New directors and executive officers of public companies are often dismayed at the number of rules and regulations to which their new status has subjected them. Since corporate management is frequently not well-versed in the intricacies of federal securities law, it is incumbent on securities counsel to advise new directors and officers of their new responsibilities as early in the process as possible.
It is clear from my legal practice that this “well-meaning” regulation has also substantially raised the time, cost and expense for investors to deposit and sell securities of smaller priced issuers, whether purchased in private placements or SEC registered offerings; and at the same time, has disproportionately increased the risks associated with these types of transactions for issuers, transfer agents, broker-dealers and their clearing houses, along with associated costs to mitigate these risks.
Section 12(j) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), authorizes the Securities and Exchange Commission (the “Commission”) to revoke an issuer’s Exchange Act registration for failure to comply with any provision of the Exchange Act or any of the regulations promulgated thereunder. Section 12(j) also prohibits broker-dealers from effecting transactions in the securities of any issuer whose registration has been so revoked.
SEC ANNOUNCES FAST ACT AMENDMENTS TO REGULATION S-K AND RELATED SEC RULES THAT WILL HAVE A POSITIVE IMPACT ON ISSUER DISLCOSURE IN SEC FILINGS (MARCH 20, 2019)
On February 20, 2019, the Securities and Exchange Commission (the “SEC”) announced the filing of a complaint (the “Complaint”) against a number of persons, including a broker-dealer, a transfer agent, certain of their principals and others (the “Defendants”) for their roles in creating a number of purported “shell companies” between 2009 and 2014.
Although you may represent the same clients with respect to many different “shell company” transactions, look at every transaction as a new and different one; go through the same procedures that you would go through the very first time. It is easy to get complacent where services are repetitive and the clients are the same. Nothing stays the same, and too often people get to creative in ways that are not aligned with applicable law and regulatory interpretations.
In today’s securities market, many micro-cap issuers choose to raise funds through “self-underwritten” offerings, in which securities are sold directly by the company’s directors and officers rather than through an outside underwriter. Both federal and state securities laws acknowledge this method of fundraising, commonly exempting issuers from the statutory definition of “broker-dealers.”
The attorneys of the Burningham Law Group have a collective 90 years of experience in mergers and acquisitions, specializing in “reverse mergers.” We have been instrumental in the completion of well over 200 mergers or acquisitions involving publicly-held companies and have served as consulting attorneys to lawyers across the United States that have been involved in similar securities transactions.
On February 15, 2008, the Securities and Exchange Commission’s (the “SEC”) amended Rule 144, which governs the resale of “restricted securities.” These amendments were an attempt to deal with the resale of “shell company” securities, shell company transactions and the persons who promote them. In many instances, these amendments have resulted in lawyers rendering the types of legal opinions that were customarily rendered prior to the adoption of Rule 144 in 1972. In our estimation, this is a step backwards.