FINRA Bars Success Trade Securities By: Brenda Hamilton Attorney
This month Success Trade Securities was ordered to pay $13.7 million in restitution and expelled by a Financial Industry Regulatory Authority (“FINRA”) hearing panel. Success Trade Securities allegedly ran a Ponzi scheme targeting professional athletes. FINRA claimed that many of the athletes that invested were financially inexperienced and included Detroit Pistons guard Brandon Knight, and Cleveland Browns cornerback Joe Haden. Read More
Transparency Bootcamp – Custodianship Disclosures In Reverse Mergers
Recently custodianship and/or receivership proceedings involving publicly traded companies have been in the spotlight because of the increasing number of fraudsters seeking these appointments so that they can create their own personal inventory of public shell companies for reverse merger transactions. Because custodians are fiduciaries all states impose disclosure obligations on any person seeking appointment as a custodian. As explained below, fraudsters with disciplinary history go through considerable lengths to conceal their backgrounds. Read More
Transparency Bootcamp – BrokerCheck 101 By: Brenda Hamilton Attorney
Any investor seeking to find out information about a penny stock should begin by investigating management, brokers and the promoters involved with the issuer. FINRA BrokerCheck provides a free online database about brokers and brokerage firms, as well as investment adviser firms and representatives. Investors can learn whether current or former persons involved with the issuer has been sanctioned by securities regulators. Read More
SEC Extends DTC Proposal Period By: Brenda Hamilton
On December 5, 2013, The Depository Trust Company (“DTC”) submitted DTC proposals to change SR-DTC-2013-11 (“Proposed Rules”) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 19b-4 thereunder to the Securities and Exchange Commission (the “SEC”). On March 10, 2014, DTC filed Amendment No 2 to the Proposed Rules. On March 19, 2014, the SEC published Amendment Nos. 1 and 2 for comment, and instituted proceedings to determine whether to approve or disapprove the DTC Proposals, as modified by Amendment Nos. 1 and 2 (“Order Instituting Proceedings”). Read More
New OTCQB Requirements, Listing & Quotation
Hamilton & Associates Law Group – Client Update
The OTC Markets Group recently established new eligibility standards for the securities companies to quoted on the OTCQB® Venture Stage Marketplace. OTCQB companies must comply with the new OTCQB eligibility requirements within 120 days after its fiscal year end. This new requirements include an annual certification and annual fees. Issuers with a March 31st fiscal year end must comply with the new OTCQB eligibility requirements by July 31, 2014. Companies that do not comply with the new procedures within the time allowed will be demoted to the OTC Pink tier.
OTCQB Annual Certification
Under the new eligibility requirements, each OTCQB company will be required to post an annual certification through the OTC Markets website stating: (i) the company’s reporting standard and describing the registration status of the company; (ii) that the company is current in its SEC reporting requirements and such information has been posted either on the SEC’s EDGAR database or the OTC Markets website; (iii) the identity of the law firm and/or securities attorneys involved in the preparation of the issuer’s Annual Report or Form 10-K; (iv) the company’s public profile posted on the OTC Markets website is current and complete; (v) the total number of shares outstanding and in the company’s public float as of the most recent fiscal year end; and (vi) the names and securities ownership of all officers, directors, and shareholders holding more than five percent of the company’s shares outstanding. Read More
Form S-1 Going Public Bootcamp – Going Public Lawyers
The process of “going public” with a SEC registration statement is complex and at times precarious. 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 Securities & Exchange Commission (“SEC”), Financial Regulatory Authority (“FINRA”) & Depository Trust Company (“DTC”). Upon completion of a going public transaction, the company is subject to the regulations that apply to public companies, including those of the Securities Act of 1933, as amended (“Securities Act”) and Securities Exchange Act of 1934, as amended (“Exchange Act”).
This blog post addresses common questions we receive about the going public process using Form S-1.
Going Public Lawyer Insights About DPOI’s & IPO’s
A private company going public is subject to three federal securities laws, each with its own unique requirements. The three laws are the Securities Act of 1933 (the “Securities Act”), the Securities Exchange Act of 1934 (the “Exchange Act”) and the Sarbanes-Oxley Act of 2002 (”Sarbanes-Oxley”). In addition to the federal securities laws, companies going public are subject to state securities regulation of their securities public and private offerings. The Securities Act sets forth the regulations that govern the offer and sale of securities by an issuer and certain shareholders.
The Securities Act governs both private offerings such as those conducted under Regulation D and public offerings such as those registered on Form S-1, Form S-8 or Form S-4. Upon completion of a going public transaction, the Exchange Act imposes periodic reporting obligations including the filing of Form 10-K, 10-Q and 8-K.
For issuers who register a class of securities under the Securities Exchange Act in connection with their going public transaction, the Exchange Act imposes proxy rules requiring certain disclosures be made on Schedules 14A or 14C and certain procedures for the solicitation of shareholder votes. Read More
SEC Periodic Reports – Going Public Attorneys
Issuers become subject to the SEC’s periodic reporting requirements a number of ways including by filing a registration under the Securities Act of 1933, as amended or pursuant to the Securities Exchange Act of 1934. The SEC rules that apply to periodic reports require that publicly traded companies disclose a wealth of information to the public. Periodic reporting also requires that these reports be written in plain English. Understanding these reports helps investors make informed decisions regarding whether to buy, sell or hold a company’s securities.
Periodic reports provide issuers with the opportunity to provide shareholders with transparency by telling their story. Companies that provide materially false or misleading statements, or omit material information that is necessary to render a report not misleading in their periodic reports are subject to liabilities arising under federal and state securities laws. Investors can obtain a company’s Form 10-K, Form 10-Q and Form 8-K filings on the SEC’s EDGAR database. Read More
DPO-IPO Registration Statement Attorneys
Many private companies particularly small businesses are unable to locate an underwriter prior to filing a registration statement to go public. Registration statement attorneys often recommend that issuers use of a resale registration statement when they are unable to locate an underwriter. A direct public offering (“Direct Public Offering”) provides a viable solution to this dilemma. A Direct Public Offering allows a company to sell its shares directly to investors without the use of an underwriter. With a Direct Public Offering, the company files a 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”).
Typically, in going public transaction Form S-1 (”S-1”) registration statements are used. A company can use a Form S-1 registration statement to register securities on its own behalf in an initial public offering, register securities on behalf of its selling security holders in a secondary offering or register securities on its own behalf as well as for selling security holders.
Using a Direct Public Offering to Go Public
All issuers qualify to file a registration statement on Form S-1 and it is the most common registration statement form used in going public transactions. Filing a Form S-1 registration statement in connection with a going public transaction eliminates many of the risks and expenses associated with reverse mergers including among other things, undisclosed liabilities, sketchy corporate records, DTC Chills, Global Locks and SEC trading suspensions. Read More
SEC Issues Trading Suspensions To Prevent Corporate Hijackings
On June 11, 2014, the U.S. Securities and Exchange Commission announced the temporary suspension of trading in the securities of LifeHealthCare, Inc. (LFHE), Smartlinx, Inc. (SMLK) and Total Apparel Group, Inc. (TLAG). Read More
SEC Initiates Proceedings Against Six Issuers to Prevent Corporate Hijackings
This week the Securities and Exchange Commission (“Commission”) announced it deemed it necessary and appropriate for the protection of investors that public administrative proceedings be instituted pursuant to Section 12(j) of the Securities Exchange Act of 1934 (“Exchange Act”) against six issuers, The Bank Holdings, Community Valley Bancorp, Genemen, Inc., GWS Technologies, Inc., Homeland Precious Metals Corp., and NuRx Pharmaceuticals, Inc. In the past two years, the Commission has revoked and/or suspended more than 1000 issuers involved in corporate hijackings. Read More
SEC Reinstates Richard Hylland, CPA to Practice Before the Commission
On June 11, 2014, the Securities and Exchange Commission (the “SEC”) announced that it had reinstated Richard Hylland, CPA to practice before the SEC.
On July 16, 2007, Richard Hylland, CPA (“Hylland”) was suspended from appearing or practicing before the Commission as an accountant as a result of settled public administrative proceedings instituted by the Commission against Hylland pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of Practice. Read More
SEC Charges Chicago Securities Attorney
On June 12, 2014, the Securities and Exchange Commission (the “SEC”) charged a securities attorney and founder of an investment advisory firm located in suburban Chicago with defrauding investors in connection with a real estate venture for which his firm offered securities. After an SEC examination of Kenilworth Asset Management LLC detected potential misconduct that was referred to the agency’s Enforcement Division, the ensuing investigation found that Robert Acri misled clients in the offer and sale of promissory notes issued for the redevelopment of a retail shopping center near Hammond, Ind.
SEC Charges Reverse Merger Purveyors By: Brenda Hamilton Attorney
On May 5, 2014, the Securities and Exchange Commission (the “SEC”) charged a Toronto-based consultant and four associates with conducting illegal reverse mergers with China-based companies to engage in pump and dump schemes. The SEC alleges that S. Paul Kelley and three associates acquired controlling interests in two U.S. public shell companies in order to orchestrate reverse mergers with China Auto Logistics Inc. and Guanwei Recycling Corp.
Fugitive Fraudster Aubrey Price Pleads Guilty
Posted by Brenda Hamilton Securities Attorney
On June 5, 2014, fugitive banker Aubrey Price plead guilty to bank, securities and wire fraud charges. Aubrey Price faces up to 30 years in prison and millions in restitution and fines.
In 2012, Price controlled more than $10 million of investor funds that were put invested into Montgomery Bank Trust, a small bank located in Alabama. Read More
$875,000 Awarded to SEC Whistleblower By: Brenda Hamilton Attorney
This week the Securities and Exchange Commission (the “SEC”) announced a whistleblower award of more than $875,000 to be split evenly between two individuals who provided tips and assistance to help the agency bring an enforcement action. The SEC’s Whistleblower Program authorized by the Dodd-Frank Act rewards high-quality, original information that results in an SEC enforcement action with sanctions exceeding $1 million.
Whistleblower awards can range from 10 percent to 30 percent of the money collected in a case. The total award represents 30% of the amount collected by the SEC in this case – the maximum percentage award allowed under the SEC Whistleblower Program. Under the Dodd-Frank Act, the SEC must protect the confidentiality of whistleblowers and cannot disclose any information that might directly or indirectly reveal a whistleblower’s identity. Read More
Fusion Pharm Raided by Feds
On May 16, 2014, the Securities and Exchange Commission (“SEC”) suspended trading in Fusion Pharm, Inc. (FSPM) for ten days. The reason given for the action was “questions that have been raised about… (1) the company’s assets; (2) the company’s revenues; (3) the company’s financial statements; (4) the company’s business transactions; and (5) the company’s current financial condition.” Read More
Unregistered Broker-Dealer Activity on the Rise By: Brenda Hamilton
The Securities and Exchange Commission (“SEC”) Division of Enforcement is pursuing unregistered broker-dealer activity which runs rampant in the penny stock markets. Since Rule 506(c) was created many unregistered broker-dealers have appeared in the OTC marketplace touting their skills as capital raisers despite not being registered with the SEC.
FINRA Investor Alert For High Yield CD Scams By: Brenda Hamilton Attorney
The Financial Industry Regulatory Authority (“FINRA”) has issued a new investor alert called High-Yield CDs: Red Flags That Signal a Scam warning investors to be cautious of investments in certificates of deposit (CDs) that promise to good to be true returns. Certificate of Deposit scams promise interest rates that are substantially higher than current averages. In one instance of suspected email fraud, the pitch appeared to come from a large U.S. bank that supposedly was promoting a CD offered by an international banking partner. At a time when most CDs at U.S. banks and credit unions were offering just over 1 percent for a comparable term, this pitch offered a CD with a 15 percent yield, and contained instructions on how to wire funds. Read More
SEC Charges John Bensen & DGSE Companies By: Brenda Hamilton Attorney
On May 27, 2014, the Securities and Exchange Commission (“SEC”) announced accounting fraud charges against a Dallas-based company and its former chief financial officer for manipulating its inventory accounts. The SEC alleges that John Benson made repeated false accounting entries that materially inflated the value of inventory on the balance sheets at DGSE Companies Inc (“DGSE”). DGSE buys and sells jewelry, diamonds, fine watches, rare coins, precious metals and other collectibles.
Benson’s entries made it appear that DGSE owned certain inventory that actually still belonged to customers in consignment arrangements where DGSE held the goods on the owner’s behalf until they were sold. Benson then misled the company’s independent auditors about the journal entries, and DGSE subsequently overstated its inventory by anywhere from 99.1 percent to 227.4 percent in public filings during 2009, 2010, and 2011.
DGSE agreed to settle the SEC’s charges, and Benson agreed to a settlement in which he will pay a $75,000 penalty, be permanently barred from serving as an officer or director of a public company, and be suspended from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC.
According to the SEC’s complaint filed in the Dallas Division of U.S. District Court for the Northern District of Texas, deficiencies in DGSE’s accounting systems and controls led to problems that significantly compromised the integrity of the company’s financial data. The deficiencies included the failure to properly record intercompany transactions such as inventory transfers between stores. As a result, DGSE’s intercompany accounts became out of balance by millions of dollars.
The SEC alleges that Benson subsequently made a number of fraudulent accounting entries in order to bring the intercompany accounts and DGSE’s general ledger as a whole back into balance. The entries resulted in a number of errors in DGSE’s financial statements including the large overstatement of DGSE inventory by millions of dollars. Benson concealed the improper entries by manipulating inventory detail listings to improperly reflect the consigned inventory as being owned by DGSE. Benson sent these listings to DGSE’s external auditor, and misled the auditor to believe the consigned goods were owned by DGSE. Benson then knowingly signed misleading public filings by DGSE, including annual reports for the 2009 and 2010 fiscal years as well as quarterly filings. Benson also signed false management certifications that were attached to these filings.
Benson is charged with violating Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Sections 10(b), 13(a), and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2(a) thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. DGSE is charged with violating Section 17(a)(2) of the Securities Act, Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. DGSE and Benson each consented to injunctions against future violations of these provisions. DGSE also agreed to the appointment of an independent consultant to review the company’s accounting controls, and DGSE has taken or agreed to take remedial steps to correct its deficiencies.
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. For more information about going public and the rules and regulations affecting the use of Rule 144, Form 8K, crowdfunding, FINRA Rule 6490, Rule 506 private placement offerings and memorandums, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration statements on Form S-1 , IPO’s, OTC Pink Sheet listings, Form 10 OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, direct public offerings and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or [email protected]. 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
Gendarme & Ezat Rahimi Settle SEC Charges
Settlements have been approved resolving claims by the Securities and Exchange Commission against Gendarme Capital Corporation, its former principal, Ezat Rahimi, and its former attorney, Cassandra Armento. The SEC’s complaint had alleged that the defendants violated Section 5 of the Securities Act of 1933, by offering and selling the securities of several issuers without a filed or effective registration statement. Read More
SEC Obtains Judgment Against Inofin Management By: Brenda Hamilton Attorney
On May 28, 2014, the Securities and Exchange Commission ( “SEC”) announced that the U.S. District Court for the District of Massachusetts entered final judgment by consent against Inofin Inc.’s chief operating officer, Melissa George. Among other things, the judgment ordered George to pay a total of $177,431.69 in disgorgement of ill-gotten gains plus pre-judgment interest and a civil penalty. Read More
SEC Charges Transfer Agent, IST Shareholder Services By: Brenda Hamilton Attorney
On May 28, 2014, the SEC announced fraud charges and an emergency asset freeze against IST Shareholder Services, a transfer agent and its owner, Robert Pearson whose misappropriation scheme was discovered during an SEC examination. Read More
SEC Charges Neal V. Goyal in Ponzi Scheme By: Brenda Hamilton Attorney
On May 28, 2014, the Securities and Exchange Commission (“SEC”) obtained a court order freezing assets and halting a fraudulent scheme by Chicago, Illinois-based investment adviser, Neal V. Goyal. In its complaint, the SEC alleges that Goyal told investors that the private funds he managed would invest in securities following a “long-short” trading strategy. In reality, the funds were spent on personal items and a Chicago tavern. Read More
SEC Settles Charges in We the People Charity Fraud Case By: Brenda Hamilton Attorney
May 29, 2014, the Securities and Exchange Commission announced that a Florida husband and wife were charged last year with defrauding seniors through a purported charitable organization and agreed to pay more than $2 million and be barred from the securities industry.
SEC Charges Steven McCraw By: Brenda Hamilton Florida Attorney
On May 30, 2014, the Securities and Exchange Commission filed charges against Steven McCraw for aiding and abetting a fraudulent forex trading scheme. The SEC alleges that McCraw knowingly or recklessly provided substantial assistance to Kevin G. White and his company, KGW Capital Management, LLC, in perpetrating a fraudulent scheme that raised approximately $7.4 million between September 2011 and July 2013. Read More
SEC Charges Jeffrey Berkowitz & Others By: Brenda Hamilton Attorney
On May 24, 2014, the Securities and Exchange Commission announced the latest in a series of cases against microcap companies, officers, and promoters arising out of a joint law enforcement investigation to unearth penny stock schemes with roots in South Florida. In complaints filed in federal court in Miami, the SEC charged five penny stock promoters with conducting various manipulation schemes involving undisclosed payments to induce purchases of a microcap stock to generate the false appearance of market interest.
SEC Suspends Andalusian Resorts By: Brenda Hamilton Attorney
On May 19, 2014, the Securities and Exchange Commission (“SEC”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (“Exchange Act”), of trading in the securities of Andalusian Resorts and Spas, Inc. (“ARSP”) commencing at 9:30 a.m. EDT, on May 19, 2014, and terminating at 11:59 p.m. EDT, on June 2, 2014.
The SEC announced the trading suspension of the securities of ARSP because of questions concerning the adequacy and accuracy of assertions by ARSP, and by others, in press releases and other public statements to investors concerning, among other things, the company’s business combinations. Read More
SEC Charges Four Pension Officials for Regulation SHO Violations
On May 19, 2014, the Securities and Exchange Commission (“SEC”) announced charges against four former officials at clearing firm Penson Financial Services for their roles in Regulation SHO violations.
An SEC investigation found that Penson’s securities lending practices intentionally and systematically violated Rule 204 under Reg. SHO. Read More
SEC Suspends FusionPharm By: Brenda Hamilton Attorney
On May 16, 2014, the Securities and Exchange Commission (“Commission”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the “Exchange Act”), of trading in the securities of FusionPharm, Inc. (“FusionPharm”). Read More
