Widespread “Dealer” Litigation Is Almost Over!
In August 2024, then SEC Commissioner Mark T. Uyeda made a public statement against the rampant enforcement proceedings against small cap investors claiming violations of the dealer registration requirements (see HERE). Fast forward to today, now Chair of the SEC, Mr. Uyeda, is sticking by his contentions and finally, after eight long years of numerous enforcement proceedings, is directing the SEC to roll back its position.
What Happened
This week, the SEC enforcement division entered into two joint motions halting ongoing litigation claiming violations of the dealer registration rules. The U.S. District Court for the District of Massachusetts entered an order in the case involving Auctus Fund Management staying the case while the parties wrap up an agreement to end the litigation. Under the agreement Auctus will not seek attorney fees from the government or pursue a review of the enforcement action.
In the filing, Auctus said “[T]he parties have reached an agreement in principle to dismiss this
Who Is An Affiliate And Why Does It Matter – Part 1
WHO IS AN “AFFILIATE” AND WHY DOES IT MATTER? PART 1
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 begins with the Securities Act definition of an “affiliate” and the implications under Rule 144, Section 4(a)(7) and Form S-3 eligibility. In Part 2 of the series, I will delve into the meaty topic of a primary vs. secondary offering, which itself hinges on whether the offeror is an affiliate.
Securities Act Definition of Affiliate
The Securities Act provides a statutory definition of an “affiliate” to begin what is a facts and circumstances analysis (as is common in the federal securities laws). Rule 405 of the Securities Act defines an “affiliate” as “[A]n affiliate of, or
SEC Publishes FAQ On COVID-19 Effect On S-3 Registration Statements
The SEC has issued FAQ on Covid-19 issues, including the impact on S-3 shelf registration statements. The SEC issued 4 questions and answers consisting of one question related to disclosure and three questions related to S-3 shelf registrations.
SEC FAQ
Disclosure
Confirming prior guidance, the SEC FAQ sets forth the required disclosures in the Form 8-K or 6-K filed by a company to take advantage of a Covid-19 extension for the filing of periodic reports. In particular, in the Form 8-K or Form 6-K, the company must disclose (i) that it is relying on the COVID-19 Order (for more information on the Order, see HERE); (ii) a brief description of the reasons why the company could not file the subject report, schedule or form on a timely basis; (iii) the estimated date by which the report, schedule or form is expected to be filed; and (iv) a company-specific risk factor or factors explaining the impact, if material, of
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
The Demise of the Death Spiral – SEC Interpretation of Rule 415
Without fanfare, publications, or other notice, in mid 2006, PIPE investors and the Issuers that utilized them noticed a big difference in the way that the Securities and Exchange Commission’s (SEC) division of corporate finance reviewed and commented upon, resale registration statements. Although the SEC staff contended that its position on Rule 415 had not changed, there was, incontrovertibly, a dramatic impact felt by Issuers and PIPE investors.
For years, Issuers had relied upon Rule 415 in order to register the resale of shares issued in PIPE transactions (a “secondary offering”). Rule 415 governs the registration requirements for the sale of securities to be offered on a delayed or continuous basis, such as in the case of the take down or conversion of convertible debt and warrants. In the years prior to 2006, Issuers would register shares they sold in a PIPE transaction, which could represent in excess of 50% of their outstanding public float.
Convertible Debt and Subsequent Resale
