Colt Curry Indicted in Securities Scheme
On August 13, 2013, the U.S. Attorney’s Office for the Eastern District of New York announced the indictment of Sandy Winick, a Canadian promoter now living in Thailand; Gregory Curry, a Canadian living in Thailand; Kolt Curry, a Canadian living in Thailand and Canada; Gregory Ellis, a Canadian; Gary Kershner, a U.S. citizen living in Arizona and Kansas; Joseph Manfredonia, a U.S. citizen living in New Jersey; Curt Poyner of Florida; Songkram Roy Sahachaisere, a U.S citizen living in Los Angeles; and William Seals of California for their roles in a massive penny stock fraud.
Winick, Kolt Curry, and Manfredonia used aliases as well as their real names.
The defendants stand accused of manipulating the price of penny stocks, using an advance fee scheme to bilk investors who’d already purchased restricted stock in those companies. According to charges, the defendants were so brazen that they impersonated Internal Revenue Service employees and expolited U.S. investors. One Canadian defendant, Kolt Curry, stated (on a recorded conversation) that, “hitting the Americans would be like taking money from a baby.” The defendants are alleged to have reaped at least $140 million from the fraud between 2008 and 2013. Read More
FINRA Alerts Investors to Cold Calls From Brokerage Firm Impostors
FINRA’s Warning
On August 6, 2013, the Financial Industry Regulatory Authority (“FINRA”) issued an alert warning investors that fraudsters pretending to work for at least one well-known brokerage were making cold calls in which they told potential victims they had important information about certificates of deposit (“CDs”) with yields considerably higher than the best rates in the market. Read More
SEC Short Sale Alert l Trading to Conceal Failures to Deliver
On August 9, 2013, the SEC‘s Office of Compliance Inspections and Examinations issued a Risk Alert concerning certain trading activity being used to circumvent Regulation SHO’s close-out requirements for short sales. The SEC observed that some short sellers create the false impression of compliance with Regulation SHO’s “close-out requirement” when “failures to deliver” occur.
In a short sale, the seller sells a security it does not have at the time of the sale. The seller profits when the price of the security declines by purchasing it at a lower price than they sold it for in a short sale.
The short seller profits even more if it engages in trading activity that creates the false appearance that their short position was closed out to avoid the cost of purchasing a security to cover. These bogus close-outs violate Regulation SHO which requires that trades settle within the time frame allowed by the rule.
Locate and Close-out Requirements
Regulation SHO requires short sellers who fail to deliver securities after the required settlement date to close out their position immediately, unless they are a market maker. The “locate” requirement of Regulation SHO requires broker-dealers to have reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due before effecting a short sale order. Regulation SHO’s close-out provisions apply to all equity securities including OTC Pink Sheet issuers.
FINRA Rule 4320 expands Regulation SHO’s close-out provisions to OTC Pink Sheet issuers and other non-reporting issuers. The close-out requirements of Regulation SHO require broker-dealers to close-out all failures to deliver that exist in threshold securities for thirteen consecutive settlement days by purchasing securities of like kind and quantity.
Reset Transactions
The activity that prompted the SEC’s Risk Alert generally involves hard to borrow securities in which the Put/Call Parity is imbalanced. If a market maker does not deliver shares when he needs to, but instead engages in a second transaction to give the appearance of satisfying the close-out requirements while maintaining the original short position, he will be deemed not to have closed out the position at all. This is called a “reset transaction.” Reset transactions are usually accomplished through the use of a buy-write trade, but may also employ a married put, and may incorporate the use of short-term FLEX options.
The SEC’s Renewed Interest in Short Sale Transactions
The SEC’s interest in these types of Reg SHO violations is illustrated by two recent enforcement actions. The first, from April, 2013 was brought against optionsXpress, owned by Charles Schwab. According to the SEC, the firm had “engaged in… sham reset transactions in a number of securities, resulting in continuous failures to deliver.”
Robert Khuzami, the SEC’s head of Enforcement, said, “Feldman and optionsXpress used sham reset transactions to avoid, sometimes for months, compliance with Reg SHO’s stock delivery requirements. In effect, they ‘kited’ shares of stock, thus depriving buyers of the benefit of their bargain – prompt delivery of their shares.”
In early June, the agency brought an administrative proceeding against the Chicago Board Options Exchange and its subsidiary C2 Options Exchange for regulatory oversight violations involving reset transactions, saying the exchanges failed to enforce the close-out rule because staff did not understand it, and its investigators had never received formal training in the rule.
In a statement, the SEC noted further that “CBOE failed to provide information to SEC staff when requested, and went so far as to assist the member firm [presumably OptionsXpress, though it was not named] by providing information for its Wells submission to the SEC. The CBOE actually edited the firm’s draft submission, and some of the information and edits provided by CBOE were inaccurate and misleading.”
The CBOE agreed to pay a $6 million fine and implement new measures designed to prevent a recurrence of the violations.
Short Sale Red Flags Identified by the SEC
The SEC’s Risk Alert identified certain red flags of illegal short sale activity. These include:
● Trading exclusively or excessively in hard-to-borrow securities or threshold list securities, or in near-term listed options on such securities
● Large short positions in hard-to-borrow securities or threshold list securities
● Large failure to deliver positions in an account, often in multiple securities
● Continuous failure to deliver positions
● Using buy-writes, married puts, or both, particularly deep in-the-money buy-writes or married puts, to satisfy the close-out requirement
● Using buy-writes with little to no open interest aside from that trader’s activity, resulting in all or nearly all of the call options being assigned
● Trading in customizable FLEX options in hard-to-borrow securities or threshold list securities, particularly very short-term FLEX options
● Purported market makers trading in hard-to-borrow or threshold list securities claiming the exception from the locate requirement of Regulation SHO; often these traders do not make markets in these securities, but instead make trades only to take advantage of the option mispricing
● Multiple large trades with the same trader acting as a contra party in several hard-to-borrow or threshold list securities; often traders assist each other to avoid having to deliver shares
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
Corporate Hijackings In Going Public Transactions
Corporate hijackings, also known as corporate identity theft, of public shell companies have been a problem for more than a decade. Hijackings are increasingly used by fraudsters to acquire control of publicly traded shell companies and then to sell them to unsuspecting private companies seeking to go public. Many observers ask why anyone would purchase these hijacked vehicles. First, most purchasers are not aware that the vehicles are hijacked. More importantly the transactions are always blessed by a complicit lawyer who provides assurances to the buyer as well as investor relations firm’s involved that the transactions are in compliance with the securities laws. The lawyers act as the gatekeeper to the transactions providing guidance to the parties, rendering legal opinions and holding escrow for the illegal sale of the hijacked shell company.
SEC Halts Market Action Advisers Hedge Fund l Securities Lawyer 101
On August 6, 2013, the Securities and Exchange Commission (the “SEC”) obtained an emergency court order to halt a hedge fund investment scheme targeting mostly unsophisticated investors including friends, family members, and military personnel to invest in his hedge fund. According to the SEC, the fund was controlled by a former Marine living in the Chicago area who purported to be a successful trader to defraud fellow veterans, current military, and other investors. Read More
OTC Pink Sheets l Bootcamp
Getting Listed on the OTC Pink Sheets
Many companies going public for the first time are opting for the OTCMarkets OTC Pink Read More
Robert Zickefoose Indicted in Colorado Oil and Gas Fraud
On July 15, 2013, Colorado Attorney General John Suthers announced that a grand jury had indicted Robert Zickefoose on seven counts of securities fraud. Zickefoose is the owner and president of Zickefoose Reserves, LLC, a purported gas and oil company located in Colorado Springs. The indictment alleges he was offering unregistered investments in oil and gas. The scheme was uncovered by the Colorado Division of Securities. Read More
FINRA Fines Oppenheimer $1.4 Million for Sale of Unregistered Penny Stocks
On August 5, 2013, the Financial Industry Regulatory Authority (“FINRA”) announced that it had fined Oppenheimer and Co., Inc. $1,425,000 for allowing the sale of unregistered stock of penny companies, and for its failure to have an adequate anti-money Read More
FINRA Investigates Trading Algorithms
The Financial Industry Regulatory Authority (“FINRA”) is investigating Trading Algorithms and whether trading firms that engage in high frequency trading have proper controls in place to ensure their trading algorithms do not malfunction and cause harm to public markets.
The regulator wants to know how at least ten trading firms use and control their high frequency trading algorithms. Read More
SEC Amends Financial Responsibility Rules for Broker-Dealers
On July 31, 2013, the Securities and Exchange Commission (“SEC”) announced the adoption of amendments to the net capital, customer protection, books and records, and notification rules for broker-dealers.
The amendments to the broker-dealer financial responsibility rules are designed to better protect a broker-dealer’s customers Read More
More Paperwork for Broker-Dealers l Securities Lawyer 101
On July 31, 20113, the Securities and Exchange Commission (the “SEC”) announced the adoption of rules created to increase safeguards for investor assets held at broker-dealers registered with the SEC and Financial Industry Regulatory Authority (“FINRA”). According to the SEC, the new rules require broker-dealers to file new reports with the SEC which will result in higher levels of compliance with the SEC’s financial responsibility rules.
A New Crowdfunding Watchdog in Massachusetts
Consumer watchdogs and the Securities and Exchange Commission (“SEC”) as well are aware that certain provisions of the new Rule 506 created in connection with the JOBS Act could encourage fraud if not effectively policed, resulting in significant losses for non-accredited investors who choose to participate in 506 offerings.
These provisions include those making advertising and general solicitation permissible, and those allowing “crowdfunding” initiatives. Read More
SEC Charges Investor Relations Provider With Insider Trading
On July 26, 2013, the Securities and Exchange Commission (the “SEC”) charged Stephen B. Gray, an investor relations provider with insider trading in the securities of his firm’s clients. The SEC action alleges that Gray obtained confidential information about his firm’s clients while the firm assisted them with drafting and publishing press releases announcing to quarterly and annual earnings, mergers and acquisitions, and other major events. Read More
SEC Settles Charges For Registration Violations in Unregistered Securities
On July 23, 2013, the Securities and Exchange Commission (the “SEC”) settled charges against Florida resident Jorge Bravo, Jr., for unlawful sales of millions of shares of unregistered securities without complying with the registration statement requirements of the Securities Act of 1933. Read More
Securities Violator Patrick Kiley Sentenced to 20 Years in Prison
On July 15, 2013, Patrick Kiley was sentenced to 20 years in prison and ordered to pay $155 million in restitution in connection with his conviction on 15 criminal counts including mail and wire fraud, conspiracy to commit mail and wire fraud, and money laundering. The conviction arose from his role in a $194 million foreign currency trading scheme that defrauded approximately 1,000 investors. Read More
Securities Attorney, Richard Kranitz Sentenced to 18 Months
On July 17, 2013, Richard Kranitz, a Wisconsin securities attorney was sentenced to 18 months in federal prison Wednesday for his role in a securities fraud involving an FBI Sting operation. Kranitz was also sentenced to 12 months of supervised release following his prison time. Read More
SEC Issues Trading Suspension of Camelot Entertainment and 5 Other Issuers
Rule 506 Gives Bad Actors The Boot l Going Public Lawyers
On July 10, 2013, the Securities and Exchange Commission (the “SEC” or “Commission”) adopted amendments to rules promulgated under Regulation D of the Securities Act of 1933, as amended (the “Securities Act”) to Read More
When the SEC Investigates l Securities Lawyer 101
No company wants to become the target of a Securities and Exchange Commission (“SEC”) investigation, and no investor welcomes an inquiry into a stock he holds. Issuers and shareholders alike need to understand how an investigation begins, how it proceeds Read More
Securities Lawyers Gone Wild l Michael Scaglione Indicted
Securities Lawyers Gone Wild Series
On July 10, 2013, Michael Scaglione, a Coral Gables securities attorney, was arrested by the FBI and charged in the the Eastern District of New York, with laundering more than $750,000 he believed were the proceeds from a penny stock scam. Read More
Going Public Question & Answer l Ask Securities Lawyer 101
Going public is a big step for any company. The process of “going public” 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.
Going public is a complicated and intricate procedure, and it is important to have an experienced securities attorney to help your company navigate through the process in dealing with the Securities & Exchange Commission the (“SEC”), the Financial Regulatory Authority (“FINRA”) and the Depository Trust Company (“DTC”). Upon completion of a going public transaction, most companies are subject to the regulations that apply to public companies, including those of the Securities Act of 1933, as amended (the “Securities Act”) and Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Q. What does it mean for a company to Go Public?
A. Going public often refers to the process of a company filing a registration statement with the SEC to register its securities and become an SEC reporting company. Other times going public may mean the filing of a Form 211 with FINRA to obtain a ticker symbol for quotation on the OTCMarkets OTC Pink Sheets without filing a registration statement with the SEC.
Q. Why do most companies Go Public?
A. Most companies go public to raise money. It is much easier for a public company to locate capital than it is for a private company. Funds raised in going public transactions can be used for working capital, research and development, retiring existing indebtedness, acquiring other companies or businesses or paying suppliers.
Q. What are other advantages of Going Public?
A. Numerous additional benefits come with public company status. Among them are:
• Once a going public transaction is complete, the company will be able to use its common stock as a form of currency and as collateral for loans.
• Going public creates value for an issuer’s securities. Going public also creates liquidity for existing and future investors, and provides an exit strategy for shareholders and/or investors. Additionally, public company stockholders may be able to sell their shares or use them as collateral.
• Public companies have greater visibility than private companies. It is easier to build recognition of a public company than a private one. Publicly traded companies are often promoted and gain publicity from their status as a public company. Further, the media has greater economic incentive to provide coverage of matters concerning public companies than private companies because of the number of shareholders and investors seeking information about the company.
• Going public may allow a private company to attract more qualified employees and key personnel, such as officers and directors because it allows the company’s management and employees to share in its growth and success through stock options and other equity-based compensation.
• There is a certain amount of prestige associated with public company status or service to a public company.
Q. What are the disadvantages of Going Public?
A. The disadvantages to going public include:
• Going public requires management to answer to shareholders and give up a certain amount of their control over company matters.
• Going public is expensive and staying public is expensive. Legal, accounting and compliance costs are significant and these costs will have to be paid regardless of whether a company raises capital.
• After a going public transaction, a newly public company will incur higher costs as a public company, including auditing and legal expenses and costs of compliance with the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”).
• Public companies are subject to more scrutiny than private companies. Once a company becomes public, certain information must be disclosed to the public, such as executive compensation, financial information, previous violations of the securities and other laws and material agreements must be disclosed. Public companies operate under close scrutiny as well as oversight.
• SEC reporting companies must comply with reporting requirements under the Exchange Act as soon as their going public transaction is complete. Complying with these reporting requirements is costly and time consuming for management.
• Going public also exposes the company and its management to liability for false or misleading statements in filings and reports filed with the SEC.
Q. What is the difference between filing a registration statement under the Securities Act and filing a registration statement under the Exchange Act in a Going Public transaction?
A. Filing a registration statement under the Securities Act registers an offering of securities. Shares registered by the issuer or on behalf of its selling shareholders who are not affiliates of the issuer generally are unrestricted securities. Filing a registration statement under the Exchange Act registers a class of securities such as common stock. Registration under the Exchange Act does not register a securities offering and does not create unrestricted securities.
Q. What is a Direct Public Offering?
A. A direct public offering is an offering conducted by a company on its own behalf without an underwriter.
Q. Can a Direct Public Offering be used in a Going Public transaction?
A. Yes, direct public offerings are often used in conjunction with going public transactions.
Q. Do I have to file a registration statement with the SEC if I conduct a Direct Public Offering?
A. Not necessarily. A direct public offering can be structured for a listing on the OTC Markets OTC Pink sheets and it can involve a private offering rather than an offering subject to an SEC registration statement.
Q. What is DTC eligibility and why does my company need to be DTC Eligible?
A. The DTC serves as the only custodian of securities for its participants, which include broker-dealers. DTC is also the only securities settlement provider in the U.S. If an issuer’s stock is DTC eligible, DTC will hold an inventory of free-trading street name shares on deposit. These free-trading shares are also known as the “public float.” Without DTC eligibility shares can only be publicly traded if there is physical delivery of a stock certificate and payment between a buyer and seller. Without DTC eligibility, it is almost impossible for a public company to establish an active tradign market in its securities.
Q. What is a Reverse Merger ?
A. A reverse merger is a transaction in which a private company merges into or is acquired by an existing public company.
Q. Should I use a Reverse Merger in my Going Public Transaction?
A. Probably not. Reverse mergers are often vehicles for fraud and new rules impact reverse merger transactions. Most often if done properly, reverse mergers cost more and take longer than filing a registration statement with the SEC in a going public transaction.
Q. Why do some securities attorneys say I should use a Reverse Merger in my Going Public Transaction?
A. Often securities lawyers who suggest reverse merger transactions manufacture shells. They make a substantial amount of money selling their own public shells.
Hamilton & Associates has extensive experience in all aspects of securities law and going public transactions including SEC registration statements on Form S-1, direct public offerings, domestic and international stock exchange listings and quotation on the OTC Markets.
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
Form 10 l Form 10 securities lawyer l Form 10 securities attorney l Going Public l Securities Lawyer l Registration Statement l Securities Attorney l Form S-1 l Form S-8 l Form S-3 l Foreign Issuer l SEC attorney l SEC Lawyer l SEC Registration l Reverse Merger l Public Shell l Shell Company l Corporate Hijacking l S-1 l S-1 lawyer l Reverse Merger SEC l Reverse Merger Lawyer l reverse merger attorney l registration statement lawyer l registration statement attorney l Form S-1 lawyer l Form S-1 attorney, Form S-1 SEC, Form S-1 law, Form 144, 144, Rule 144, finder, intermediary, Form 211, market maker
The JOBS Act l Rule 506
The Jumpstart Our Business Startups (“JOBS”) Act was signed into law by President Obama on April 5, 2012. The JOBS Act required the Securities and Exchange Commission (the “SEC”) to issue final regulations regarding the portions of the JOBS Act relating to the elimination of general solicitation in Rule 506 offerings within 90 days of its enactment to allow general advertising and solicitations of Read More
The SEC Blacklists Bad Actors ln Rule 506 Offerings
On July 10, 2013, the SEC approved a rule banning the use of the Rule 506 exemption from securities registration if the issuer and bad actors had a “disqualifying event.” The new ban on bad actors becomes effective 60 days after publication in the federal register.
The Rule 506 Bad Actor Blacklist
The SEC’s final disqualification of bad actors in 506 offerings covers the issuer, including its predecessors and affiliated issuers, as well as: Read More
Promissory Notes l Securities Lawyer 101
Private companies going public seek to raise capital for a variety of reasons. This capital may be sought from the sale of equity ownership of the corporate entity or debt such as a loan. Frequently, loans are considered to be securities and as such, are subject to federal and state securities laws. It is important for any company going public to know whether its debt instruments are securities to ensure compliance with relevant securities laws. Read More
Registration Statements l Going Public Lawyer
This blog post addresses the most common questions we receive about going public using Form S-1 and the SEC registration statement process.
Q. How do I register a securities offering for my company with the Securities and Exchange Commission (“SEC”)?
A. If you decide that you want to register a public securities offering, the SecuritiesAct of 1933, as amended (the “Securities Act”) requires your company to file a registration statement with the SEC before it can offer or sell its securities.
Q. Will the information contained in my company’s registration statement public?
A. Under most circumstances, any information contained in a registration statement filed with the SEC will immediately become pubic upon filing. Read More
What is the OTC Pink Current Tier? Going Public Lawyers
Q. What is the OTC Markets OTC Pink Current Tier?
A. Companies on the Pink Sheets are assigned to one of three tiers by the OTC Markets based upon the amount of disclosure the Company provides to the public. The OTC Pink Current Information is the highest of these tiers, created for companies that voluntarily provide specific disclosures to the OTCMarkets. Read More
What Does Rule 506 of Regulation D Require? Going Public Lawyers
To offer and sell securities in the United States, an issuer must comply with the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), or must offer and sell the securities pursuant to an exemption from the registration statement requirements. A commonly used private offering exemption is Rule 506 of Regulation D. Rule 506 is a non-exclusive “safe harbor” for the statutory exemption provided by Section 4(2) of the Securities Act. The Rule 506 exemption is often used by issuers who engage in go public direct transactions and conduct underwritten and direct public offerings. With a Regulation D offering only a notice filing on Form D is required to be filed with the SEC.
SEC Sues Imaging and CEO Dean Janes for Fraud
On June 26, 2013, the Securities and Exchange Commission (“SEC”) filed an enforcement action charging Imaging3, Inc. (IMGGQ), and Dean Janes, its CEO, with securities fraud, accusing Janes of misleading shareholders about actions taken by the Food and Drug Read More
Rule 144 C & D l Ask Securities Lawyer 101
The SEC‘s Compliance and Disclosure Interpretations provide its interpretations of the rules adopted under the Securities Act of 1933, as amended (the “Securities Act”). A summary and excerpts of the portions relevant to restricted securities and Rule 144 as interpreted by the SEC are set forth below.
Question: Is Rule 144 available to the issuer of the securities?
Answer: No. Rule 144 is not available to the issuer of the securities.
Question: How long must an underwriter wait before it resells the unsold portion of a “sticky” public offering as if it were compensation? Read More
SEC Suspends Biozoom After Publication of Private Report
On June 25, 2013, the Securities and Exchange (“SEC”) suspended trading in the securities of Biozoom, Inc. (BIZM). In connection with the SEC action, it stated that “certain Biozoom affiliates and shareholders may have unjustifiably Read More
