Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Wednesday, November 27, 2013

Insights On FINRA Rule 6490

FINRA Rule 6490, enacted over two years ago requires issuers of securities not listed on exchanges to provide timely notice to FINRA of certain corporate actions. Rule 6490 applies to corporate name changes, forward stock splits, reverse stock splits, distributions of cash or securities such as dividends, stock splits, rights, subscription offerings and other corporate actions. 

FINRA Rule 6490 codifies Rule 10b-17 of the Securities Exchange Act.  These include issuers who go public direct and conduct underwritten or direct public offerings, as well as  those that pursue reverse mergers with public shells.
Complying with Rule 6490′s requirements is often an unexpected legal and compliancecost for many issuers not familiar with the rule.  Failure to comply could lead to suspension of services from Depository Trust Company (“DTC”) resulting in a global lock or DTC chill, and late submissions will result in monetary penalties.

FINRA Review under Rule 6490

Rule 6490 requires issuers to complete and file a document with FINRA at least 10 business days prior to the record date of the corporate action. Rule 6490 requires issuers to receive FINRA approval before certain corporate actions become effective. In addition, FINRA may request additional documents, conduct detailed and selective reviews of the issuer submissions and cause the issuer to delay the announcement of its corporate action.
Triggers for Review under FINRA RULE 6490
A FINRA review will be triggered if any of the five factors set forth in Rule 6490 are thought to be present:
♦ FINRA believes the forms are incomplete, inaccurate or filed without the appropriate corporate authority;
♦ The issuer is not current in its reporting obligations with the Securities and Exchange Commission;
♦ Persons involved in or related to the corporate action are the subject of pending or settled regulatory action or are under investigation by a regulatory body or are the subject of a pending criminal action related to fraud or securities law violations;
♦ Persons related to the corporate action are likely involved in fraudulent activities involving securities or may pose a threat to investors;
♦ There is significant uncertainty in the settlement and clearance process for the issuer’s securities.
Failure to Comply with FINRA Rule 6490
Issuers who do not comply with FINRA rule 6490 will be charged fines for failure to comply, including:
♦ Timely Rule 10b-17 Notification 10 business days before the Action – filing fee $200
♦ Late filing, but filing at least 5 calendar days before the Action – $1,000
♦ Late filing, but filing at least 1 business day before the Action – $2,000
♦ Filing on or after the Action date – $5,000.
After FINRA clearance of corporate actions under Rule 6490, issuers should expect a full review by Depository Trust Company (“DTC”) and be prepared to provide an opinion from their securities attorney as to the tradability of shares held in the name of CEDE & Co.  It is during this review that many reverse merger issuers find themselves losing DTC eligibility.  Their securities may be placed on the DTC Chill list, a serious problem that can be difficult to resolve.
A competent securities attorney can explain the requirements of Rule 6490, and can help issuers with the process.
For more information about Reverse Mergers please visit our blog posts at:
For further information about this article, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at info@gopublic101.com or visit www.gopublic101.com. This memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings  please contact Hamilton and Associates at (561) 416-8956 or info@gopublic101.com. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 N
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.gopublic101.com

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