Commissioner Uyeda’s Statement On Dealer Litigation
On August 19, 2024, SEC Commissioner Mark T. Uyeda published a statement regarding one of the numerous defendants in SEC initiated enforcement proceedings claiming unlicensed dealer activity. The statement resonates with the sentiments of most of my colleagues, peers and clients.
Background
In November 2017 the SEC shocked the industry when it filed an action against Microcap Equity Group, LLC and its principal alleging that its investing activity required licensing as a dealer under Section 15(a) of the Exchange Act. Since that time, the SEC has filed numerous additional cases with the sole allegation being that the investor acted as an unregistered dealer. In each case, the investor entity purchased convertible promissory notes from micro-cap OTC Markets issuers (or other existing note holders), which, after the applicable Rule 144 holding period, were converted into shares of common stock and sold on the open market. As the securities were generally low priced, the conversions resulted in large quantities of additional
Who Is An Affiliate And Why Does It Matter – Primary VS Secondary Offering
The concept of affiliation resonates throughout the federal securities laws, including pertaining to both the Securities Act and Exchange Act rules, regulations and forms and Nasdaq and NYSE compliance. In this multipart series of blogs, I will unpack what the term “affiliate” means and its implications. This first blog in the series began with an analysis of the Securities Act definition of “affiliate” and the implications under Rule 144, Section 4(a)(7) and Form S-3 eligibility (see HERE). In this Part 2 of the series, I am delving into the meaty topic of a primary vs. secondary offering, which itself hinges on whether the offeror is an affiliate.
Secondary/Resale Offerings vs. Primary Offerings
A secondary offering is an offering made by or on behalf of bona fide selling shareholders and not by or on behalf of the registrant company. A secondary offering can only occur after a company is public. That is, even if a company goes public
The 211 Rules And Shell Companies
In September 2020, the SEC adopted a complete overhaul of the 15c2-11 rules, the new rules of which went into effect on September 28, 2021. From a very high level, the new 211 rules: (i) require that information about the company and the security be current and publicly available in order to initiate or continue to quote a security; (ii) limit certain exceptions to the rule including the piggyback exception where a company’s information becomes unavailable to the public or is no longer current; (iii) limit certain exceptions to the rule including the piggyback exception where a company becomes and remains a shell company for a period of 18 months; (iv) reduce regulatory burdens to quote securities that may be less susceptible to potential fraud and manipulation; (v) allow OTC Markets itself to evaluate and confirm eligibility to rely on the rule; and (vi) streamline the rule and eliminate obsolete provisions. For an in-depth discussion on the 15c2-11 rules,
SEC Fall 2022 Regulatory Agenda
On January 4, 2023, the SEC published its semiannual Fall 2022 regulatory agenda (“Agenda”) and plans for rulemaking. The Unified Agenda of Regulatory and Deregulatory Actions contains the Regulatory Plans of 28 federal agencies and 68 federal agency regulatory agendas. My favorite Commissioner, Hester M. Peirce, was quiet about the agenda, not issuing a public statement this time. Upon publication of the Spring 2022 Agenda, Commissioner Peirce ripped the Agenda as being disconnected with the SEC’s core mission and as being focused on special interest groups instead of a broad range of market participants. The Agenda is published twice a year, and for several years I have blogged about each publication.
The Agenda is broken down by (i) “Pre-rule Stage”; (ii) Proposed Rule Stage; (iii) Final Rule Stage; and (iv) Long-term Actions. The Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The number of items to
SEC Proposes New Rules For SPACs – Part 5
On March 30, 2022, the SEC proposed rules related to SPAC and de-SPAC transactions including significantly enhanced disclosure obligations, expanding the scope of deemed public offerings in these transactions, making a target company a co-registrant when a SPAC files an S-4 or F-4 registration statement associated with a business combination, and aligning de-SPAC transactions with initial public offering rules. In addition, the SEC has also proposed rules that would deem any business combination transaction involving a reporting shell company, including but not limited to a SPAC, to involve a sale of securities to the reporting shell company’s shareholders. The new rules would amend a number of financial statement requirements applicable to transactions involving shell companies.
In addition to proposing new rules for SPAC and de-SPAC transactions, the SEC is proposing new Securities Act Rule 145a that would deem all business combinations with an Exchange Act reporting shell to involve the sale of securities to the reporting shell company’s
OTC Markets; Rule 144; The SPCC
Small public companies are in trouble and they need help now! Once in a while there is a perfect storm forming that can only result in widespread damage and that time is now for small public companies, especially those that trade on the OTC Markets. The trains on track to collide include a combination of (i) the impending amended Rule 15c2-11 compliance deadline (which alone would be and is a clear positive); (ii) the proposed Rule 144 rule changes to eliminate tacking upon the conversion of market adjustable securities; (iii) the SEC onslaught of litigation against micro-cap convertible note investors claiming unlicensed dealer activity; (iv) the OTC Markets new across the board unwillingness to allow companies to move from the Pink to the QB if they have outstanding convertible debt; and (v) the SEC’s unwillingness to recognize the OTC Pink as a trading market and its implications on re-sale registration statements.
Any one of these factors alone would not
SEC Fall 2020 Regulatory Agenda
The SEC’s latest version of its semiannual regulatory agenda and plans for rulemaking has been published in the federal register. The Fall 2020 Agenda (“Agenda”) is current through October 2020. The Unified Agenda of Regulatory and Deregulatory Actions contains the Regulatory Plans of 28 federal agencies and 68 federal agency regulatory agendas. The Agenda is published twice a year, and for several years I have blogged about each publication.
Like the prior Agendas, the Fall 2020 Agenda is broken down by (i) “Pre-rule Stage”; (ii) Proposed Rule Stage; (iii) Final Rule Stage; and (iv) Long-term Actions. The Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The number of items to be completed in a 12-month time frame is down to 32 items. The Spring Agenda had 42 and the Fall 2019 had 47 on the list.
Items on the Agenda can move from one category to
Section 12(g) Registration
Unlike a Securities Act of 1933 (“Securities Act”) registration statement, a Securities Exchange Act of 1934 (“Exchange Act”) Section 12(g) registration statement does not register securities for sale or result in any particular securities becoming freely tradeable. Rather, an Exchange Act registration has the general effect of making a company subject to the Exchange Act reporting requirements under Section 13 of that Act. Registration also subjects the company to the tender offer and proxy rules under Section 14 of the Act, its officers, directors and 10%-or-greater shareholders to the reporting requirements and short-term profit prohibitions under Section 16 of the Act and its 5%-or-greater shareholders to the reporting requirements under Sections 13(d) and 13(g) of the Act.
A company may voluntarily register under Section 12(g) at any time and, under certain circumstances, may also terminate such registration (see HERE).
In addition, unless an exemption is otherwise available, a company must register under Section 12(g), if as of the
SEC Proposes Amendments To Rule 144
I’ve been at this for a long time and although some things do not change, the securities industry has been a roller coaster of change from rule amendments to guidance, to interpretation, and nuances big and small that can have tidal wave effects for market participants. On December 22, 2020, the SEC proposed amendments to Rule 144 which would eliminate tacking of a holding period upon the conversion or exchange of a market adjustable security that is not traded on a national securities exchange. The proposed rule also updates the Form 144 filing requirements to mandate electronic filings, eliminate the requirement to file a Form 144 with respect to sales of securities issued by companies that are not subject to Exchange Act reporting, and amend the Form 144 filing deadline to coincide with the Form 4 filing deadline.
The last amendments to Rule 144 were in 2008 reducing the holding periods to six months for reporting issuers and one year
The 2017 SEC Government-Business Forum On Small Business Capital Formation Final Report
The SEC has published the final report and recommendations of the 2017 annual Government-Business Forum on Small Business Capital Formation (the “Forum”). As required by the Small Business Investment Incentive Act of 1980, each year the SEC holds a forum focused on small business capital formation. The goal of the forum is to develop recommendations for government and private action to eliminate or reduce impediments to small business capital formation. I previously summarized the opening remarks of the SEC Commissioners. See HERE.
The forum is taken seriously by the SEC and its participants, including the NASAA, and leading small business and professional organizations. Recommendations often gain traction. For example, the forum first recommended reducing the Rule 144 holding period for Exchange Act reporting companies to six months, a rule which was passed in 2008. In 2015 the forum recommended increasing the financial thresholds for the smaller reporting company definition, and the SEC did indeed propose a change
