blog post addresses the most common questions we receive about Form 10 registration statements.

Q.  When is a company required to file a Form 10 registration statement with the SEC? Read More

Accredited Crowdfunding With Rule 506(c) – Going Public Attorneys

Accredited Crowdfunding Attorney

Private placement offerings under Rule 506(c) of Regulation D of the Securities Act of 1933, as amended (“Securities Act”) are a cost-effective and relatively quick way for private companies to raise capital before, during, and after a going public transaction. The JOBS Act created Rule 506(c) which has become known as the “Accredited Crowdfunding” exemption.

Accredited Crowdfunding under Rule 506(c) fundamentally changed the way unregistered offerings are conducted. While the Accredited Crowdfunding rules impose stringent requirements, these requirements are manageable for issuers putting effective compliance strategies into place. Accredited Crowdfunding under Rule 506 offerings are frequently used to raise capital in connection with going public transactions that involve filing a registration statement on Form S-1. Accredited Crowdfunding under Rule 506(c) has become a popular means of obtaining seed shareholders in going public transactions.

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Blue Sky Laws and Secondary Trading and Resales in Regulation A Offerings

Resales and Secondary Trading in Regulation A

State Blue Sky laws apply to Regulation A Offerings for both the offer and sale of securities by the issuer and the resale by investors.  A sometimes overlooked consideration in  Regulation A+ offerings is how these State Blue Sky laws impact liquidity and resales by investors in the offering, referred to as secondary sales.  Considering market liquidity for investors is important for a successful capital raise so that investors understand their exit strategy.

Generally, every offer and sale of a security must either be registered with the U.S. Securities & Exchange Commission (“SEC”) or the offer and sale must qualify for a SEC Exemption from registration. This is true for both offerings by the issuer of the securities and resales by investors who purchase the issuer’s securities.  Like the federal securities laws, State Blue Sky laws provide for securities registration and exemptions from such registration. Read More

SEC Charges Recidivist Keith Springer with Defrauding Retirees

keith springer

On December 19, 2019, the Securities and Exchange Commission (SEC) charged Sacramento, California-based investment adviser firm Springer Investment Management, Inc. dba Springer Financial Advisors (SFA) and owner Keith Springer with defrauding hundreds of retail clients, most of them in or close to retirement. Meanwhile, Springer was paying outside agencies to hide his fraudulent past from internet searches and instructing his employees not to disclose the information to clients or potential clients. In the past, he has been alleged with charging clients 2%, while moving their investments into a third party fund that charged 0.35%.

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Is Regulation A the Same as Regulation A+ ? Securities and Crowdfunding Lawyers

Is Regulation A the Same as Regulation A+ - Securities and Crowdfunding Lawyers

1. Overview of the Regulation A+ Exemption

On March 25, 2015, the Securities and Exchange Commission (the “SEC”) created Regulation A+ by adopting final rules to implement Section 401 of the Jumpstart Our Business Startups (JOBS) Act by expanding Regulation A into two tiers. Regulation A+ has had a notable impact on companies going public. One key benefit of Regulation A+ is that companies using Regulation A+ can comply with scaled down SEC reporting requirements.

Tier 1 of Regulation A+ provides an exemption for securities offerings of up to $20 million in a 12-month period while Tier 2 provides an exemption for securities offerings of up to $50 million in a 12-month period. An issuer of $20 million or less of securities in its offering can elect to proceed under either Tier 1 or Tier 2.

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SEC Files Charges in Ponzi Scheme Targeting Hispanic Community

ponzi scheme

Edward Espinal, a 44-year-old from Wayne, New Jersey, and his company, Cash Flow Partners LLC, were charged by the Securities and Exchange Commission (SEC) on December 19, 2019, for perpetrating a Ponzi Scheme that mainly targeted members of the Hispanic community. The scheme is alleged to have raised over $5 million from around 90 investors. Cash Flow Partners used online videos and advertisements to target its victims. These videos included a former telenovela star. Cash Flow also hosted seminars where it promised to help low-earning individuals obtain bank loans.

The SEC‘s complaint “alleges that from at least July 2016, Espinal and Cash Flow Partners deceived investors into believing that they were investing in a pooled fund that would purchase and renovate houses, and then flip the houses for profit. Espinal and Cash Flow Partners allegedly guaranteed investors rates of return between 1.25% and 4% per month. T Read More

Is Form 10 Registration Different than Form S-1?

Form S-1 registration statements provide issuers with flexibility in going public transactions.  A registration statement on Form S-1 can be used to register specific securities for a company to sell to investors and specific shares for the company’s shareholders to resell publicly. Form S-1 can be used to register both simultaneously. Form S-1 registration statements can be used for a Direct Public Offering (“DPO”) or Initial Public Offering (“IPO”) and can be structured a variety of way depending upon the particular transaction.

Using Form S-1, the issuer or its shareholders are able to sell unrestricted securities and if structured properly, qualify for a ticker symbol assignment by the Financial Industry Regulatory Authority (“FINRA”) Read More

Raising Money For Your Business – Private Placement Memorandums

What is a Private Placement Memorandum?

What is a Private Placement Anyway?

A Private Placement Memorandum is sometimes referred to as a confidential offering circular or an offering memorandum.  Private Placement Memorandum’s are used by private companies who intend to stay private and as part of a going public transaction. Private placements are also used by existing public companies to raise capital by selling either debt or equity pursuant to an exemption from SEC registration such as that found in Rule 506 of Regulation D.  Private Placement Memorandum disclosures vary depending on whether the investor is accredited or non-accredited and whether the Company is subject to the SEC’s reporting requirements. When a Company sells equity, it most often offers common shares to investors who become shareholders of the Company. In going public transactions, the shares held by these investors will often by registered on Form S-1 so that the Company meets the requirements of the Financial Industry Regulatory Authority (“FINRA”) to obtain its ticker symbol assignment.

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The Securities Act of 1933 – Liability Provisions

SEC Investigation

The Securities Act of 1933, as amended (the “Securities Act”) is often referred to as the “truth in securities” law. The Securities Act requires disclosure of financial and other material information about securities that are being offered for sale to the public.  The Securities Act also prohibits deceit, misrepresentation, and other types of fraud in connection with the offer and sale of securities.

All securities sold in the U.S. must be registered with the Securities & Exchange Commission (the “SEC”) or be exempt from registration. The disclosures required by the Securities Act are most often provided in a registration statement. Smaller companies might publish these disclosures in a Form 1-A Offering Circular under Regulation A. These disclosures allow investors to make informed decisions about whether to purchase a security. Read More

Going Public Rule 506(b) – The Friends and Family Round

Rule 506(b) – The Friends and Family Round

Seed Capital and the Friends and Family Round

Many small companies seeking to raise funds for their business raise initial seed capital from friends and family. Even when raising funds in a friends and family round, federal securities laws are applicable.

Do the Securities Laws Apply to the Friends and Family Round?

Generally, under federal securities laws in order to raise capital from investors even in a friends and family round, you must register the securities with the U.S. Securities & Exchange Commission (“SEC”).  There are several forms of SEC registration statements available to public or private companies, with the most common being Form S-1 for domestic issuers and Form F-1 for foreign private issuers. Because the SEC registration statement can be time consuming and burdensome, many companies seek to rely upon an exemption from SEC registration to raise their seed capital.

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SEC Awards Whistleblowers For Reporting Securities Fraud

sec whistleblowerOn January 22, 2020, the  Securities and Exchange Commission (“SEC”)  announced two whistleblower awards in connection with two separate SEC  enforcement actions.  Both whistleblowers provided significant information that helped the SEC shut down two separate fraudulent schemes involving retail investors.  In the first action, the whistleblower alerted the agency to a fraudulent scheme.  The whistleblower received a SEC bounty of more than $277,000.  In the second action, the whistleblower, a harmed investor, provided critical information that enabled the SEC staff to recover assets that were later returned to victims.  The whistleblower received a SEC  bounty of $45,000.

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MetLife Settles SEC Charges with $10 Million Payment

metlife sec

Due to longstanding internal control failures, MetLife has agreed to pay $10 million to settle the charge that was brought forward by the Securities and Exchange Commission (SEC). According to Reuters, which reported on the news, “The settlement follows a probe by the SEC into the company’s failure to pay some workers’ pensions, which MetLife disclosed in December 2017. The agency found MetLife violated key provisions of the federal securities laws relating to two errors in how it accounted for reserves associated with its annuities businesses, it said in Wednesday’s statement.”  Read More

SEC Charges Broker-Dealers With Illicitly Profiting in Partial Tender Offer

Partial Tender Offer

Bluefin Trading LLC and Critical Trading LLC were charged by the Securities and Exchange Commission (SEC) on December 18, 2019, for violating what is known as the “short tender rule” and “enriching themselves at the expense of other participants in a partial tender offer.” Both of these trading companies are based in New York, New York. The partial tender offer in question regards the common stock of Lockheed Martin Corp., which is known for making weapons.

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Form S-3 Registration Statement Requirements – Securities – Going Public Lawyers

Form S-3 Registration Statement Attorneys

Form S-3 is a short-form registration statement that consists primarily of information about the specific transaction. Only certain eligible issuers can register a securities offering on Form S-3 after their going public transaction.  Not all public companies can register securities on Form S-3 even if the issuer is subject to SEC reporting requirements.

Much of the information required by Regulation S-K can be incorporated by reference from the issuer’s current and future periodic reports and proxy statements filed with the Securities and Exchange Commission (“SEC”).  Because the Form S-3 allows the incorporation by reference of future filings made by the issuer, the registration statement is automatically updated every time the issuer files a new Exchange Act report or other filing incorporated by reference. Read More

Illinois pardons over 11,000 people for low-level marijuana offenses

illinois marijuan

As CNN reports, the Governor of Illinois has decided to issue pardons for over 11,000 citizens of the state who have been convicted of low-level marijuana offenses. This action comes simultaneously with the legalization of weed for all adults in Illinois, making it the eleventh state to do so. CNN writes, “The law is also intended to help people held back from jobs, housing and financial aid for college because of drug convictions, according to state officials.” Now that marijuana is legal, it only makes sense for the people who were punished for it in the past to get some kind of leeway or reparations.

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Blockchain of Things Inc. (BCOT) Charged by SEC for Unregistered ICO

Blockchain of Things Inc. (BCOT)

Blockchain technology company Blockchain of Things Inc. (BCOT) settled charges brought against them by the Securities and Exchange Commission (SEC) on December 18, 2019, for conducting an unregistered initial coin offering (ICO). The New York-based startup Blockchain of Things conducted its ICO, in December of 2017, which was after the SEC had released its DAO Report Investigation, which reported that ICOs can in fact be securities offerings.

This is the latest in the string of many cases that the SEC has been bringing against unregistered token offerings. As cryptoiq.co puts it, “Blockchain of Things (BCOT) is the latest ICO to get obliterated by the SEC.” The SEC has shown that it is serious about ensuring cryptocurrencies are not used as a runaround of United States securities laws.

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SEC Proposes to Update Accredited Investor Definition to Increase Access

Accredited Investor

On December 18, 2019, the Securities and Exchange Commission made an announcement that could be a very big deal for many companies that want to go public to raise money. This announcement was a proposal that shows that the SEC is hoping to update the definition of “accredited investor” so that more people will qualify as an accredited investor, thus giving the public greater access to investments, and companies greater access to potential sources of cash flow.

SEC Chairman Jay Clayton said: “The current test for individual accredited investor status takes a binary approach to who does and does not qualify based only a person’s income or net worth. Modernization of this approach is long overdue. The proposal would add additional means for individuals to qualify to participate in our private capital markets based on established, clear measures of financial sophistication. I also am pleased that the proposal specifically recognizes that certain organizations, such as tribal governments, should not be restricted from participating in our private capital markets.”

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Confidential Submission of Draft SEC Registration Statements

Form S-1 Draft Registration Statements & Going Public Attorneys

Draft registration statements may be submitted to the SEC if certain conditions are present. The Jumpstart Our Business Startups Act (the “JOBS Act”) allows an “emerging growth company” to submit a draft of its registration statement filed pursuant to the Securities Act of 1933, as amended and exhibits to the Securities and Exchange Commission (the “SEC”) on a confidential basis. The most commonly used registration statement under the Securities Act is Form S-1. This blog posts addresses the common questions we receive about confidential registration statement submissions on Form S-1.

Q. When does an emerging growth company have to file its Form S-1 registration statement if I want it to be a confidential submission?

A. The JOBS Act requires that emerging growth companies file the initial confidential submission of their Form S-1 registration statement and all amendments to the registration statement with the SEC within 21 days prior to the registration statement’s anticipated effectiveness or road shows. Read More

Ulrick Debo and Kenneth Ciapala Charged By DOJ and SEC

SEC Enforcement has Charged Kenneth Ciapla Ulrik Debo 

The Boston and New York SEC and DOJ Charge Ulrik Debo and Kenneth Ciapal and Others

The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ} charged Ulrik Debo, Kenneth Ciapala, Kenneth Ciapala, and a number of associates on January 2 and 3, 2020.  Unusually, two different SEC regional offices took part in the investigations, and produced two separate complaints.

One complaint, filed by the Boston Regional Office, charges Steve Bajic, Rajesh Taneja, Ciapala, Anthony Killarney, Christopher Lee McKnight, Andrew Dale Wise, and a number of nominee companies controlled by them with enabling public company control persons fraudulently to sell stock to retail investors in the U.S. over-the-counter securities market.  A second complaint, filed by the New York Regional Office in the Southern District of New York, targets Ciapala and his company Blacklight SA, which has its headquarters in Switzerland. Read More

SEC Proposes Disclosure Rules for Resource Extraction Issuers

Resource Extraction

The Securities and Exchange Commission (SEC) on December 18, 2019, voted to “propose rules that would require resource extraction issuers to disclose payments made to foreign governments or the U.S. federal government for the commercial development of oil, natural gas, or minerals.” Similar rules had previously been implemented by the agency U.S. District Court for the District Columbia and then disapproved by a joint resolution of Congress in 2016. Likely due to the importance of disclosures in the resource extraction industry, the SEC continued to attempt to navigate the legal necessities and implement rules that would be allowed by the Courts and Congress. You can read more about the new rules below:

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SEC Comments – Form S-1 – Going Public Lawyers

SEC Comments & Going Public

 

Private companies going public should consider Form S-1 filing requirements when contemplating their securities offering.  Private companies seeking to raise capital often file a registration statement on SEC Form S-1 to meet certain requirements of the Financial Industry Regulatory Authority when going public. Upon filing, a Form S-1 is reviewed by the  Securities and Exchange Commission, who may render SEC Comments. Once a Form S-1 is declared effective by the SEC, the company becomes subject to SEC reporting requirements.  All companies qualify to use and must comply with Form S-1 registration statement requirements.  Unlike a Form 10 registration statement which registers a class of securities,  Form S-1 registers specific securities offerings or transactions and it does not become effective until all SEC comments have been resolved. 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. Companies conducting securities offerings should also be familiar with the Form S-1 quiet period.

A registration statement on Form S-1 can be used to register various types of securities offerings and transactions with the SEC.   Form S-1 provides issuers with flexibility in the types of securities that can be registered. Hiring the right Form S-1 Registration Statement Lawyer can help the company structure its transaction in the most effective manner. Form S-1 is used more often by issuers than any other type of registration statement form and as a result, it provides flexibility.   Form S-1 registration statements can be used by existing public companies or companies in connection with a going public transactions.  Regardless of whether the company is public or private, Form S-1 can be used to registered various types of transactions, including an Initial Public Offering (“IPO), Direct Public Offering (“DPO”) or a Resale Registration or Selling Stockholder Offering.

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Regulation A+ Q & A – Regulation A+ Going Public Lawyers

Regulation A+ Lawyers Q&A

Regulation A Lawyers Explain Regulation A With Q&A

Regulation A provides an existing exemption from registration with the Securities and Exchange Commission (“SEC”) 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.

he process of “going public” with Regulation A is complex and can be structured a number of ways.  While going public offers many benefits it also comes with risks and quantities of regulations with which issuers must become familiar.   Despite the risks even in a down economy, the U.S. markets remain an attractive source of capital for both domestic and foreign issuers.  It is important for issuers to have an experienced securities attorney to help navigate through the process and deal with the SEC, Financial Regulatory Authority (“FINRA”) & Depository Trust Company (“DTC”).  Upon completion of a going public transaction, a non-reporting company is subject to the regulations that apply to companies using Tier 2 of Regulation A, including those of the Securities Act of 1933, as amended (“Securities Act”) and Securities Exchange Act of 1934, as amended (“Exchange Act”). Read More

SEC Improves Framework for Cross-border Security-based Swaps

Cross-border Security-based Swaps

On December 18, 2019 the SEC introduced new rules and guidance for security-based swaps that transcend borders. Many interested parties trade across borders and maintain different international locales. For more information, you can read the Fact Sheet released by the SEC below:

FACT SHEET

Final Rule Amendments and Guidance Addressing Cross-Border Application of Certain Security-Based Swap Requirements

Dec. 18, 2019

Background

The Commission has adopted rule amendments and provided guidance to address the cross-border application of certain security-based swap requirements under the Securities Exchange Act of 1934 (“Exchange Act”) that were added by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Read More

Amazon Bans Sale of CBD; Still Shipped Legally by USPS

cbd sale

As we write about often on our blog, the regulatory state of CBD is in flux, and owners of CBD companies should be aware of the challenges that they have to face in the current market. The world’s largest marketplace, Amazon.com, following the FDA’s finding that CBD cannot be ruled safe, has banned the sale of CBD products from their website. On the positive side, several months ago, the USPS decided that it would be legal for businesses to ship CBD and hemp products through its service, a position which has remained unchanged.

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Practical Considerations in Regulation A+ Offerings

regulation a+ considerations

WHAT YOU NEED TO KNOW ABOUT REGULATION A OFFERINGS

On March 25, 2015, The Securities and Exchange Commission (the “SEC”) adopted final rules to implement Section 401 of The Jumpstart Our Business Startups (JOBS) Act by expanding Regulation A into two tiers. These changes have had a notable impact on companies raising capital and going public particularly companies quoted by the OTC Markets. As amended Regulation A provides unique benefits not present in traditional securities offerings registered with the SEC on Form S-1 or Form F-1.

OVERVIEW OF REGULATION A

Regulation A consists of two exemptions, each with its own unique requirements. Tier 1 of Regulation A+ provides an exemption for securities offerings of up to $20 million in a 12-month period, while Tier 2 provides an exemption for securities offerings of up to $50 million in a 12-month period. An issuer of $20 million or less of securities in its offering can elect to proceed under either Tier 1 or Tier 2. The requirements of Regulation A+ Tier 1 and Tier 2 are summarized in the chart below. Read More

SEC Adopts New Rules 15Fi-3, 15Fi-4, and 15Fi-5

SEC Adopts New Rules 15Fi-3, 15Fi-4, and 15Fi-5

On Wednesday, December 18, 2019, the SEC adopted new rules 15Fi-3, 15Fi-4, and 15Fi-5, which they describe as risk mitigation techniques for uncleared security-based swaps.

These rules “establish requirements for registered security-based swap dealers and major security-based swap participants (“SBS Entities”) to:

  • Periodically reconcile outstanding security-based swaps with counterparties,
  • Engage in certain forms of portfolio compression exercises, as appropriate, and
  • Execute written trading relationship documentation with each of their counterparties prior to, or contemporaneously with, executing a security-based swap transaction.”

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