Category: FINRA

FINRA: In December, 2015, FINRA proposed rules for a whole new category of broker-dealer, called “Capital Acquisition Brokers” (“CABs”), which limit their business to corporate financing transactions. In February 2014 FINRA sought comment on the proposal, which at the time referred to a CAB as a limited corporate financing broker (LCFB). Following many comments that the LCFB rules did not have a significant impact on the regulatory burden for full member firms, the new rules modify the original LCFB proposal in more than just name. The new rules will take effect upon approval by the SEC and are currently open to public comments…

Jan212014

Direct Public Offering or Reverse Merger; Know Your Best Option for Going Public

Introduction

For at least the last twelve months, I have received calls daily from companies wanting to go public.  This interest in going public transactions signifies a big change from the few years prior.

Beginning in 2009, the small-cap and reverse merger, initial public offering (IPO) and direct public offering (DPO) markets diminished greatly.  I can identify at least seven main reasons for the downfall of the going public transactions.  Briefly, those reasons are:  (1) the general state of the economy, plainly stated, was not good; (2) backlash from a series of fraud allegations, SEC enforcement actions, and trading suspensions of Chinese companies following reverse mergers; (3) the 2008 Rule 144 amendments including the prohibition of use of the rule for shell company and former shell company shareholders; (4) problems clearing penny stock with broker dealers and FINRA’s enforcement of broker-dealer and clearing house due diligence requirements related to penny stocks; (5) DTC scrutiny and difficulty in obtaining clearance following

Dec102013

Proposed Crowdfunding Rules – Part III

As required by Title III of the JOBS Act, on October 23, 2013, the SEC has published proposed crowdfunding rules.  The SEC has dubbed the new rules “Regulation Crowdfunding.” The entire text of the rule release is available on the SEC website.  In a series of blogs, I am summarizing the lengthy rule release.  This Part III in my series continues a discussion of the in-depth disclosure requirements for Issuers for use in their offering statements.  Part IV will discuss financial disclosure obligations.

Summary Breakdown of Proposed New Rules – Requirements on Issuers

Disclosure Requirements

Pursuant to the CROWDFUND Act as set forth in the JOBS Act, an Issuer who offers or sells securities in a crowdfunding offering must file with the SEC and provide investors and the funding intermediary (whether a funding portal or broker-dealer) and make available to potential investors:

(a) The name, legal status, physical address, and website address of the Issuer (discussed in Part II of

Dec032013

Proposed Crowdfunding Rules – Part II

As required by Title III of the JOBS Act, on October 23, 2013, the SEC has published proposed crowdfunding rules.  The SEC has dubbed the new rules “Regulation Crowdfunding.” The entire text of the rule release is available on the SEC website.

Background

Crowdfunding generally is where an entity or individual raises funds by seeking small contributions from a large number of people.  The crowdfunder sets a goal amount to be raised from the crowd with the funds to be used for a specific business purpose.  In addition, a crowdfunding campaign allows the crowd to communicate with each other, thus adding the benefit of the “wisdom of the crowd.”  Small businesses can particularly benefit from crowdfunding as they are not limited by

Nov192013

Proposed Crowdfunding Rules – Part I

As required by Title III of the JOBS Act, on October 23, 2013, the SEC has published proposed crowdfunding rules.  The SEC has dubbed the new rules “Regulation Crowdfunding.” The entire text of the rule release is available on the SEC website.

Background

Crowdfunding generally is where an entity or individual raises funds by seeking small contributions from a large number of people.  The crowdfunder sets a goal amount to be raised from the crowd with the funds to be used for a specific business purpose.  In addition, a crowdfunding campaign allows the crowd to communicate with each other, thus adding the benefit of the “wisdom of the crowd.”  Small businesses can particularly benefit from crowdfunding as they are not limited by restrictions on general solicitation and advertising or purchaser qualification requirements.

Title III of the JOBS Act, called the Crowdfund Act, amends Section 4 of the Securities Act of 1933 (the Securities Act), adding new Section 4(a)(6) to

Oct012013

SEC has Modified Policies on Offerings by Shell Companies

Recently, albeit not officially, the Securities and Exchange Commission (“SEC”) has materially altered its position on offerings by shell companies that are not blank-check companies.  In particular, over the past year, numerous shell companies that are not also blank-check companies have completed offerings using an S-1 registration statement and successfully obtained market maker support and a ticker symbol from FINRA and are trading.  As recently as 18 months ago, this was not possible.

Rule 419 and Blank-Check Companies

The provisions of Rule 419 apply to every registration statement filed under the Securities Act of 1933, as amended, by a blank-check company.  Rule 419 requires that the blank-check company filing such registration statement deposit the securities being offered and proceeds of the offering into

Sep102013

State Crowdfunding Using Intrastate Offerings and Rule 147

The SEC has yet to publish proposed rules under Title III of the JOBS Act – the Crowdfunding Act.  The Crowdfunding Act amends Section 4 by of the Securities Act of 1933 (the Securities Act) to create a new exemption to the registration requirements of Section 5 of the Securities Act.  The new exemption allows Issuers to solicit “crowds” to sell up to $1 million in securities as long as no individual investment exceeds certain threshold amounts.

The threshold amount sold to any single investor cannot exceed (a) the greater of $2,000 or 5% of the annual income or net worth of such investor, if their annual income or net worth is less than $100,000; and (b) 10% of the annual

Sep032013

Will FINRA Rule Changes Related to Private Placement Further Deter Broker Dealers From Placing the Securities of Small Businesses?

On August 19, 2013, FINRA published Regulatory Notice 13-26 about the updated Private Placement Form that firms must file with FINRA when acting as a placement agent for the private placement of securities.  A copy of the form is included with the regulatory notice at www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p325359.pdf.  The Form went effective on July 1, 2013.  FINRA has also updated the FAQs relating to the Private Placement Form.  The updated Private Placement Form has six new questions:

  • Is this a contingency offering?
  • Does the issuer have
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Jul162013

New SEC Rules Have Eliminated the Prohibition Against General Solicitation and Advertising in Rules 506 and 144A Offerings

In a historic 4-1 vote on July 10, 2013, the SEC has adopted final rules eliminating the prohibition against general solicitation and advertising in Rules 506 and 144A offerings as required by Title II of the JOBS Act.  On the same day, the SEC adopted amendments to Rule 506 to disqualify “felons and bad actors” from participating in Rule 506 offerings.  This blog discusses the rules eliminating the prohibition against general solicitation and advertising.  A separate blog will discuss the felon and bad actor disqualifications.

The SEC has also adopted modifications to Form D to require Issuers to specify if they are conducting an offering that permits general solicitation and advertising and to change the required time of filing the Form D for

Jun032013

SEC Suspends Trading On 61 Shell Companies

The Securities and Exchange Commission (SEC) today suspended the trading in 61 dormant shell companies.  The trading suspensions are part of an SEC initiative tabbed Operation Shell-Expel by the SEC’s Microcap Fraud Working Group.  In May 2012, the SEC suspended the trading on 379 shell companies as part of the initiative.  Each of the companies were dormant shells that were not current in public disclosures.  Each of the companies failed to have adequate current public information available either through the news service on OTC Markets or filed with the SEC via EDGAR.

The federal securities laws allow the SEC to suspend trading in any stock for up to 10 business days. Once a company is suspended from trading, it cannot be quoted again until it provides updated information including complete disclosure of its business and accurate financial statements.  In addition to providing the necessary information, to begin to trade again, a company must enlist a market maker to file a

May292013

The OTCQX And OTCQB Are Finally Recognized As “Established Public Markets” By The SEC

Back in October 2010 I wrote a blog titled “Has the OTCBB been replaced by the OTCQX and OTCQB”; at the time and up until May 16, 2013, my opinion was “yes” with one big caveat.  Prior to May 16, 2013, all three tiers of the OTC Link were considered “pinksheets” by the SEC staff.  Prior to May 16, 2013, the OTC Link was not considered a market and therefore: (1) there could be no at-the-market pricing of securities registered for resale by an Issuer on behalf of its selling shareholders; and (2) there could be no equity lines or similar financing transactions and no registration of underlying convertible equities which are priced based on a formula tied to the trading price (usually a discount to market), for OTC Link quoted securities.

On May 16, 2013, the SEC updated their Compliance and Disclosure Interpretations confirming that the OTCQB and OTCQX marketplaces are now considered public marketplaces for purposes of establishing