Blogs

ClydeSnow Blog

SEC Cracks Down on Form 8-K Filing Failures

Recent SEC Enforcement Action

Recently, the SEC has brought a wave of enforcement actions against SEC registrants who failed to file Current Reports on Form 8-K for unregistered stock offerings. 

Continue reading
  2422 Hits

The Microcap IPO – 6 Steps to Ensure a Successful Start Part VI

This is part 6 of 6 in a series of posts outlining the steps to becoming a publicly traded company on the over the counter markets. We refer to this as a “Microcap IPO,” although there may or may not actually be a public offering. Microcap companies are generally described as those with a market capitalization of between $50 million and $300 million.

Making the decision to take your company public is something the board of directors should consider carefully. Being a public company provides access to resources that may or may not be otherwise be available, and in most instances, increases the liquidity and value of shareholders’ equity interests. The maximum return on a company’s decision to go public can be captured, and increased, with careful planning and a defined strategy.

Continue reading
  4893 Hits

The Microcap IPO – 6 Steps to Ensure a Successful Start Part V

This is part 5 of 6 in a series of posts outlining the steps to becoming a publicly traded company on the over the counter markets. We refer to this as a “Microcap IPO,” although there may or may not actually be a public offering. Microcap companies are generally described as those with a market capitalization of between $50 million and $300 million.

Making the decision to take your company public is something the board of directors should consider carefully. Being a public company provides access to resources that may or may not be otherwise be available, and in most instances, increases the liquidity and value of shareholders’ equity interests. The maximum return on a company’s decision to go public can be captured, and increased, with careful planning and a defined strategy.

Continue reading
  2454 Hits

The Microcap IPO – 6 Steps to Ensure a Successful Start Part IV

This is part 4 of 6 in a series of posts outlining the steps to becoming a publicly traded company on the over the counter markets. We refer to this as a “Microcap IPO,” although there may or may not actually be a public offering. Microcap companies are generally described as those with a market capitalization of between $50 million and $300 million.

Making the decision to take your company public is something the board of directors should consider carefully. Being a public company provides access to resources that may or may not be otherwise be available, and in most instances, increases the liquidity and value of shareholders’ equity interests. The maximum return on a company’s decision to go public can be captured, and increased, with careful planning and a defined strategy.

Continue reading
  4964 Hits

The Microcap IPO – 6 Steps to Ensure a Successful Start Part III

This is part 3 of 6 in a series of posts outlining the steps to becoming a publicly traded company on the over the counter markets. We refer to this as a “Microcap IPO”, although there may or may not actually be a public offering. Microcap companies are generally described as those with a market capitalization of between $50 million and $300 million.

Making the decision to take your company public is something the board of directors should consider carefully. Being a public company provides access to resources that may or may not be otherwise be available, and in most instances, increases the liquidity and value of shareholders’ equity interests. The maximum return on a company’s decision to go public can be captured, and increased, with careful planning and a defined strategy.

Continue reading
  2482 Hits

The Microcap IPO – 6 Steps to Ensure a Successful Start Part II

This is part 2 of 6 in a series of posts outlining the steps to becoming a publicly traded company on the over the counter markets. We refer to this as a “Microcap IPO”, although there may or may not actually be a public offering. Microcap companies are generally described as those with a market capitalization of between $50 million and $300 million.

Making the decision to take your company public is something the board of directors should consider carefully. Being a public company provides access to resources that may or may not be otherwise be available, and in most instances, increases the liquidity and value of shareholders’ equity interests. The maximum return on a company’s decision to go public can be captured, and increased, with careful planning and a defined strategy.

Continue reading
  6046 Hits

The Microcap IPO – 6 Steps to Ensure a Successful Start, Part I

This is part 1 of 6 in a series of posts outlining the steps to becoming a publicly traded company on the over the counter markets. We refer to this as a “Microcap IPO”, although there may or may not actually be a public offering. Microcap companies are generally described as those with a market capitalization of between $50 million and $300 million.

Making the decision to take your company public is something the board of directors should consider carefully. Being a public company provides access to resources that may or may not be otherwise be available, and in most instances, increases the liquidity and value of shareholders’ equity interests. The maximum return on a company’s decision to go public can be captured, and increased, with careful planning and a defined strategy.

Continue reading
  5986 Hits

Fact vs. Fiction vs. Opinion in Registration Statements

One of the struggles that often arises between management and legal counsel when preparing ’33 Act registration statements is whether to state only facts about a particular topic, or whether to go a step further and express an opinion. Certainly one could read the MD&A guidance to mean that the SEC wants more opinions. The same struggle arises when preparing ’34 Act disclosure such as 10-Q’s and 10-K’s, but the level of potential liability is not the same. This post focuses on ’33 Act (i.e. registration statement) liability.

Before a company may sell securities, absent a valid exemption, it must file a registration statement with the SEC. If the registration statement “contains an untrue statement of material fact” or “omits to state a material fact ... necessary to make the statements therein not misleading,” the buyer of the securities may sue the company for damages.

Continue reading
  5507 Hits

Can the Failure to Disclose in SEC Filings be Used in Civil Litigation?

In my last blog, found here, I described how disclosure of pending litigation made in SEC filings could, and was, used against the issuer in that litigation. That was in the context of an employment claim. Below, I describe how failure to disclose can also be detrimental to the issuer.

Recently, in Stratte-McClure v. Morgan Stanley, No. 13-0627-cv, 2015 (2d Cir. Jan. 12, 2015), plaintiffs brought a securities fraud claim under Section 10(b) of the Securities Exchange of 1934 against Morgan Stanley for failing to disclose a sub prime mortgage risk. Morgan Stanley moved to dismiss, and the Court held that Morgan Stanley had a duty under Item 303 to disclose the risks in its 10-Q for purposes of a Section 10(b) and Rule 10b-5 claim.

Continue reading
  3326 Hits

Can the Contents of SEC Filings be Used in Civil Litigation?

The periodic reporting requirements of the Securities Exchange Act of 1934 are about disclosure.  In their annual report on Form 10-K, for example, issuers are required to disclose any material pending legal proceedings, unless they are routine matters incidental to the business.  See Item 103 of Regulation S-K.  More specifically, issuers must disclose the name of the court or agency, the date it was instituted, the principal parties thereto, a description of the facts behind the claim, and the relief sought.  

Instruction No. 2 to Item 103 goes on to advise that no information need be given if the claim for damages is less than 10 percent of the current assets of the issuer and its subsidiaries.  This creates a defacto materiality test.

Continue reading
  4581 Hits

Should the SEC “PAUSE” before it passes judgment?

The SEC maintains a list on its website, called the Public Alert: Unregistered Soliciting Entities (PAUSE) list, located here, of entities soliciting investors that claim to be registered, licensed, and/or located in the U.S. and, in some cases, claiming to be governmental agencies, about which they have received complaints.  The SEC Release that further describes the lists is here.  The two primary lists are titled:

Impersonators of Genuine Firms

This is a list of entities that use a name that is the same as, or similar to, the name of a US registered securities firm, notwithstanding the fact that the soliciting persons are not affiliated with a US registered securities firm.

Fictitious Regulators

This is a list of entities that claim an endorsement, approval or other support by a governmental agency or international organization that does not exist or does not really lend support to the entity or the investments it is offering.

Continue reading
  5414 Hits

Disclosure of Executive’s Health Conditions

I will start with the conclusion: The securities laws, and more specifically the disclosure obligations of public companies under the Securities Exchange Act of 1934, do not specifically require that a company provide disclosure about the health conditions of its executives. That’s not to say, however, that liability couldn't be found to exist, depending on the facts and circumstances.

Continue reading
  3275 Hits

Want More Liquidity? Choose to Increase the Spread

****

Update:  On August 26, 2014, the SEC announced a proposal to implement a 12-month pilot program to increase tick size.  

The pilot program will include stocks with a market capitalization of $5 billion or less; an average daily trading volume of one million shares or less; and a closing share price of at least $2 per share.  The pilot will consist of one control group and three test groups with 400 securities in each test group selected by stratified sampling. 

  • Pilot securities in the control group will be quoted at the current tick size increment of $0.01 per share, and trade at the increments currently permitted. The control group would represent a baseline for analysis during the pilot period.
  • Pilot securities in the first test group will be quoted in $0.05 minimum increments. Trading would continue to occur at any price increment that is permitted today.
  • Pilot securities in the second test group will be quoted in $0.05 minimum increments, and traded in $0.05 minimum increments subject to certain exceptions.
  • Pilot securities in the third test group will be subject to the same minimum quoting and trading increments (and the same exceptions) as the second test group, but in addition would be subject to a “trade-at” requirement. In general, a “trade-at” requirement prevents price matching by a trading center that is not displaying the best bid or offer. 

The entire pilot program can be found here.

****

The Small Cap Liquidity Reform Act of 2013 would allow small-cap issuers to opt-in to a minimum $0.05 or $0.10 bid/ask spread.

Since the onset of decimalization in 2001, the argument has been made that the bid/ask spread has gotten so low in small cap stocks that market makers can’t make any money – so they have exited the market, leading to a drop in liquidity for small cap stocks.

Continue reading
  5208 Hits

What’s the difference between a stock dividend and a forward stock split?

Both a stock dividend and a forward stock split can be used to achieve the same objective, but they go about it in different ways. In both cases, each stockholder ends up with more shares.

In a stock dividend, an in-kind dividend is declared by the Board of Directors. The existing shareholders do not have to do anything, they will simply receive additional shares, on a pro-rata basis, in the amount of the dividend.  For example, if the company declares a 1-for-2 stock dividend, a shareholder that owns 100 shares will receive an additional 50 shares. The shareholder does not need to turn in his original 100 shares, the additional 50 shares will either show up in his brokerage account, or he will receive a stock certificate in the mail. The additional shares will have the same tradeability (i.e. free trading, Rule 144 restricted, etc.) as the underlying shares, and the holder will be allowed to tack his holding period to the acquisition date of the underlying shares for Rule 144 purposes. The Board of Directors can normally declare a stock dividend, subject to corporate law, without further shareholder approval.

Continue reading
  5662 Hits

SEC Issues XBRL Comment Letters

Beginning in July 2014, the SEC began to issue comment letters to issuers about their XBRL calculation relationships.  A sample letter can be found here.  

What are calculation relationships?  Sections 6.14 and 6.15 of the Edgar Filer Manual, which can be found here, explain. However, for most issuers, this is something that should be handled by your edgar filing service automatically. The sample comment letter “ask[s] that you, in preparing your required exhibit with XBRL data, take the necessary steps to ensure that you are including all required calculation relationships.” This presumably means the burden is on you, the issuer, to make sure that your edgar service is doing this correctly.

Continue reading
  3556 Hits

Southern California Startups: Is the Southern California Economy on the Rebound?

Although I live in Salt Lake City, I spend a fair amount of time in Southern California, and after having lived there for nearly 20 years, I have a large number of clients, colleagues, contacts and friends there. As a result, I have been keeping tabs on the California economy, which was one of the hardest hit in the financial crisis.

But in the last six months, I have noticed a change.  More and more private equity funds and venture capitalists are talking about their latest California investment.  Our clients there are sourcing term sheets on a regular basis, sometimes several in a short period of time, and deals are closing.  Our larger, more stable clients are talking about how difficult it is getting to hire well-qualified individuals (the latest unemployment figures I found were 7.8% in April, down from 8.1% in March and 9.1% a year ago).

Continue reading
  3647 Hits

OTCQB No Longer Free?

Beginning May 1, 2014, OTC Markets Group, Inc. began to implement a new set of requirements in order for stocks to be traded on their OTCQB tier.  Previously, for fully-reporting companies, the OTCQB tier had no requirements (other than being current in your reporting) and did not charge a fee. Alas, the only constant is change.

Continue reading
  3545 Hits

SEC Issues No-Action Letter on M&A Finders – But Not for Capital, and Not for Shells

On February 4, 2014, the SEC issued a revised no-action letter (found here) outlining the conditions under which they would not recommend enforcement action against “M&A Brokers”, defined as “a person engaged in the business of effecting securities transactions solely in connection with the transfer of ownership and control of a privately-held company (as defined below) through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the company, to a buyer that will actively operate the company or the business conducted with the assets of the company.”  

Continue reading
  4882 Hits

Same Sex Marriage and the Definition of Accredited Investor

On December 20, 2013, a federal judge in Utah overturned the state’s ban on same sex marriages.  The ramifications of that decision will ripple throughout a large number of areas, including securities offerings.  The most widely used federal exemption is Rule 506 of Regulation D promulgated under the Securities Act of 1933, which allows for offers and sales to an unlimited number of accredited investors.  The definition of an accredited investor is set forth in Rule 501of Regulation D, and includes the three following categories (there are eight in all, but only three relevant to this discussion):

Continue reading
  4665 Hits

Business Disputes Rising Along with the Economy?

The majority of my practice is public securities work, consisting of financing transactions under the ’33 Act, and reporting obligations under the ’34 Act.  But a portion of my practice consists of less-visible, but sometimes infinitely more interesting, corporate structural work for privately held companies.  

Over the past six months, I have noticed a marked increase in individuals wanting to get out of their existing business relationship.  There is a wide array of business entities out there – corporations, LLC’s, partnerships; taxed a variety of ways – S-corporation, C-corporation, partnership, LLC’s taxed as S-corporations, S-corporations that became disqualified, etc.; with a wide array of corporate documentation – bylaws, buy/sell agreements, shareholders’ agreements, operating agreements, non-compete agreements.  Each case in unique and represents an opportunity to negotiate and problem solve in an environment that is less contentious than traditional litigation.  And in most cases, there is an asset there with some level of value, and usually all the parties agree that maintaining that value is important.

Continue reading
  3895 Hits