14c Information Statement

Understanding the Shareholder Meeting Timeline

Proxy season is fast approaching. Whether it is for an annual meeting or special shareholder meeting, clients are always asking how quickly they can schedule a shareholder meeting, or where action is taken by consent, how quickly the company can effectuate such consented upon action. The answer depends on several factors, including whether the meeting is a special or annual meeting, if annual, whether there are any “non-routine” items on the agenda, and whether the company intends to mail out all proxy materials or just a notice of internet availability of such materials. Although I have written about the proxy rules many times, this is the first blog where I drill down and focus on the timeline.

The federal proxy rules can be found in Section 14 of the Securities Exchange Act of 1934 (“Exchange Act”) and the rules promulgated thereunder. The rules apply to any company which has securities registered under Section 12 of the Exchange Act. Section 14

December 3, 2024

The SEC, FinCEN And CFTC Issue A Joint Statement On Digital Assets

On October 11, 2019 the SEC, FinCEN and CFTC issued a joint statement on activities involving digital assets. Various agencies have been consistently working together, with overlapping jurisdiction, on matters involving digital assets and distributed ledger technology. Earlier, in August, the SEC and FINRA issued a joint statement on the custody of digital assets, including as it relates to broker-dealers and investment advisors (see HERE).

The purpose of the joint statement is to remind persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA). AML/CFT obligations apply to entities that the BSA defines as “financial institutions,” such as futures commission merchants and introducing brokers obligated to register with the CFTC, money services businesses (MSBs) as defined by FinCEN (for more information on MSBs see HERE), and broker-dealers and mutual funds obligated to register

November 5, 2019

Forward Looking Statements Disclaimers

Forward-looking statements disclaimers appear in almost all things SEC and public company related from registration statements to reports filed in accordance with the Securities Exchange Act to press releases. Like many disclaimers, they are usually looked past by readers, including at times by the attorneys reviewing or preparing the documents. On many occasions we will have a new client come to the firm that has been using the same forward-looking statements disclaimer for years that has perpetually been cut and pasted into every document, and which would fail to provide the intended protections if ever tested.

The Private Securities Litigation Reform Act of 1995

Many companies start a forward-looking statements disclaimer paragraph with the sentence “[I]nformation contained herein contains ‘forward looking statements’ within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities and Exchange Act of 1934, as amended.” Sections 27A and 21E, both created by the Private Securities Litigation

September 3, 2019

SEC And FINRA Joint Statement On Custody Of Digital Assets

On July 8, 2019, the SEC’s Division of Trading and Markets and FINRA’s Office of General Counsel issued a joint statement on broker-dealer custody of digital asset securities (“Joint Statement”). The SEC and FINRA have been discussing issues of custody related to tokens and digital assets for years. For example, issues surrounding the custody of digital assets have been continuously cited by the SEC as one of the reasons for the failure to approve a cryptocurrency ETF.

The Joint Statement begins with the admission that historical rules do not adequately cover the complex issues related to digital assets, including rules related to the loss or theft of a security. In recent months the SEC and FINRA staff have been engaging in conversations with industry participants regarding how the rules could be applied or modified to suit the needs of the emerging technology of digital assets.

Any entity that transacts business in digital asset securities must comply with the federal securities

August 6, 2019

SEC Cautionary Statement on Audits of Public Companies Operating in China

Eight years following the crash of the Chinese reverse merger boom and a slew of SEC enforcement proceedings, the SEC is once again concerned with the financial reporting by U.S. listed companies with operations based in China. In December 2018, the SEC issued a cautionary public statement from SEC Chair Jay Clayton, SEC Chief Accountant Wes Bricker and PCAOB Chairman William D. Duhnke III entitled “Statement on the Vital Role of Audit Quality and Regulatory Access to Audit and Other Information Internationally – Discussion of Current Information Access Challenges with Respect to U.S.-listed Companies with Significant Operations in China.”

Just reading the title reminded me of the boom in China-based reverse mergers around 2009-2010 followed by the trading halts or delistings of at least 50 companies in 2011 and 2012. In the summer of 2010, the SEC launched an initiative to determine whether certain companies with foreign operations—including those that were the product of reverse mergers—were accurately reporting their

February 12, 2019

Financial Statement Disclosure Relief Under Rule 3-13

Rule 3-13 of Regulation S-X allows a company to request relief from the SEC from the financial statement disclosure requirements if they believe that the financial information is burdensome and would result in disclosure of information that goes beyond what is material to investors. Consistent with the ongoing message of open communication and cooperation, the current SEC regime has been actively encouraging companies to avail themselves of this relief and has updated the CorpFin Financial Reporting Manual to include contact information for staff members that can assist.

As part of its ongoing disclosure effectiveness initiative, the SEC is also considering amendments to the financial statement disclosure process and the publication of further staff guidance. In addition to advancing disclosure changes, allowing for relief from financial statement requirements could help encourage smaller companies to access public markets, an ongoing goal of the SEC and other financial regulators. For a review of the October 2017 Treasury Department report to President Trump, including

November 6, 2018

The SEC And CFTC Joint Statements On Cryptocurrencies; Global Regulators Join In

On January 19, 2018 and again on January 25, 2018, the SEC and CFTC divisions of enforcement issued joint statements regarding cryptocurrencies. The January 19 statement was short and to the point, reading in total:

“When market participants engage in fraud under the guise of offering digital instruments – whether characterized as virtual currencies, coins, tokens, or the like – the SEC and the CFTC will look beyond form, examine the substance of the activity and prosecute violations of the federal securities and commodities laws. The Divisions of Enforcement for the SEC and CFTC will continue to address violations and bring actions to stop and prevent fraud in the offer and sale of digital instruments.”

The January 25, 2018 statement was issued by SEC Chairman Jay Clayton and CFTC Chairman J. Christopher Giancarlo and was published as an op-ed piece in the Wall Street Journal. In summarizing the statements, I add my usual commentary and facts and information

February 6, 2018

SEC and NASAA Statements on ICOs and More Enforcement Proceedings

The message from the SEC is very clear: participants in initial coin offerings (ICO’s) and cryptocurrencies in general need to comply with the federal securities laws or they will be the subject of enforcement proceedings. This message spreads beyond companies and entities issuing cryptocurrencies, also including securities lawyers, accountants, consultants and secondary trading platforms. Moreover, the SEC is not the only watchdog. State securities regulators and the plaintiffs’ bar are both taking aim at the crypto marketplace. Several class actions have been filed recently against companies that have completed ICO’s.

After a period of silence, on July 25, 2017, the SEC issued a Section 21(a) Report on an investigation and related activities by the DAO, with concurrent statements by both the Divisions of Corporation Finance and Enforcement. On the same day, the SEC issued an Investor Bulletin related to ICO’s. For more on the Section 21(a) Report, statements and investor bulletin, see HERE. Since that time,

January 16, 2018

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

November 28, 2017

SEC Statements On Cybersecurity; An EDGAR Hacking – Part 1

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

November 21, 2017

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

September 26, 2017

SEC Expands Ability To File Confidential Registration Statements

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On June 19, 2017, the SEC announced that the Division of Corporation Finance will permit all companies to submit draft registration statements, on a confidential basis. Confidential draft submissions will now be 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.

The SEC has adopted the change by staff prerogative and not a formal rule change. On June 29, 2017, the SEC issued guidance on the change via new FAQs. The new policy is effective July 10, 2017.

Title I of the JOBS Act initially allowed for confidential draft submissions of registration statements by emerging growth companies but did not include any other companies, such as smaller reporting companies. Regulation A+ as enacted on June 19, 2015, also allows for confidential submissions of an offering circular by companies completing their

July 25, 2017

NASDAQ Requires Disclosure Of Third-Party Director Compensation

On July 1, 2016, the SEC approved NASDAQ’s new rule requiring listed companies to publicly disclose compensation or other payments by third parties to members of or nominees to the board of directors. The new rule, which went into effect in early August, is being dubbed the “Golden Leash Disclosure Rule.”

The Golden Leash Disclosure Rule

New NASDAQ Rule 5250(b)(3) requires each listed company to publicly disclose the material terms of all agreements or other arrangements between any director or director nominee and any other person or entity relating to compensation or any other payment in connection with the person’s position as director or candidacy as director. The disclosure does not include regular compensation from the company itself for director services. The disclosure must be included in any proxy or information statement issued under Regulation 14C or 14A for a shareholder’s meeting at which directors will be elected. A company can also include the disclosure on its website.

There are

October 11, 2016

SEC Small Business Advisory Committee Public Company Disclosure Recommendations

On September 23, 2015, the SEC Advisory Committee on Small and Emerging Companies (the “Advisory Committee”) met and finalized its recommendation to the SEC regarding changes to the disclosure requirements for smaller publicly traded companies.

By way of reminder, the Committee was organized by the SEC to provide advice on SEC rules, regulations and policies regarding “its mission of protecting investors, maintaining fair, orderly and efficient markets and facilitating capital formation” as related to “(i) capital raising by emerging privately held small businesses and publicly traded companies with less than $250 million in public market capitalization; (ii) trading in the securities of such businesses and companies; and (iii) public reporting and corporate governance requirements to which such businesses and companies are subject.”

The topic of disclosure requirements for smaller public companies under the Securities Exchange Act of 1934 (“Exchange Act”) has come to the forefront over the past year. In early December the House passed the Disclosure Modernization and

October 27, 2015

SEC Footnote 32 and Sham S-1 Registration Statements

Over the past several years, many direct public offering (DPO) S-1 registration statements have been filed for either shell or development-stage companies, claiming an intent to pursue and develop a particular business, when in fact, the promoter intends to create a public vehicle to be used for reverse merger transactions. For purposes of this blog, I will refer to these S-1 registration statements the same way the SEC now does, as “sham registrations.” I prefer the term “sham registrations” as it better describes the process than the other used industry term of art, “footnote 32 shells.”

Footnote 32 is part of the Securities Offering Reform Act of 2005 (“Securities Offering Reform Act”). In the final rule release for the Securities Offering Reform Act, the SEC included a footnote (number 32) which states:

“We have become aware of a practice in which the promoter of a company and/or affiliates of the promoter appear to place assets or operations within

September 29, 2015

The New FINRA Broker Background Check Rule

On December 30, 2014, the SEC approved FINRA Rule 3110(e), which requires FINRA member firms to verify the information provided by or contained in a broker’s Form U-4 within 30 days of filing the form with FINRA. The Rule becomes effective on July 31, 2015. The Rule is intended to help verify background information on a broker, including publicly available information through the FINRA Broker-Check system and to prevent high-risk, recidivist brokers from moving from firm to firm and continuing questionable or outright improper conduct.

Background

One of FINRA’s 2015 Regulatory and Examination Priorities is addressing concerns about high-risk brokers and improving background checks and due diligence by member firms on prospective hires. The new Rule is part of FINRA’s initiative in this regard. FINRA is taking additional steps in this area as well, including a one-time background and financial check of all registered representatives, which checks will be completed by August 2015.

The SEC release discussing and approving the

March 24, 2015

SEC Advisory Committee On Small And Emerging Companies’ Recommendations On Accredited Investor Definition

On December 17, 2014 and again on March 4, 2015, the SEC Advisory Committee on Small and Emerging Companies (the “Advisory Committee”) met and finalized its recommendation to the SEC regarding the definition of “accredited investor.” The Advisory Committee unanimously approved the recommendation, which is decidedly pro small business and supportive of facilitating capital formation, and communicated such recommendation to the SEC in a letter dated March 9, 2015 (the “Letter”). The Letter contains a pragmatic discussion of the importance of small business capital formation, the importance of the “accredited investor” definition, and the lack of connection between the definition and fraud prevention.

As set forth in the Advisory Committee Letter, the committee was organized by the SEC to provide advice on SEC rules, regulations and policies regarding “its mission of protecting investors, maintaining fair, orderly and efficient markets and facilitating capital formation” as related to “(i) capital raising by emerging privately held small businesses and publicly traded companies

March 17, 2015

SEC Supports FINRA’s Rule 6490 Authority Over Corporate Actions

In two recent administrative decisions, the SEC has upheld FINRA’s broad authority under Rule 6490 to approve and effectuate corporate actions by public companies trading on the OTC Markets. One of FINRA’s mandates is to protect investors and maintain fair and orderly markets and like broker-dealers, it acts as a gatekeeper in the small-cap industry. FINRA exercises its powers though the direct regulation of its member broker-dealer firms, but also through its Office of Fraud Detection and Market Intelligence, which monitors the trading activity and press releases of issues in the marketplace and conducts related investigations. FINRA works with the SEC as a front line in the detection, investigation and assistance with the prosecution of issuers.

Recently, through its power under Rule 6490, as more fully explained below, FINRA has, with the support of the SEC, expanded its impact on the small-cap marketplace by conducting in-depth reviews of issuers in conjunction with the processing of corporate actions, and denying such

March 10, 2015

Proposed Amendments To Disclosure Of Hedging Policies For Officers, Directors And Employees

On February 9, 2015, the SEC issued proposed rules that would increase corporate disclosure of company hedging policies for directors and employees in annual meeting proxy statements. The new rules are part of the ongoing rule-making requirements mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). In particular, the new rule would implement Section 14(j) of the Securities Exchange Act of 1934 (“Exchange Act”), which requires annual meeting proxy or consent solicitation statements to disclose whether employees or members of the board are permitted to purchase financial instruments, such as options, swaps, collars and the like, to hedge price decreases in the company securities.

The proposed rules regulate disclosure of company policy as opposed to directing the substance of that policy or the underlying hedging activities. In fact, the rule specifically does not require a company to prohibit a hedging transaction or otherwise adopt specific policies. The rule would require disclosure about whether directors, officers and

February 17, 2015

The DPO Process Including Form S-1 Registration Statement Requirements

One of the methods of going public is directly through a public offering. In today’s financial environment, many Issuers are choosing to self-underwrite their public offerings, commonly referred to as a Direct Public Offering (DPO). Management of companies considering a going public transaction have a desire to understand the required disclosures and content of a registration statement. This blog provides that information.

Pursuant to Section 5 of the Securities Act of 1933, as amended (“Securities Act”), it is unlawful to “offer” or “sell” securities without a valid effective registration statement unless an exemption is available. Companies desiring to offer and sell securities to the public with the intention of creating a public market or going public must file with the SEC and provide prospective investors with a registration statement containing all material information concerning the company and the securities offered. Currently all domestic Issuers must use either form S-1 or S-3. Form S-3 is limited to larger filers with

January 7, 2014

14C Information Statement Requirements for a Pre-Merger Recapitalization

Background on 14C Information Statements

All companies with securities registered under the Securities Exchange Act of 1934, as amended, (i.e., through the filing of a Form 10 or Form 8-A) are subject to the Exchange Act proxy requirements found in Section 14 and the rules promulgated thereunder. The proxy rules govern the disclosure in materials used to solicit shareholders’ votes in annual or special meetings held for the approval of any corporate action requiring shareholder approval. The information contained in proxy materials must be filed with the SEC in advance of any solicitation to ensure compliance with the disclosure rules.

Solicitations, whether by management or shareholder groups, must disclose all important facts concerning the issues on which shareholders are asked to vote. The disclosure information filed with the SEC and ultimately provided to the shareholders is enumerated in SEC Schedules 14A.

Where a shareholder vote is not being solicited, such as when a Company has obtained shareholder approval through written

July 10, 2013

Elements Constituting “Solicitation” Such that a 14A Proxy Solicitation is Required Instead of a 14C Information Statement Under the Section 14 Proxy Rules of the Securities Exchange Act of 1934

If you are a private company looking to go public on the OTCBB, securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel. Ms. Anthony counsels private and small public companies nationwide regarding reverse mergers, corporate transactions and all aspects of securities law.

Companies with securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are subject to the Exchange Act proxy rules found in Section 14 and the rules promulgated thereunder. The proxy rules govern the disclosure in materials used to solicit shareholders’ votes in annual or special meetings held for the election of directors and the approval of other corporate action.

The information contained in proxy materials must be filed with the SEC in advance of any solicitation to ensure compliance with the disclosure rules. Solicitations, whether by management or shareholder groups, must disclose all important facts concerning the issues on which holders are asked to vote. The disclosure information filed with

October 20, 2009

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14c Information Statement

Understanding the Shareholder Meeting Timeline

The SEC, FinCEN And CFTC Issue A Joint Statement On Digital Assets

Forward Looking Statements Disclaimers

SEC And FINRA Joint Statement On Custody Of Digital Assets

SEC Cautionary Statement on Audits of Public Companies Operating in China

Financial Statement Disclosure Relief Under Rule 3-13

SEC and NASAA Statements on ICOs and More Enforcement Proceedings

SEC Statements On Cybersecurity; An EDGAR Hacking – Part 1

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

SEC Expands Ability To File Confidential Registration Statements

NASDAQ Requires Disclosure Of Third-Party Director Compensation

SEC Small Business Advisory Committee Public Company Disclosure Recommendations

SEC Footnote 32 and Sham S-1 Registration Statements

The New FINRA Broker Background Check Rule

SEC Advisory Committee On Small And Emerging Companies’ Recommendations On Accredited Investor Definition

SEC Supports FINRA’s Rule 6490 Authority Over Corporate Actions

Proposed Amendments To Disclosure Of Hedging Policies For Officers, Directors And Employees

The DPO Process Including Form S-1 Registration Statement Requirements

14C Information Statement Requirements for a Pre-Merger Recapitalization

Elements Constituting “Solicitation” Such that a 14A Proxy Solicitation is Required Instead of a 14C Information Statement Under the Section 14 Proxy Rules of the Securities Exchange Act of 1934

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