The ECOS Matter; When Is A Reverse Split Effective?
ABA Journal’s 10th Annual Blawg 100
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In what was presumably an unintended consequence, the application of an SEC- approved FINRA regulation has resulted in a conflict between state and federal corporate law for a small publicly traded company.
On September 16, 2014, Ecolocap Solutions, Inc. (“ECOS”) filed a Form 8-K in which it disclosed that FINRA had refused to process its 1-for-2,000 reverse split. At the time of the FINRA refusal, ECOS had already received board and shareholder approval and had filed the necessary amended articles with the State of Nevada, legally effectuating the reverse split in accordance with state law. Moreover, ECOS is subject to the reporting requirements under the Securities Exchange Act of 1934, as amended (“Exchange Act”), and had filed a preliminary and then definitive 14C information statement with the SEC, reporting the shareholder approval of the split.
The ECOS 8-K attached a copy of the FINRA denial letter, which can be viewed HERE.
SEC Filed Actions Against 19 Firms and One Individual Trader for Violation of Rule 105 of Regulation M
ABA Journal’s 10th Annual Blawg 100
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On September 16, 2014, the SEC filed actions against 19 firms and one individual trade for short selling violations in advance of public stock offerings in violation of Rule 105 of Regulation M. The SEC has actively enforced Regulation M since its enactment in 1996. Regulation M is designed to prevent stock manipulation during public offerings and Rule 105 particularly prohibits short selling of stock within five business days of participating in an offering for the same stock. That is, you cannot short stock and cover your short by buying the same stock from the underwriter in a public offering. Rule 105 prevents downward pressure on a company’s stock price during the offering process.
The SEC’s current investigation found that 19 firms and one individual trader charged in these latest cases engaged in short selling of particular stocks shortly before they bought shares from an underwriter, broker, or dealer participating in a follow-on
SEC Files Dozens of Charges for Violations of the Section 16 and Section 13 Corporate Insider Reporting Requirements
ABA Journal’s 10th Annual Blawg 100
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Introduction
On September 10, 2014, the SEC filed 28 separate actions against officers, directors and major shareholders and an additional 6 actions against reporting companies, all stemming from violations of the reporting requirements contained in Sections 13 and 16 of the Securities Exchange Act of 1934, as amended (“Exchange Act”). The SEC announced that it had created a task force to investigate violations using quantitative data sources and ranking algorithms to identify repetitive late filers. The SEC settled with all but one of the charged for a total of $2.6 million in penalties.
The actions against insiders and major shareholders were based on direct violations of their individual reporting requirements. The actions against reporting companies were for “contributing to” the violations. In these cases, the companies had contractually agreed to take on the responsibility of making the filings for their insiders, and had been delinquent in doing so.
Historically the SEC has rarely
OTCQX Listing and Quotation Eligibility and Requirements for International Companies
ABA Journal’s 10th Annual Blawg 100
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On May 23, 2014, OTC Markets Group, Inc., published its updated OTCQX Rules for International Companies version 6.7. This blog summarizes those rules. A complete copy of the rules is available on the OTC Link website, otcmarkets.com.
Background
The www.otcmarkets.com divides issuers into three (3) levels: OTCQX, OTCQB and OTC Pink.
The OTCQX has two tiers of quotation for U.S. companies: (i) OTCQX International Premier; and (ii) OTCQX International. International issuers on the OTCQX must meet specified eligibility requirements. Quotation is available for American Depository Receipts (ADR’s) or foreign ordinary securities of companies traded on a Qualifying Foreign Stock Exchange.
International issuers on the OTCQB must either be fully reporting and current in their SEC reporting obligations or qualify for the Rule 12g3-2(b) exemption from SEC registration for foreign private issuers. In addition, OTCQB entities must meet minimum price standards, file annual reports and pay annual fees, but do not undergo additional quality
Public Company and Affiliate Stock Buyback Rules; Rule 10b-18
ABA Journal’s 10th Annual Blawg 100
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The SEC allows for limited methods that an issuer can utilize to show confidence in its own stock and assist in maintaining or increasing its stock price. One of those methods is Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Exchange Act Rule 10b-18 provides issuers with a non-exclusive safe harbor from liability for market manipulation under Sections 9(a)(2) and 10(b) and Rule 10b-5 under the Exchange Act when issuers bid for or repurchase their common stock in the open market in accordance with the Rule’s manner, timing, price and volume conditions. Each of the four main conditions of Rule 10b-18 must be satisfied on each day that a repurchase is made.
Sections 9 and 10 of the Exchange Act are the general anti-fraud and anti-manipulation provisions under the Act. Section 9(a)(2) of the Exchange Act makes it unlawful for any person to, directly or indirectly, create
