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Dec122017

SEC Publishes Report on Access to Capital and Market Liquidity

On August 8, 2017 the SEC Division of Economic and Risk Analysis (DERA) published a 315-page report describing trends in primary securities issuance and secondary market liquidity and assessing how those trends relate to impacts of the Dodd-Frank Act, including the Volcker Rule. The report examines the issuances of debt, equity and asset-backed securities and reviews liquidity in U.S. treasuries, corporate bonds, credit default swaps and bond funds. Included in the reports is a study of trends in unregistered offerings, including Regulation C and Regulation Crowdfunding.

This blog summarizes portions of the report that I think will be of interest to the small-cap marketplace.

Disclaimers and Considerations

The report begins with a level of disclaimers and the obvious issue of isolating the impact of particular rules, especially when multiple rules are being implemented in the same time period. Even without the DERA notes that noted trends and behaviors could have occurred absent rule changes or reforms. The financial crisis

Dec052017

OTC Markets Group Establishes A Stock Promotion Policy

As OTC Markets Group continues to position itself as a respected venture trading platform, it has adopted a new stock promotion policy and best practices guidelines to improve investor transparency and address concerns over fraudulent or improper stock promotion campaigns. The stock promotion policy and best practices guidelines are designed to assist companies with responsible investor relations and to address problematic issues. Recognizing that fraudulent stock promotion is a systemic problem requiring an all-fronts effort by industry participants and regulators, the new policy focuses on transparency and disclosure of current information, and the correction of false statements or materially misleading information issued by third parties.

For several years, OTC Markets Group has been delineating companies with a skull-and-crossbones sign where they have raised concerns such as improper or misleading disclosures, spam campaigns, questionable stock promotion, investigation of fraudulent or other criminal activity, regulatory suspensions or disruptive corporate actions. While labeled with a skull and crossbones, a company that does not

Nov282017

SEC Statements On Cybersecurity – Part 2

On September 20, 2017, SEC Chair Jay Clayton issued a statement on cybersecurity that included the astonishing revelation that the SEC Edgar system had been hacked in 2016. Since the original statement, the SEC has confirmed that personal information on at least two individuals was obtained in the incident. Following Jay Clayton’s initial statement, on September 25, 2017, the SEC announced two new cyber-based enforcement initiatives targeting the protection of retail investors, including protection related to distributed ledger technology (DLT) and initial coin or cryptocurrency offerings (ICO’s).

The issue of cybersecurity is at the forefront for the SEC, and Jay Clayton is asking the House Committee on Financial Services to increase the SEC’s budget by $100 million to enhance the SEC’s cybersecurity efforts.

This is the second in a two-part blog series summarizing Jay Clayton’s statement, the SEC EDGAR hacking and the new initiatives. Part I of this blog, which outlined Chair Clayton’s statement on cybersecurity and the EDGAR

Nov212017

SEC Statements On Cybersecurity; An EDGAR Hacking – Part 1

On September 20, 2017, SEC Chair Jay Clayton issued a statement on cybersecurity that included the astonishing revelation that the SEC Edgar system had been hacked in 2016. Since the original statement, the SEC has confirmed that personal information on at least two individuals was obtained in the incident. Following Jay Clayton’s initial statement, on September 25, 2017, the SEC announced two new cyber-based enforcement initiatives targeting the protection of retail investors, including protection related to distributed ledger technology (DLT) and initial coin or cryptocurrency offerings (ICO’s).

The issue of cybersecurity is at the forefront for the SEC, and Jay Clayton is asking the House Committee on Financial Services to increase the SEC’s budget by $100 million to enhance the SEC’s cybersecurity efforts.

This is the first in a two-part blog series summarizing Jay Clayton’s statement, the SEC EDGAR hacking and the new initiatives. My prior blog outlining SEC guidance on the disclosure of cybersecurity matters can be read

Nov142017

Guidance On New Exhibit Rules In SEC Filings

On March 1, 2017, the SEC passed a final rule requiring companies to include hyperlinks to exhibits in filings made with the SEC. The amendments require any company filing registration statements or reports with the SEC to include a hyperlink to all exhibits listed on the exhibit list. In addition, because ASCII cannot support hyperlinks, the amendment also requires that all exhibits be filed in HTML format.  The rule change was made to make it easier for investors and other market participants to find and access exhibits listed in current reports, but that were originally provided in previous filings. A summary of the rule can be read HERE.

The new Rule went into effect on September 1, 2017, provided however that non-accelerated filers and smaller reporting companies that submit filings in ASCII may delay compliance through September 1, 2018.

In addition to the filing of exhibits and schedules, Item 601 of Regulation S-K requires each company to include an

Nov072017

Emerging Growth Companies Will Start To Grow Up

The first of emerging growth companies (“EGC’s”) will begin losing EGC status as the five-year anniversary of the creation of an EGC has now passed. Those companies that will lose status as a result of the passage of time are almost unilaterally not pleased with the impending change and concurrent increase in regulatory compliance.

Background

Title I of the JOBS Act, initially enacted on April 5, 2012, created a new category of issuer called an “emerging growth company” (“EGC”).  An EGC is defined as a company with total annual gross revenues of less than $1,070,000,000 during its most recently completed fiscal year that first sells equity in a registered offering after December 8, 2011. An EGC loses its EGC status on the earlier of (i) the last day of the fiscal year in which it exceeds $1,070,000,000 in revenues; (ii) the last day of the fiscal year following the fifth year after its IPO (for example, if the issuer has

Oct312017

SEC Proposes Rules To Modernize And Simplify Disclosures

On October 11, 2017, as part of the ongoing SEC Disclosure Effectiveness Initiative, the SEC published proposed rule amendments to modernize and simplify disclosure requirements for public companies, investment advisers, and investment companies. The proposed rule amendments implement a mandate under the Fixing America’s Surface Transportation Act (“FAST Act”).

The FAST Act, passed in December 2015, contains two sections requiring the SEC to modernize and simplify the requirements in Regulation S-K.  Section 72002 requires the SEC to amend Regulation S-K to “further scale or eliminate requirements… to reduce the burden on emerging growth companies, accelerated filers, smaller reporting companies, and other smaller issuers, while still providing all material information to investors.” In addition, the SEC was directed to “eliminate provisions… that are duplicative, overlapping, outdated or unnecessary.” In accordance with that requirement, On July 13, 2016, the SEC issued proposed rule change on Regulation S-K and Regulation S-X to amend disclosures that are redundant, duplicative, overlapping, outdated

Oct242017

NASDAQ Issues Report Advocating for The U.S. Public Markets

Before SEC Commissioner Michael Piwowar’s May 16, 2017, speech at the SEC-NYU Dialogue on Securities Market Regulation regarding the U.S. IPO Market (see summary HERE), and SEC Chair Jay Clayton’s July 12, 2017, speech to the Economic Club of New York (see summary HERE), the topic of the U.S. IPO market had already gained significant market attention. Earlier this year, NASDAQ issued a paper titled “The Promise of Market Reform: Reigniting American’s Economic Engine” with its views and position on how to revitalize the U.S. equities and IPO market (the “NASDAQ Paper”). This blog summarizes the NASDAQ Paper.

The NASDAQ Paper begins with a statement by Adena Friedman, President and CEO of NASDAQ. The statement begins with a decidedly positive outlook, noting that “The U.S. equities markets exist to facilitate job creation and wealth creation for millions of people, ultimately driving economic growth for our country.” Ms. Friedman adds that “[E]xceptional market returns in recent years

Oct172017

SEC Chief Accountant Speaks On Initial Coin Offerings (ICO’s)

On September 11, 2017, the SEC Chief Accountant, Wesley R. Bricker, gave a speech before the AICPA National Conference on Banks & Savings Institutions. The bulk of the speech was similar to Mr. Bricker’s June 2017 speech before the 36th Annual SEC and Financial Reporting Institute Conference, summarized HERE. However, one topic that was new, and interesting enough to spark this blog, was related to initial coin offerings (ICO’s). Note that offers and sales of digital coins, cryptocurrencies or tokens using distributed ledger technology (DLT) or blockchain have become widely known as ICO’s.

As the capital markets become more and more focused on all things blockchain, including ICO’s, secondary token trading, and disruptive changes made possible by distributed ledger technology (DLT), which is inevitably transforming capital market processes, the SEC is fronting a wave of questions and concerns on the subject. On July 25, 2017, the SEC issued a report on an investigation related to an

Oct102017

Updates On Regulation A+

On September 14, 2017, the SEC issued three new Compliance and Disclosure Interpretations (C&DI) to provide guidance related to the filing of a Form 8-A in conjunction with a Tier 2 Regulation A offering. The new guidance addresses the timing of financial statements and subsequent reporting requirements under the Securities Exchange Act of 1934 (“Exchange Act”).

Furthermore, earlier in September, the House passed the Improving Access to Capital Act, which would allow companies subject to the reporting requirements under the Exchange Act to use Regulation A, a change the entire marketplace is advocating for.

As I do with each blog on Regulation A, I have included an ongoing commentary, practice tips, and thoughts on Regulation A+, and a summary of the Regulation A+ rules, including interpretations and guidance up to the date of this blog.

New CD&I Guidance

As a reminder, Tier 2 issuers that have used the S-1 format for their Form 1-A filing are permitted

Oct032017

SEC Provides Regulatory Relief To Hurricane Victims

On September 28, 2017, the SEC announced interim final temporary rules (“Exemptive Order”) to provide relief to publicly trading companies, investment companies, accountants, transfer agents, municipal advisors and others affected the Hurricanes Harvey, Irma and Maria.  In addition to the interim rules, the SEC urges others not covered by the relief but affected in their ability to provide information to the SEC or shareholders to contact the SEC to seek relief on a case-by-case basis.

Interim Final Temporary Rules

Generally the due date for Exchange Act reports for companies relying on the Exemptive Order shall be October 10, 2017 for those affected by Hurricane Harvey, October 19, 2017 for those affected by Hurricane Irma, and November 2, 2017 for those affected by Hurricane Irma.  As such, companies with such extended due dates may also file an additional extension on Form 12b-25 on those dates, and benefit from an additional five days for a Form 10-Q and 15 days for a

Sep262017

The SEC Provides Further Guidance On Financial Statement Requirements In Registration Statements

On August 17, 2017, the SEC issued guidance on financial statement requirements for confidential and public registration statement filings by both emerging growth companies (EGC) and non-emerging growth companies. The new Compliance and Disclosure Interpretations (C&DI’s) follow the SEC’s decision to permit all companies to submit draft registration statements, on a confidential basis (see HERE). The newest guidance is in accord with the SEC’s announced policy to take active measures to promote the U.S. IPO market and small business capital-raise initiatives.

Earlier in the summer, the SEC expanded the JOBS Act benefit available to emerging growth companies, to be able to file confidential draft registration statements, to all companies. Confidential draft submissions are now available for all Section 12(b) Exchange Act registration statements, initial public offerings (IPO’s) and for secondary or follow-on offerings made in the first year after a company becomes publicly reporting.

Title I of the JOBS Act initially allowed for confidential draft submissions of registration

Sep192017

SEC Monitors Impact of Hurricanes On Capital Markets

As I wrote this blog I continued to have no power at my home after one week, though thankfully it has returned by publication date. Living in South Florida, our firm has felt and seen the devastating impact of Hurricane Irma on the state and send our thoughts and wishes to all affected by both Irma and Hurricane Harvey in Texas.

On September 13, 2017, the SEC issued a press release confirming that it is closely monitoring the effects of both Irma and Harvey on the capital markets. In particular, the SEC is working to make sure that investors have access to their securities accounts and evaluating the need for extending filing deadlines for reporting companies. Furthermore, the SEC is watching for and will keep investors updated via alerts on storm-related scams.

Despite the announcement that the SEC is monitoring the markets and considering extending filing deadlines, no specific broad-based relief has been granted. As has been done historically, I

SEC
Sep122017

SEC Announces Regulatory Agenda

In July 2017 the SEC posted its latest version of its semi-annual regulatory agenda and plans for rulemaking with the U.S. Office of Information and Regulatory Affairs. The agenda is as interesting for what’s on it, as for what isn’t. The semi-annual list only contains 33 legislative action items that the SEC intends to propose or finalize in the next 12 months. The fall 2016 list contained 62 items. As further discussed in this blog, the list does not include proposals on executive compensation, or many other Dodd-Frank mandated rules.

In the preamble to the list it indicates that it was completed in March, when Michael Piwowar was acting Chair of the SEC. Chair Jay Clayton and now Commissioner Michael Piwowar have been publicly like-minded, with a goal of directing the SEC towards assisting in small and emerging business growth and capital raise activities, while remaining tough on fraud. A summary of Chair Clayton’s first public speech as head of

Sep052017

OTCQB Sets New Requirements F​or Change Of Control Events

On June 30, 2017, the OTC Markets Group published amendments to the OTCQB standards related to the processing and reporting of change in control events. The new rules went into effect on July 31, 2017.

OTC Markets has been initiating a series of changes related to the OTCQB including amending the qualification requirements to allow quotation by companies that follow its alternative reporting standard (“Alternative Reporting Standard”) which went effective on May 18, 2017. For a review of the new qualification changes, see my blog HERE.

Highlights of Changes 

The OTCQB has added a new Section 2.4 to the OTCQB Standards published by OTC Markets.  The OTCQB Standards include a comprehensive summary of admission and eligibility requirements, application processes, initial and ongoing disclosure requirements, continued eligibility requirements, fees and removal processes.

Section 2 of the OTCQB Standards set forth the continued OTCQB Eligibility requirements, and includes the new Section 2.4 related to change in control events.

A “change in

Aug292017

FINRA Proposes Expansion Of The OTCBB

In August 2016, FINRA quietly requested comment on a proposal to expand the now largely dormant OTC Bulletin Board quotation service (“OTCBB”) as a backup inter-dealer quotation system for OTC Equity securities. As part of the proposal, the OTCBB would be renamed and branded as the Over the Counter Display Facility or “ODF.” Previously, on October 7, 2014, the SEC published a release instituting proceedings to determine whether to approve FINRA’s request to delete the rules related to, and the operations of, the OTCBB. My blog on the proposal can be read HERE.

However, on March 12, 2015, FINRA withdrew the proposed rule change and request to delete the OTCBB. Although the March 12, 2015 withdrawal did not cite reasons, in its new request for comment, FINRA indicates it withdrew the proposal in response to SEC staff requests that FINRA continue to operate alternative quotation facility.

Since that time the OTCBB has remained largely relatively dormant. According

Aug222017

FINRA Issues New Guidance On Communications With The Public, Including Social Media

In April 2017 FINRA issued Regulatory Notice 17-18 providing additional guidance on the use of social media and digital communications by member firms and persons associated with member firms. The guidance specifically relates to FINRA Rule 2210 – Communications with the Public, and supplements previously issued guidance in Regulatory Notices 10-06 and 11-39, published in 2011. The new guidance is in the form of FAQ’s and concentrates on the areas of recordkeeping, third-party posts and hyperlinks to third-party sites.

I have previously written about the SEC’s guidance on social media use by companies, including as a method for communications with investors and the public. The most recent blog is HERE and includes hyperlinks to prior blogs, including a three-part summary of the SEC Guidance on Social Media and Websites for Company Announcements and Communications.

Brief Overview of Rule 2210

FINRA Rule 2210 governs communications by FINRA member firms and associated persons, including: (i) institutional communications – including any written or

Aug152017

SEC Issues Report on Initial Coin Offerings (ICO’s)

On July 25, 2017, the SEC issued a report on an investigation related to an initial coin offering (ICO) by the DAO and statements by the Divisions of Corporation Finance and Enforcement related to the investigative report (the “Report”). On the same day, the SEC issued an Investor Bulletin related to ICO’s. Offers and sales of digital coins, cryptocurrencies or tokens using distributed ledger technology (DLT) or blockchain have become widely known as ICO’s. For an introduction on DLT and blockchain, see HERE.

The basis of the report is that offers and sales of digital assets, including cryptocurrencies, are subject to the federal (and state) securities laws. From the highest level, the nature of a digital asset must be examined to determine if it meets the definition of a security using established principles (see HERE). In addition, all offers and sales of securities must either be registered with the SEC or there must be an available exemption