Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Wednesday, August 28, 2013

SEC Issues Stop Order For Registered Offering

The Securities and Exchange Commission (the “SEC”) issued an order to stop an initial public offering (IPO) by Counseling International and prevent the sale of its shares to the investing public.  In issuing the stop order, the SEC determined that the company’s registration statement contained false and misleading information.
According to the SEC’s Edgar database, the registration has been amended 5 times since its original filing in August of 2012.  According to the SEC’s stop order, Counseling International’s registration statement failed to disclose the identity of the company’s control persons and promoters as required under the securities laws.  Among other deficienct disclosures, the registration statement falsely describes the true circumstances surrounding the departure of the former CEO.  The interesting thing about the SEC’s stop order is that the registration statement registered the public resale of shares held by the issuer’s existing stockholders and not shares to be sold by the issuer.
The SEC Stop Order describes a very common scheme used by fraudsters to manufacture shell companies using bogus S-1 registration statements and nominee management.
SEC Stop orders proactively prevent fraud by halting the securities registration process before a company sells its registered stock to the public based on a deficient or misleading disclosures contained in a registration statement.  Counseling International first filed a registration statement in August 2012 for an initial public offering of 764,000 shares of common stock.
“A company’s registration statement is the bedrock on which its stock is offered to the general public, and Counseling International did not provide the accurate and complete information that investors would be entitled to when deciding whether it’s appropriate to invest in the company,” said Michele Layne, Director of the SEC’s Los Angeles Regional Office.  “Rarely do we have the opportunity to prevent investor harm before shares are even sold, but this stop order ensures that Counseling International’s stock cannot be sold in the public markets under this misleading registration statement.”
Counseling International agreed to the issuance of the order instituting the stop order proceeding, and also agreed not to engage or participate in any unregistered offering of securities conducted in reliance on Rule 506 of Regulation D for a period of five years from the issuance of the order.
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