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by Laura Anthony, Esq.

New FINRA Rules For Corporate Actions

Effective September 27, 2010, the SEC has approved new FINRA Rule 6490 (Processing of Company Related Actions). Rule 6490 requires that corporations whose securities are trading on the over the counter market (OTCQX, OTCQB, OTCBB or PinkSheets) timely notify FINRA of certain corporate actions, such as dividends, forward or reverse splits, rights or subscription offerings, and name changes. The Rule grants FINRA discretionary power when processing documents related to the announcements, and implements fees for these services.

FINRA and the OTCBB

FINRA (the Financial Industry National Regulatory Authority) operates the OTC Bulletin Board and processes corporate actions for changes such as splits and name changes. FINRA also issues trading symbols to over the counter (non-exchange) traded issuers and maintains a symbols database for issuers. When processing by FINRA of a corporate action is complete, FINRA notifies the OTC marketplace of such changes and actions, such as repricing securities following a forward or reverse split, or issuing a new trading symbol following a name change or merger.

Historically, FINRA’s role has been largely ministerial with limited jurisdiction to impose informational or other requirements, and no power to reject requested changes. However, the SEC began to express concern that certain parties were using FINRA to assist in fraudulent activities, such as usurping the corporate identity of publicly traded entities by either reinstating an entity with no authority or creating new entities with the same name as the public entity. Accordingly, Rule 6490 was created.

FINRA and Issuer Actions

The Rule codifies FINRA’s authority to conduct in-depth reviews of company related actions and allows the staff discretion not to process such actions where the information or forms are incomplete or when certain indicators of potential fraud exist. The staff now has broad discretion to ask for additional documents and evidence to support and verify the accuracy of submitted information.

Factors that may be considered by FINRA to deny an application for a change are limited to: (1) FINRA staff reasonably believes the forms and provided documentation is not complete or accurate; (2) a reporting issuer is not current with its reporting obligations; (3) FINRA has actual knowledge that the Company or Company related parties are the subject of a pending investigation by a regulatory body or have been adjudicated against adversely; (4) a government authority or regulatory has informed FINRA that the company related action may be potentially related to fraud or pose a threat to public investors; or (5) there is significant uncertainty in the settlement clearance process for that security.

FINRA and Processing Fees

In addition, the new Rule allows FINRA to charge fees to issuers for processing these corporate actions. In furtherance of the Rule and its new duties, FINRA has created certain forms and information requirements for Issuers to complete and submit. In addition to information forms which must be completed by the Issuers, FINRA now requires notarized and verified background corporate records, board and shareholder resolutions, proof of change of control (including resignations and appointments for all changes in officers and directors) and attorney opinion letters. All requests must be accompanies with the newly imposed fees. The new FINRA fees range from $200 for a timely notice to $5,000 for a late notice (with $1,000 and $2,000 in between fees), and a $4,000 fee to appeal an adverse decision.

Securities Attorney Laura Anthony

Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!