Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Friday, May 31, 2013

12b25 l Form 10-Q

Rule 12b-25 of the Securities Exchange Act of 1934 (the

http://www.securitieslawyer101.com/12b25-form-10-q/

12b25 l Form 10-Q

Auditor Review of Reports on Form 10-Q

Auditor Review of Reports on Form 10-Q

http://www.securitieslawyer101.com/form-10-q-auditor-review/

Due Diligence in the SEC Registration Statement Process

Private companies in going public transactions that intend to be quoted on the OTCMarkets OTCQB must first become reporting with the Securities and Exchange Commission (the “SEC”).  This is typically accomplished by filing a Form S-1 registration statement under the Securities Act of 1933, as amended (the “Securities Act”).
 
Form S-1 is the most common registration statement used in going public transactions.
The information required in a registration statement is expansive and must be complete and accurate.  The information found in a registration statement is relied upon by investors in making investment decisions.
 
Registration Statement Liability in Going Public Transactions
The Securities Act not only imposes liability for misstatements on the issuer filing the registration statement but imposes liability on individuals who assist in the preparation of the registration statement on the issuer’s behalf.
 
Registration Statement Liability
Section 11(a) of the Securities Act, 15 U.S.C. Section 77k(a), imposes liability in the event of a material misstatement or omission in a registration statement and provides that an investor may sue:
 
Officers, directors or other members of management of the issuer;
Persons who sign the registration statement;
Persons who assist in the preparation of the registration statement; and
Underwriters with respect to the security being registered.
 
Registration Statement Misstatements and Omissions
Only an issuer can register securities on a registration statement.  An issuer can register securities in a primary offering on its own behalf or in a secondary offering on behalf of its existing shareholders.
 
Liability of Issuers in Going Public Transactions
Every issuer in an offering registered under the Securities Act is required by Securities Act, Section  6(a), Section 77k(a),  to sign the registration statement. The issuer is absolutely liable under Section 11(a) of the Securities Act for material misstatements or omissions in the registration statement, regardless of its good faith or exercise of due diligence.
 
Liability of Officers and Directors in Going Public Transactions
The issuers principal executive officers, principal financial officer and principal accounting officer or comptroller as well as a majority of its board of directors, must sign a registration statement filed under the Securities Act.
The entire board of directors (not just those signing), principal executive officers, principal financial officer and principal accounting officer are subject to potential civil liability under Section 11(a) of the Securities Act for material misstatements or omissions in the registration statement. Additionally, any other person who controls the issuer is subject to such liability.
 
Liability of Shareholders in Going Public Transactions
Shareholders who hold securities registered in a  registration statement under the Securities Act may under some circumstances be held liable for any material misstatements or omissions in the registration statement.
 
Liability of Underwriters in Registered Securities Offerings
Underwriters involved in a registered securities offering is subject to liability for material misstatements or omissions in a registration statement.
 
Liability of Experts
Experts, such as accounting firms, are subject to potential liability for material misstatements or omissions in any part of a registration statement purporting to be based on their authority as an experts. Experts can be held liable only if they are named as an expert with their consent in the registration statement as having prepared or certified any part of the registration statement or any report or valuation mentioned therein.
 
Liability of Securities Attorneys
Securities attorneys typically coordinate the going public process including the preparation of the registration statement.  The issuer’s securities attorney assists management in preparing the registration statement and performing due diligence. Absent actual knowledge of misstatements or omissions, securities attorneys do not become liable for  the accuracy or completeness of the registration statement.
 
Due Diligence in the SEC Registration Statements Process
Directors, officers and control persons can mitigate liability by performing appropriate due diligence during the going public process if they demonstrate that after a reasonable investigation they had a reasonable basis for their belief that the registration statement was accurate and complete.  Private companies in going public transactions should engage competent securities counsel to guide them through the SEC registration statement process and related due diligence.

Due Diligence in the Sec Registration Statement Process

Due Diligence in the Sec Registration Statement Process

http://www.securitieslawyer101.com/registration-statement-going-public/

ocksRule 504 l OTC Pink Sheet Offering Cheat Sheet

ocksRule 504 l OTC Pink Sheet Offering Cheat Sheet

http://www.securitieslawyer101.com/rule-504-otc-pink/

Rule 504 l OTC Pink Sheet Offering Cheat Sheet

Rule 504 l OTC Pink Sheet Offering Cheat Sheet

http://www.securitieslawyer101.com/rule-504-otc-pink/

SEC Charges NASDAQ for Facebook IPO

On May  29, 2013, the SEC charged  NASDAQ with violating the securities laws as a result of its poor systems and decision-making during the initial public offering (IPO) and secondary trading of Facebook

http://www.securitieslawyer101.com/sec-charges-nasdaq-facebook/

Corporate Hijackings 101

Squattership Proceedings 101 l Corporate Hijacking Series

Squattership Proceedings 101 l Corporate Hijacking Series

http://www.securitieslawyer101.com/corporate-hijackings/

Squattership Proceedings 101 l Corporate Hijacking Series

Squattership Proceedings 101 l Corporate Hijacking Series

http://www.securitieslawyer101.com/corporate-hijackings/

SEC Charges NASDAQ for Facebook IPO

Monday, May 27, 2013

Benefits of Foreign Issuer Status in Going Public Transactions

Benefits of Foreign Issuer Status in Going Public Transactions

The Securities Laws that Impact Going Public Transactions

IPO Filing and Delivery Requirements

IPO FILING AND DELIVERY REQUIREMENTS

The Securities Laws l Going Public Transactions

Benefits of Foreign Issuer Status in Going Public Transactions

Sunday, May 19, 2013

Private Placement Memorandums 101

Posted May 19, 2013 by Brenda Hamilton, Securities Attorney A private placement memorandum (“PPM”) is also referred to as a confidential offering circular or memorandum. PPM’s are used by private companies  in going public transactions and existing public companies to

http://www.securitieslawyer101.com/ppm/

PPM's 101

Friday, May 17, 2013

Investor Relations 101

http://www.securitieslawyer101.com/short-sales/

In recent years, the activities of short sellers have been the subject of considerable controversy. While the average investor profits if he invests in a stock whose price increases, a short seller profits when a stock’s price declines. While short selling is a simple process, it is widely misunderstood. Simply put, a short sale is the sale of a security that the seller does not own. Short sales can only be made on margin, and all the rules applicable to margin trading are enforced.

http://www.securitieslawyer101.com/short-sales/

Naked Shorts 101

In recent years, the activities of short sellers have been the subject of controversy. While short selling is a simple process it is widely misunderstood. While the average investor profits when it invests in a stock whose price goes up, a short seller profits when it invests in a stock whose price goes down. Simply put, a short sale is the sale of a security that the seller does not own. In order to cover their sale of the stock old in a short sale, the short seller must either purchase the security to cover or borrow it from a third party. In some instances short sellers seek to hedge the risk of a long position in the same security.

http://www.securitieslawyer101.com/naked-short/

Thursday, May 9, 2013

DTC Reduces Settlement Processing Risks

Posted by Brenda Hamilton
Securites Attorney Boca Raton Florida
 
In order to mitigate systemic risk the SEC approved Depository Trust Company’s (“DTC’s”) modified processing of customers’ net debit caps during weekends and holidays. Effective February 27, 2012, DTC commenced temporarily reducing customers’ maximum net debit cap during weekend or holiday processing periods.
DTC routinely processes transactions for settlement on S-1 (settlement day less one day) in its night cycle which results in Friday processing of obligations settling on Monday. This causes participants to have potential for large net debit obligations for an extended period over a weekend or holiday.

Under the modified process, DTC temporarily reduces the largest net debit caps on Friday and restores them to their previous levels in the ordinary course of business prior to the opening of day-cycle processing on Monday morning or post-holiday processing.
Member failures, such as Lehman Brothers, led to uncertain conditions on the days prior to, and typically through the weekend and holidays, which created substantial exposure for DTC.
“Under the previous policy, if a firm experienced a sudden failure over the weekend, DTC carried liquidity and market risk for at least two days,” said Gregory Kalina, DTCC Vice President, Enterprise Risk Management. “Lowering the debit cap reduces systemic risk by ensuring DTC not only has enough liquidity to cover the potential failure of a large participant should it occur over the weekend or holiday, but has enough liquidity on the Monday following the default to still provide remaining participants with debit caps, averting a ‘cash-and-carry’ settlement scenario.”

New Net Debit Caps
The net debit cap reflects the highest obligation amount a family of related companies or an individual company potentially has to DTC during a business day. Additionally, the firm must have sufficient collateral on hand to cover any net debit that arises from processing a transaction.
DTC, a DTCC subsidiary, reduced net debit caps as follows:
♦ For a family of companies: from aggregate maximum net debit caps of US$3 billion to US$1.5 billion.
♦ For individual firms: from maximum net debit caps of US$1.8 billion to US$1.5 billion.
Individual firms that have a DTC net debit cap below US$1.5 billion were not affected by the changes.

SEC Requires DTC Fairness Procedures

On September 24, 2009, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the Middle District of Florida alleging that International Power Group (“IPWG”) had issued shares of common stock in violation of the registration requirements of Section 5 of the Securities Act of 1933.  In the Matter of IPWG,  the Securities and Exchange Commission (“SEC”) reviewed actions taken by Depository Trust Company (“DTC”), and determined that DTC did not provide IPWG with adequate fair procedures and its actions were subject to SEC review.
The SEC alleged that the recipients of the illegally issued shares sold them publicly when no exemption from registration was available.  On September 30, 2009,  DTC issued a notice to its participants notifying them that DTC suspended IPWG’s common stock as an “Eligible Security” and as such, IPWG’s stock could no longer be traded electronically.
Upon learning of DTC’s notice, IPWG requested DTC provide a hearing on its decision based upon DTC Rule 22(f)  which provides an opportunity for “Interested Persons” to be heard on any determination by DTC that any security shall cease to be an Eligible Security.
DTC denied IPWG’s request based upon its determination that IPWG was not an Interested Person. Based on DTC’s determination that IPWG was not an interested person, DTC denied IPWG’s request. The SEC disagreed and determined that because IPWG securities traded using DTC’s services, it is thus, an “Interested Person” under DTC Rule 22.

The SEC stated,  “Any suspension by DTC of clearance and settlement services with respect to an issuer’s securities means that all trades in that issuer’s stock would require the physical transfer of stock certificates, which affects the issuer of the suspended securities directly, because of the potential impact on liquidity and price for the issuer’s stock due to the difficulties and uncertainties inherent in physical transfer of stock certificates.”
The SEC found that IPWG is a “person” and therefore is entitled to “fair procedures” under the Securities Exchange Act Section 17A(b)(3)(H) in connection with DTC’s suspension of clearance and settlement services. The SEC also determined DTC’s suspension determination is subject to SEC review under Exchange Act Section 19(f).
The SEC concluded that DTC’s notice to its participants that suspended services of IPWG’s common stock failed to meet the statutory requirements because: (1) the notice was not sent to IPWG itself, but rather to DTC’s participants; and (2) merely points to the existence of the SEC’s complaint without any explanation of why the existence of the complaint warrants the suspension of clearance and settlement services with respect to IPWG’s securities.
The SEC determined that IPWG is entitled to SEC review of DTC’s suspension of clearance and settlement services with respect to its common shares, and that DTC did not provide IPWG with adequate fair procedure in connection with the suspension of services. In accordance with these determinations, the SEC remanded the matter to DTC for development of the record and for further consideration, pursuant to procedures that accord with the fairness requirements of the Securities Exchange Act.
With respect to DTC’s suspension of services to IPWG, it should be noted that the SEC did not make a determination that DTC’s suspension of services to IPWG was not warranted. The SEC merely determined that DTC did not follow required fairness procedures.  While DTC must follow adequate fairness procedures, there is no assurance that it will impact DTC’s criteria with respect to suspending its services. Additionally, even with a fairness hearing there is no assurance that DTC will resume its services with respect to  IPWG’s securities.  DTC continues to have considerable discretion in deciding whether or not to provide its services to issuers. A current list of DTC Participants can be found on the DTC website.

Monday, May 6, 2013

Form 211 l Going Public l OTC Pink Sheets

Rule 504 l OTC Pink Sheet Offering Cheat Sheet

SEC Sues Daniel F. Peterson for JOBS Act Fraud

The JOBS Act Series

The JOBS Act Series

The Role of Market Makers in Going Public Transactions

The Role of Market Makers in Going Public Transactions

Market Makers 101

Sunday, May 5, 2013

Brenda Hamilton, Securities Attorney Ranked In Top 1 Percent of LinkedIn Profiles

Market Makers 101

Stock Scalping 101

More Reverse Merger Debacles

Registration Form S-8 l 2013 Update l Securities Lawyer 101 l Go Public Blog

SEC Registration Statement Comments

The Role of Market Makers in Going Public Transactions

The SEC Warns Investors of Oil and Gas Frauds

Solutions for DTC Chills & Global Lock

Friday, May 3, 2013

Rule 504 l OTC Pink Sheet Offerings

Rule 144’s Adequate Current Public Information Requirement

Private Placements 101

OTCMarkets Rules of the Road

SEC Names Andrew Bowden as Director of National Exam Program

Washington, D.C., May 2, 2013 — The Securities and Exchange Commission today announced that Andrew J. Bowden has been named Director of the agency's Office of Compliance Inspections and Examinations (OCIE) and will lead its National Exam Program. Mr. Bowden joined the SEC in November 2011 as the National Associate Director for OCIE's Investment Adviser/Investment Company Examination Program, and he was appointed Deputy Director of OCIE in September 2012. He will succeed Carlo di Florio, whose departure was announced today.

http://www.sec.gov/news/press/2013/2013-81.htm

Wednesday, May 1, 2013

Stock Scalping 101

Rule 144’s Adequate Current Public Information Requirement

Rule 504 l OTC Pink Sheet Offerings

The JOBS Act Series

Rule 144’s Adequate Current Public Information Requirement

Stock Scalping 101

Stock Scalping 101