What Does Private IPO Mean?

What Does Private IPO Mean?

The most common type of public offering is an initial public offering, in which equity shares are offered to public investors for the first time. A secondary or follow-on public offering occurs when you want to sell equity shares in the public markets after you’ve completed an IPO. After a company has gone public, it is regulated by the Financial Authorities and must disclose regular financial performance to the public. When you list shares in a public offering, you are inviting shareholders to not only share in the ownership and profits of the business but you are also allowing them a vote on the future direction your company takes. In a private placement, you sell equity shares or debt instruments of your business to a select group of investors. The target investor audience for private placement deals are accredited investors, high net-worth individuals as described by the applicable regulations. The investors, who you are responsible for finding, although you could enlist the help of an intermediary, agree to buy and hold the participation (debt or equity) for a discounted price. There isn’t a lot of paperwork involved, and you do not have to register the deal with the Financial Authorities.

Initial Public Offering (IPO) vs. Private Placement

Private companies that seek to raise capital through issuing securities have two options: offering securities to the public or through a private placement. Regulations on publicly traded securities are subject to more scrutiny than those for private placements. Each offers the necessary capital, but the criteria for issuing, ongoing financial reporting and availability to investors differs with each type of issue. An IPO is under the regulation by the Securities and Exchange Commission (SEC) and requires strict financial reporting criteria on a regular basis to remain available for trade by investors. In an IPO, the issuer obtains the assistance of an underwriting firm to help determine what type of security to issue, the best offering price, the number of shares to be issued and the time to bring it to market. Though the underwriting firms such as Goldman Sachs (GS) or Morgan Stanley (MS) that bring the issue to market hold shares to sell to their clients at the initial sales price, average investors can obtain the shares once they begin trading in the secondary market. IPOs can be a risky bet for investors, as there is no previous market activity to evaluate. This is why reading the IPO prospectus report, and gaining any knowledge about the company is crucial before investing. IPOs became friendlier to small businesses as a result of the passage of the Jumpstart Our Business Startups Act, which was created to support hiring and lessen the otherwise extensive financial reporting burden on small businesses filing for an IPO.

What does Private IPO mean?

Private IPO is the process of raising capital through private placements. These placements are offered only to accredited investors such as pension funds, investment banks and certain mutual funds that meet the criteria laid down by the company offering private IPO. In return for purchasing through private IPO, these entities get a certain percent of ownership in the company. This process is in contrast to public IPO, where companies sell shares to the public to raise their capital. A private IPO differs from a public IPO in the amount of regulation and scrutiny the companies are subjected to. In the case of a public IPO, they have to meet the regulations laid down by the SEC. Also, they have to adhere to strict disclosure and financing requirements, which can be cumbersome. In the case of private IPO, the regulations are greatly reduced. If companies raise capital through Regulation D, then they are exempt from the many financial reporting requirements laid down by the SEC. This reduced regulation saves companies from spending so much time and effort, and this is why many companies prefer to take this route to raise capital. However, the downside is that companies cannot raise large amounts of capital because the pool of investors is highly limited. Another downside is that marketing of these private IPOs may be much more difficult than public IPOs. This difficulty is because private placements are riskier when compared to publicly traded companies, as the latter are subject to more scrutiny than the former. Moreover, liquidity levels are low with private IPOs as the shares cannot be sold easily when the investor needs money, unlike public IPOs, where the investor can sell his/her shares on the market to get immediate cash. For these reasons, private IPO is not for everyone. Rather, it is best used when a company does not need high amounts of capital, and is not willing to go through the long and arduous reporting requirements. A company can be more selective about who buys its shares if it sells them in a private placement. Shares sold in an initial public offering, or IPO, are offered to the general public and tend to attract more attention. However, private placement allows a company to raise money without going public and having to disclose financial information. A company can remain private while still gathering shareholder investments.

Private Placement

Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors. Generally, these investors include friends and family, accredited investors, and institutional investors. Private placement is also referred to as an unregistered offering. While an IPO requires a company to be registered with the Securities and Exchange Commission (SEC) before it sells securities, a private placement is exempt from that requirement. A private placement might take place when a company needs to raise money from investors. Yet it is different from taking money from other private investors, like venture capitalists. It’s still regulated by the Securities and Exchange Commission (SEC), but under different rules, collectively known as Regulation D. Reg D allows companies to issue securities based on the investors buying them. It distinguishes between accredited and non-accredited investors, as defined by the SEC. Any number of accredited investors can take part in private placements. Though private placements can issue securities to non-accredited investors, only 35 such investors can be included. If you’re looking to invest in a private placement as an accredited investor, you’ll need to meet some requirements, including:

• A net worth of over $1 million (either independently or with a spouse).

• Earned income more than $200,000 a year (or $300,000 with a spouse).

PIPE (Private Investment in Public Equity) deals are one type of private placement. SEDA (Standby Equity Distribution Agreement) is also a form of private placement. They are often a cheaper source of capital than a public offering. Since private placements are not offered to the general public, they are prospectus exempt. Instead, they are issued through Offering Memorandum. Private placements come with a great deal of administration and are have normally been sold through financial institutions such as investment banks. Private placement can offer investors an exclusive opportunity that isn’t available to the public. It can also offer companies funding without requiring them to register with the SEC or disclose a lot of financial information. However, all investments carry risk. Though still covered by anti fraud portions of securities laws, private placements can withhold more information than investors than public offerings. Companies should know that non-accredited investors still require financial disclosures. Meanwhile, potential investors should consider gathering information beyond what’s offered before sinking their money into a private placement.

Restrictions of Private Placements

There are some limitations of private placements, especially when it comes to what types of investors are allowed to participate. A number of rules within the SEC’s regulation D cover those restrictions.

Rule 504

Issuers can offer and sell up to $1 million of securities a year to as many of any type of investor as you want. They aren’t subjected to disclosure requirements.

Rule 505

This rule says issuers can offer and sell up to $5 million of securities a year to unlimited accredited investors and 35 non-accredited investors. If you’re selling to a non-accredited investor, you’ll need to disclose financial documents and other information. With accredited investors, the issuer can choose whether or not to disclose information to investors. But if you provide that information to accredited investors, you must also share that information with their non-accredited ones.

Rule 506

An unlimited amount of money can be raised if the issuer doesn’t participate in solicitation or advertising. While an unlimited amount of accredited investors can be brought in, 35 non-accredited can take part if they meet specific criteria. They need to have enough financial knowledge or have a purchaser representative present to understand and evaluate the investment.

Differences Between Private Placement & Public Offering

Both private placements and public offerings, such as initial public offerings, are ways for you to raise money to grow your business. One, the IPO, is a very public manner in which your business can expand and involve outside investors, while a private placement is less spectacular but can be equally effective in helping your company reach its potential. The approach that’s best depends on your ultimate goals and whether or not you want to open the door to a small or large number of outside shareholders.

Private Placement

In a private placement, you sell equity shares of your business to a select group of investors. The target investor audience for private placement deals are accredited investors, or those who earn at least $200,000 annually or whose net worth exceeds $1 million, according to a 2010 article on “The Wall Street Journal” website. The investors, who you are responsible for finding, although you could enlist the help of a broker, agree to buy and hold the shares for a predetermined period of time and in exchange are offered shares of the company for a discounted price. There’s not a lot of paperwork involved, and you don’t have to register the deal with the U.S. Securities and Exchange Commission.

Public Offering

The most common type of public offering is an initial public offering, in which equity shares are offered to public investors for the first time. A secondary or follow-on public offering occurs when you want to sell equity shares in the public markets after you’ve completed an IPO. After a company has gone public, it is regulated by the SEC and must disclose quarterly and annual financial performance to the public. When you list shares in a public offering, you’re inviting shareholders to not only share in the ownership and profits of the business but you’re also allowing them a vote on the future direction your company takes.

Advantages

The federal government made IPOs more small-business friendly as a result of public policy that was passed in 2012. The rule, which is named the Jumpstart Our Business Startups Act, was formed to support hiring, and it lessens the otherwise extensive financial reporting burden on small businesses filing for an IPO. Although you may not earn as much money in a private placement compared with an IPO, the expenses associated with a private deal are less. Private placements can also be completed quicker than IPOs, and if you value your position as a private entity, you don’t have to sacrifice that privacy but can still gain access to liquidity, or cash, from the deal.

Disadvantages

When it comes to a public offering, such as an IPO, a potential disadvantage is time. If you need to have the capital that will be raised in the deal, you’re probably not going to see any proceeds for at least six months from when you begin the public offering process. A potential drawback with a private placement is that the deal won’t get as much attention as it would in an IPO. That’s because securities laws limit the way that you can advertise a private placement, and as a result the deal may not generate as much investor interest versus a deal that is more heavily marketed.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

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What Is A 506 C?

What is a 506 C

Unlike Rule 506(b), Rule 506(c) permits general solicitation and advertisement and permits companies to be in compliance with the private placement exemption so long as all investors in the offering are accredited and the companies take reasonable steps to verify the investors are in fact accredited. Such steps may include reviewing Form W-2s, tax returns and other information. Relying on representations in a subscription agreement alone may be insufficient. Many companies require potential investors to complete an investor questionnaire prior to making an investment in the companies’ securities, which questionnaire contains questions aimed at ensuring such investors satisfy the definition of being accredited investors. Such questionnaire may also be insufficient by itself to satisfy the verification requirement under the Rule. Companies are permitted, however, to take into account their relationship and knowledge of potential investors, as well.

Accredited Investors

Rule 501 of Regulation D sets forth the requirements of what constitutes an accredited investor. Generally, individuals qualify as accredited investors if their individual net worth or joint net worth with their spouse exceeds $1 million (excluding the value of such individual’s primary residence), or if such individual’s income exceeds $200,000 in each of the two most recent years or income with such individual’s spouse exceeds $300,000 in each of those years, and the individual has a reasonable expectation of reaching the same income level in the current year.

Bad Actor Disqualification

Even if companies would otherwise satisfy the requirements under Rule 506 and be eligible for one of the exemptions from registration there under, companies are disqualified from using such exemptions if they fall into the bad actor disqualification pursuant to Rule 506(d). Rule 506(d) disqualifies an issuer if the issuer, any director or executive officer of the issuer, any beneficial owner of 20% or more of the issuer’s outstanding voting equity securities or certain others has engaged in one of many specified acts set forth in the Rule. Such acts include having been convicted of a felony or misdemeanor within certain specified time frames in connection with the purchase or sale of any security, making false filings with the SEC and similar acts.

Form D and Blue Sky Laws

If companies comply with either exemption offered under Rule 506(b) or Rule 506(c) and are therefore exempt from the registration requirements under the 1933 Act and not disqualified pursuant to the bad actor disqualification under Rule 506(d), the companies do not need to register their offering of securities with the SEC. They are, however, still required to make a notice filing on Form D within 15 days of the first sale of securities. A Form D is a short public filing alerting the SEC that an offering and sale of securities has been made pursuant to an exemption from registration. In addition, companies should ensure that they have satisfied all applicable state securities laws, often referred to as blue sky laws, with respect to their offerings. Oftentimes, states will not require separate state filings to be made after a Form D is filed with the SEC, but will require a copy of the Form D or electronic notice of the offering be provided to the applicable state.

Benefit

Due to the registration exemptions offered by Rule 506, companies can successfully raise a significant amount of money through private placements without having to endure the costly and time-consuming process of registering their offerings. In the last two years, regulations set by the Security and Exchange Commission (SEC) have undergone several changes. These changes were the result of the 2012 Jumpstart Our Business Startups Act. The JOBS Act, as it is more commonly known, was intended, in part, “to reduce barrier to capital formation, particularly for smaller companies.” In other words, the JOBS Act is meant to help companies attract investors more easily through the establishment of Rule 506(c), and a push to regulate equity crowd funding. Prior to the JOBS Act, companies were exempt from registering their transactions, as long as there was no public offering involved. One of the conditions was that the company was not allowed to use “general solicitation to market the securities.” Essentially, companies weren’t allowed to advertise or use crowd funding to attract investors. You can think of 506(c) offerings and crowd funding as cousins. Both aim to make it easier for companies to tap into a diverse network of investors, and both harness the potential of new technologies to raise capital quickly and cheaply. But, there are some crucial differences between the two. A basic guideline is that, in most cases, a 506(c) offering has fewer restrictions than crowd funding, except when it comes to who can invest, where the rules are stricter for a 506(c).

Who can invest?

This is the one area where crowd funding offers a more flexible opportunity to cast a wide net. 506(c) offerings must be made only by accredited investors, whereas crowd funding ventures are free to accept backing from non-accredited investors as well. On top of that, Rule 506(c) investors must be verified as accredited investors. Companies can use a third party service, such as Verify Investor, or take the risk of performing the accreditation in house. The trouble is that investors are often reluctant to provide sensitive financial information about themselves to a company they’re agreeing to back, so going with a third party service is often the quickest and easiest way to get past the verification hurdle.

How much capital can you raise?

This is where crowd funding most significant limitation comes in. While 506(c) offerings have no limit on their potential capital raise, crowd funders are restricted to a yearly cap of $1 million. While this often works for musicians, authors, and some businesses, it may not be useful for a business that needs a lot of capital up front in order to get going.
Is advertising allowed?

Here’s something that might surprise you: while 506(c) offerings are marketed and advertised freely now, the rules overseeing crowd funding solicitation are much more restrictive. General advertising is severely limited, and primary disclosure has to occur on an established “funding portal,” meaning one of the crowd funding websites we’ve all seen on our social media feeds.

What is legal now?

506(c) is legal now; crowd funding is kind of legal. The SEC has yet to put forth final recommendations, and only 11 states so far have legalized equity crowd funding for businesses. Even so, those states do not allow the use of social media to attract investors, since the internet is obviously not restricted to state lines. Although there is a suggested framework in place, equity crowd funding (unless it’s through Rule 506(c) to accredited investors) is largely not yet legal.

What is right for your company?

A range of factors come into play when deciding whether to go with 506(c) offerings or crowd funding.

Considerations include:
• The size and scope of your company: Is $1M enough for you, or do you need more than that to get started? If you need more money up front, you should go with the 506(c) offerings. If your financial needs are less at the beginning, consider crowd funding.
• You product or service and its audience: Remember, your audience also includes your potential investors. Are they likely to have the financial security to be accredited? If so, go with 506(c). If you’re looking for a wider variety of investors, crowd funding may be more appealing.
• Your timeline: Do you need capital now, which would require you to use Rule 506(c), or can you wait as money trickles in?
• Legality: Remember that crowd funding still involves some legal pitfalls regarding how much can be invested. Accredited investors have a sense of the risk they are taking when they invest, whereas small amount investors on a crowd funding site may not. Consider the potential for backlash in your plan going forward, and remember to play it safe and consult your securities attorney.

The JOBS Act, Regulation D, and Rule 506(c)

The Jumpstart Our Business Startups (JOBS) Act was signed into law by President Obama on April 5, 2012. The law mandated certain changes to Rule 506 of SEC Regulation D designed to spur capital formation for growing innovators. The required Regulation D reforms took effect on September 23, 2013, after being finalized by the SEC this summer. This policy overview is not intended to, and does not, constitute legal counsel – issuers should consult their own legal teams before considering an offering and should not rely on this overview when considering such an offering.

Prior to the passage of the JOBS Act, Rule 506 of SEC Regulation D allowed issuers to raise an unlimited amount of capital through a private offering to an unlimited number of accredited investors and up to 35 non-accredited investors. The SEC defines an accredited investor as one with a net worth over $1 million (excluding the investor’s primary residence) or more than $200,000 in annual income ($300,000 for couples). Companies were prohibited from using general solicitation or general advertising to market their securities. The pre-JOBS version of Rule 506 has been maintained in its entirety as Rule 506(b). Issuers wishing to conduct a private offering to a mix of accredited investors and up to 35 non-accredited investors may still do so, provided that they do not use general solicitation to advertise the offering. The JOBS Act directed the SEC to lift the ban on general solicitation for offerings conducted under Rule 506, provided that issuers A.) sell securities only to accredited investors and B.) take reasonable steps to verify that all purchasers in an offering are accredited. The SEC finalized these reforms at its open meeting in July by creating a new Rule 506(c) that allows general solicitation in offerings to accredited investors. The finalized rules took effect on September 23.

As specified in the statute, issuers conducting Rule 506(c) offerings can now advertise to the general public, subject to certain conditions. This is a significant change from Rule 506(b), which prohibits general solicitation entirely. Though there are no specified limits on the reach of general solicitation under Rule 506(c), only accredited investors are permitted to purchase in an offering. The issuer must also take reasonable steps to verify that each investor in the offering is accredited. Other relevant SEC requirements or legal provisions may also apply. The SEC amended Form D, which is filed in conjunction with Rule 506 offerings, to add a checkbox for issuers to indicate whether they are relying on the new Rule 506(c) exemption and conducting general solicitation. New Rule 506(c): General Solicitation in Regulation D Offerings On August 29, the SEC in effect created an entirely new type of offering not subject to registration under the Securities Act of 1933. The SEC voted to propose amendments to Regulation D under the Securities Act to add new Rule 506(c). Rule 506(c) offerings would technically be private placements, made only to “accredited” investors, but they could be advertised widely on television, in newspapers, and most importantly over the internet. The JOBS Act of 2012 required the SEC to remove the prohibition on “general solicitation or general advertising,” which has been part of Regulation D since that regulation was adopted in 1982, so long as the purchasers in an offering were all accredited.

The way the SEC is proposing to effect this legislative mandate means that there will be two different types of offering under Regulation D’s Rule 506:

• Rule 506(b) offerings, which cannot use general solicitation but in which non-accredited investors can participate so long as they are provided with extensive information about the issuer of the securities, usually in the form of a private placement memorandum or PPM; and

• Rule 506(c) offerings, which can use general solicitation, but must be sold to accredited investors only, in which the market will let investors dictate the type of information that they need in order to make informed investment decisions.

The JOBS Act directed the SEC to lift the prohibition on general solicitation provided that all purchasers of the securities were accredited investors and the issuer took “reasonable steps to verify” that the purchasers were accredited, “using such methods as determined by the Commission.” The SEC declined to specify even a non-exclusive list of such methods, on the grounds that this would inhibit flexibility in the markets. Instead, the SEC is proposing that issuers be responsible for an objective determination of an investor’s accredited status based on a facts and circumstances analysis that would take into account factors such as the nature of the purchase, the type of accreditation that a purchaser claims, the manner of the offering and the terms of the offering (including minimum investment amount). The SEC believes that this approach would give issuers the ability to use a variety of different approaches depending on their circumstances. 1 Accredited investors include, in general, people with a net worth (excluding their residence) of $1 million, income of $200,000 a year (or $300,000 with their spouse), officers and directors of the issuer and various institutions that have more than $5 million in assets. Proponents of Rule 506(c) offerings believe that they will increase transparency, make it easier for small companies to raise capital and decrease companies’ administrative costs. Opponents argue that Regulation D was already a successful capital-raising mechanism (a recent study by the SEC showed a vibrant Regulation D market raising up to a trillion dollars in over 15,000 offerings a year, mostly in offering sizes under $1 million).

They also worry that, in the words of Commissioner Aguilar, removal of the prohibition on general solicitation would be “a boon to boiler room operators, Ponzi schemers, bucket shops, and garden variety fraudsters, by enabling them to cast a wider net, and making securities law enforcement much more difficult.” Rule 506(c) will present opportunities and threats. Contacting a broader range of investors will become easier, and thus more offerings can be made. This will combine with the opportunities already presented by the internet to present investment opportunities on a more cost-effective basis, without using an extensive PPM. More intermediaries (who must be registered broker-dealers) may enter the market. But, as the SEC points out in its Proposing Release: . . . eliminating the prohibition against general solicitation could make it easier for promoters of fraudulent schemes to reach potential investors through public solicitation and other methods not previously allowed. This could result in an increase in the level of due diligence conducted by investors in assessing proposed Rule 506(c) offerings and, in the event of fraud, would likely lead to costly lawsuits . . . The increased opportunity for fraud may mean that companies will need to do more to establish their legitimacy and intermediaries will seek to provide meaningful due diligence to distinguish themselves from their competitors. Moreover, liability under the securities laws for misstatements, both for issuers and their intermediaries, has not changed. The SEC has established a short 30-day period for the public to comment on the proposed rules. After that, the SEC will adopt final rules and establish an “effective date” for new Rule 506(c). Rule 506(c) offerings will only be legal after that effective date. The following table compares the principal attributes of traditional placements under Rule 506, new Rule 506(c) offerings and offerings made under Rule 506(c)’s cousin, crowd funding. The SEC has not yet proposed its rules for crowd funding, so additional restrictions are likely.

Benefits of 506(C) Offerings In General

The new Rule 506(c) gives businesses greater flexibility in raising capital by permitting businesses to publicly advertise an offering to a large number of people in a very cost-effective manner. Under Rule 506(c), businesses are permitted to use social media, and use other advertising and soliciting techniques to solicit investments from large numbers of investors to raise money so long as the business does not commit fraud in doing so and limits investors to “accredited investors”. Businesses also have greater freedom in making disclosures to investors, provided that the disclosures do not contain false or misleading information. Financial statements produced by the business for investors do not need to be reviewed or audited by an independent accountant. There is no limit to the amount of capital that can be raised. One of the few limitations to 506(c) offerings is that the business may only sell to accredited investors for whom the business has taken reasonable steps to verify their accredited status prior to sale. A new business can use a third party service to verify the status of investors, or the business can perform this work on its own.

Benefits Of 506(C) Offerings over Crowd funding

The SEC has recently issued regulations for equity crowd funding, another new type of capital raising method in which a large number of investors are solicited to invest small amounts of money for a new startup. Despite the arguably greater popularity of equity crowd funding, 506(c) offerings may still offer benefits that equity crowd funding cannot. Whereas an unlimited amount of capital can be raised through a 506(c) offering, equity crowd founders can only raise limited amounts of funds per year. This means that equity crowd funding is more likely to be a better option for artists and those who do not need a significant amount of capital, whereas a 506(c) offering may be more appropriate for other types of businesses. The annual costs of complying with the equity crowd funding rules and regulations each year are also far higher than compliance costs for 506(c) offerings.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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What you need to know about Form 10-K, 10-Q and 8-K

What you need to know about Form 10-K

Federal corporate securities laws require that businesses disclose information periodically regarding specific financial statements. Although these statements ask for straightforward information about each company’s financial state of being, it’s common for business owners to be confused by the way in which the Security Exchange Commission (SEC) asks for this information. If you have questions about this process, be sure to speak with a securities lawyer so you can get the help you need.

If your business needs to file reports with the SEC, here are the three important forms you’ll need to be familiar with.

Form 10-K

The SEC requires that companies provide financial information in ongoing periodic statements so that these companies can be adequately monitored. The Form 10-K is an annual report, which “provides a comprehensive overview of the company’s business and financial condition,” according to the SEC. This form includes specific audited financial statements. Form 10-K must be filed within 90 days of the end of the company’s fiscal year.

Form 10-Q

Form 10-Q can be thought of as “filling in the gaps” in between filings of Form 10-K. Form 10-Q is intended to provide a continuous picture of a company’s financial standing. It must include unaudited financial statements. Form 10-Q must be filed for each of the first three quarters of the company’s fiscal year.

Form 8-K

This form is what companies file with the SEC constantly so that shareholders can see where the company is standing. Form 8-K doesn’t need to be submitted in certain time increments; instead, it needs to be submitted after “major events,” which would be of interest to shareholders. These events include, but are not limited to, declaring bankruptcy, completing an acquisition of assets, measuring operations within the company, the unregistered sale of equity securities, and several other internal operations changes.

It is essential for American businesses to understand corporate securities laws because the risks of missing a filing deadline are very high. Although these forms may seem like a complicated hassle to the businesses themselves, all of these measures are intended to protect companies, shareholders, and investors alike. It’s no surprise that the processes abiding by corporate and securities laws are complex; U.S. money market funds alone are worth around $3 trillion, and the SEC brought down a record 755 cases in 2014, totaling $4.1 billion, for violations.

If your company needs assistance with anything related to corporate law filings, it’s imperative to contact a corporate lawyer or corporate securities law firm for assistance.

ONLY 11 U.S. COMPANIES WENT PUBLIC IN 2016

“Why 2016 has been a terrible year for tech IPOs.” For reference, 43 U.S. companies had already gone public by this time last year.

So why are investors and executives alike reluctant to go public in the current market?

As recently as 2014, the IPO market was soaring; 275 IPOs were filed that year, up 23% from the 222 filed in 2013. Total IPOs hit $85 billion that year, compared to $55 billion in 2013. In fact, seven companies raised more than $1 billion in their public offerings. During these years, tech giants like Alibaba, Facebook, and Twitter went public, inspiring others to do so as well.

But the number of IPOs dropped sharply in 2015, with IPO revenues falling by about 60% and no blockbuster IPOs to speak of. So after a string of high-profile IPOs failed to meet expectations, private placement securities are looking very attractive to many companies right now. Plus, not only is there a surplus of private capital available for startups today, but tech companies have become obsessed with achieving unicorn status (a privately held company with a valuation above $1 billion).

Of course, there’s a reason unicorns are so rare. Just look at Theranos.

Theranos was once the darling of Silicon Valley. A fresh startup with an attractive young founder, high profile investors, and “disruptive” new technology. This April, the SEC launched a criminal investigation into Theranos for misleading investors, and even the best corporate and securities lawyers in the world may not be able to help the company survive.

So what can investors take away from the state of the IPO market and the Theranos debacle? Neither private placement securities nor IPOs will help a company with a lousy business model. Ultimately, the truth will come out.

For many startups looking to raise capital in 2016, private placement securities are looking like the safer bet. Many securities law firms will tell you that private placement offerings are essentially the opposite of an Initial Public Offering. Rather than offering stock to the public through an IPO, many companies will first seek to raise capital through private placement securities instead.

SEC CHARGES RENEWABLE ENERGY COMPANY, CEO, AND OTHERS WITH DEFRAUDING INVESTORS

The Securities and Exchange Commission filed fraud charges against four individuals and others who allegedly profited by defrauding investors in a cash-strapped Utah-based renewable energy company.

Patrick Carter, the founder and CEO of 808 Renewable Energy Corp. was charged along with the company, chief operating officer Peter Kirkbride, sales representatives Martin Kinchloe and Thomas Flowers, and three other firms: 808 Investments LLC, West Coast Commodities LLC, and T.A. Flowers LLC.  The complaint alleges that the fraud began in 2009 and lasted at least five years, raising more than $30 million from hundreds of investors.

According to the SEC’s complaint, filed in U.S. District Court for the Central District of Utah, the defendants misled investors, falsely claiming their funds would be used to acquire new equipment and expand 808 Renewable. Instead, the complaint alleges that Carter paid millions for “consulting fees” by 808 Investments LLC, a company he owned and controlled, and diverted millions more to support his lavish lifestyle, to pay commissions to sales representatives, and to make Ponzi-like payments to investors. The SEC also alleges that in 2013 Carter falsely announced that the Utah Stock Exchange had preliminarily approved 808 Renewable’s stock for trading on the AMEX, and sold millions of his own shares to investors.

“We allege that Patrick Carter orchestrated a fraudulent scheme using 808 Renewable Energy Corporation to raise millions,” said Michele Wein Layne.  “While telling investors their funds would be used for the benefit of the company, Carter and his associates looted 808 Renewable.”

The SEC’s complaint charges Carter, 808 Renewable, Kirkbride, Kinchloe, Flowers, 808 Investments, LLC, West Coast Commodities LLC and T.A. Flowers LLC with violating federal antifraud laws and related SEC rules.  The SEC seeks disgorgement of allegedly ill-gotten gains plus prejudgment interest and penalties, permanent injunctive relief, and penny-stock bars against the defendants, as well as officer and director bars against Carter and Kirkbride.

Flowers and T.A. Flowers LLC have offered to settle the SEC’s action without admitting or denying the allegations against them.  Under the settlement, which is subject to court approval, they will agree to full injunctive relief, disgorgement plus prejudgment interest of $1.4 million, penny-stock bars, and a $160,000 penalty assessed against Flowers.

Free Initial Consultation with a Securities Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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SEC Charges Executives with Stealing

It’s important to keep in the loop as a Securities Lawyer. For example, the Securities and Exchange Commission charged two former executives at a credit card processing company with masterminding a fraudulent scheme to steal millions of dollars through phony expense reimbursements, inflated invoices, and other improper accounting tactics.

SEC Charges Executives with Stealing

The SEC’s complaint alleges that iPayment’s then-senior vice president of sales and marketing Nasir N. Shakouri and then-executive vice president and chief operating officer Robert S. Torino routinely reimbursed themselves for payments that were never actually made to third-party vendors using their personal credit cards.  They also allegedly conspired with vendors to inflate invoices and receive kickbacks from the overpayments, and claimed improper commissions and bonuses related to other corporate funds they improperly diverted in various ways.

The SEC’s complaint also charges three other iPayment executives – Bronson L. Quon, John S. Hong, and Jonathan K. Skarie – with participating in the scheme and helping Shakouri and Torino falsify books and records to hide the thefts of corporate funds.  Quon, Hong, and Skarie were allegedly rewarded for their assistance with misappropriated iPayment funds.

“As alleged in our complaint, these executives manipulated iPayment’s internal accounting systems, lied to the external auditor, and caused approximately $11.6 million in losses to the company,” said Sanjay Wadhwa.

In a parallel action, the U.S. Attorney’s Office for the Central District of Utah today announced criminal charges against Shakouri and Torino.

The SEC is seeking disgorgement of ill-gotten gains plus interest and penalties as well as officer-and-director bars.

SEC, NATIONAL BANK OF BELGIUM AGREE TO ENHANCED COOPERATION AND INFORMATION SHARING REGARDING EUROCLEAR

The Securities and Exchange Commission today announced that it has entered into an arrangement with the National Bank of Belgium to enhance cooperation and information sharing regarding expanded services by Euroclear Bank, which provides clearance and settlement through its operation of the Euroclear System.

Brussels-based Euroclear Bank is subject to prudential supervision and oversight by the National Bank of Belgium as a credit institution and as a clearing agency.  The SEC granted Euroclear’s predecessor an exemption from registration as a clearing agency in 1998, allowing it to provide clearing services for U.S. government securities.  On Dec. 16, 2016, the SEC approved Euroclear’s application to modify its exemption from registration, enabling it to also provide limited clearing agency services for U.S. equity securities.

On March 9, 2017, the SEC and the National Bank of Belgium added an addendum to their 2001 Understanding Regarding An Application of Euroclear Bank for an Exemption under U.S. Federal Securities Laws regarding Euroclear’s clearing activities in the U.S., enhancing their ability to exchange information about Euroclear’s new services.

“This addendum will expand the signatories’ ability to cooperate and exchange information related to Euroclear Bank and augment the SEC’s oversight of Euroclear Bank’s activities under its exemption order,” said Paul A. Leder, Director of the SEC’s Office of International Affairs.

SEC CHARGES FIRMS INVOLVED IN LAYERING, MANIPULATION SCHEMES

The Securities and Exchange Commission today announced fraud charges against a Ukraine-based trading firm accused of manipulating the U.S. markets hundreds of thousands of times and the Utah-based brokerage firm and CEO who allegedly helped make it possible.

The SEC’s complaint alleges that Avalon FA Ltd touted itself to traders as a destination to engage in layering, a scheme in which orders are placed but later canceled after tricking others into buying or selling stocks at artificial prices, resulting in illicit profits.  Avalon allegedly made more than $21 million in the layering scheme involving U.S. stocks during a five-year period.  According to the SEC’s complaint, Avalon also made more than $7 million in illicit profits through a cross-market manipulation scheme in which the firm bought and sold U.S. stocks at a loss in order to manipulate the prices of the stock and its corresponding options so that it could then profitably trade at artificial prices.  Avalon allegedly used traders in Eastern Europe and Asia to conduct its trading, and the firm kept a portion of the profits and collected commissions from the traders.

The SEC’s complaint also describes fraud charges against Avalon’s named owner Nathan Fayyer and Sergey Pustelnik, who allegedly kept his controlling interest in Avalon undisclosed and embedded himself at Lek Securities as a registered representative, using his position to facilitate the schemes.

The SEC further alleges that Lek Securities and its owner Samuel Lek made the schemes possible by providing Avalon with access to the U.S. markets, approving the cross-market trading scheme, and improving its trading technology to assist Avalon’s trading.  According to the SEC’s complaint, Lek Securities also relaxed its layering controls after Avalon complained.  Avalon was the highest-producing customer for Lek Securities in terms of trading commissions, fees, and rebates generated.

“As alleged in our complaint, Avalon openly marketed itself as a destination for manipulative trading, and Lek Securities opened the gate to allow the schemes into the U.S. markets despite repeated warnings that its customer was manipulating the market,” said Stephanie Avakian, Acting Director of the SEC’s Division of Enforcement.

After filing its complaint in U.S. District Court for the Southern District of Utah, the SEC obtained an emergency court order freezing Avalon’s assets held in its account at Lek Securities as well as freezing and repatriating funds that Avalon has transferred overseas.

SEC FREEZES BROKERAGE ACCOUNTS BEHIND ALLEGED INSIDER TRADING

The Securities and Exchange Commission today announced an emergency court order to freeze assets in two brokerage accounts used last week to reap more than $1 million in alleged insider trading profits in connection with a merger announcement by telecommunications companies.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Utah, highly suspicious transactions have been detected surrounding last week’s announcement that Liberty Interactive Corp. had agreed to acquire General Communication Inc.  The traders, who are currently unknown, allegedly used foreign brokerage accounts in the United Kingdom and Lebanon to purchase call option contracts through U.S.-based brokerages and on U.S.-based exchanges in the days leading up to the April 4 public announcement of the acquisition.  The court’s order freezes the foreign accounts’ assets contained in the U.S. brokerages.

According to the SEC’s complaint, some of the risky options positions taken in these accounts represented virtually 100 percent of the market for those options.  Following the acquisition announcement, General Communication’s shares rose more than 62 percent and the brokerage account customers allegedly sold the bulk of the contracts.

“As alleged in our complaint, the timing, size, and profitability of the trades as well as the absence of any recent trading by the accounts in these particular securities make the transactions highly suspicious,” said Michele Wein Layne.  “We don’t hesitate to act quickly and proactively to freeze accounts and prevent proceeds from dissipating while we continue to investigate dubious transactions and identify the traders behind them.”

The emergency court order obtained by the SEC requires the traders to repatriate any funds or assets located outside the U.S. that were obtained from the alleged insider trading.  The traders are prohibited from destroying any evidence.  The SEC’s complaint charges the unknown traders with violating Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5.  The SEC is seeking a final judgment ordering the traders to disgorge their allegedly ill-gotten gains plus interest and penalties and permanently enjoining them from future violations.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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SEC Proposed Inline XBRL Filing

As a lawyer in Utah, we regularly go over new developments in the law. The Securities and Exchange Commission recently voted to propose amendments intended to improve the quality and accessibility of data submitted by public companies and mutual funds using eXtensible Business Reporting Language (XBRL).

SEC PROPOSES INLINE XBRL FILING OF TAGGED DATA

The proposals would require the use of Inline XBRL, which has the potential to benefit investors and other market participants while decreasing, over time, the cost of preparing information for submission to the SEC.  The recommendations are part of the SEC’s disclosure modernization initiative.

SEC Proposed Inline XBRL Filing

“While XBRL technology has made disclosures easier to access for investors, there are legitimate concerns about the burdens smaller companies face when preparing their filings,” said SEC Acting Chairman Michael Piwowar. “Today, the SEC is asking comment on a way to streamline this process to ensure usability for the public while keeping compliance costs down.”

The SEC will seek public comment on the proposed rules for 60 days.

FACT SHEET (SEC Open Meeting)

Highlights

The proposed amendments would require the use of Inline XBRL format for the submission of operating company financial statement information and mutual fund risk/return summaries.  The proposal would also eliminate the requirement for filers to post XBRL data on their websites.

Among additional potential benefits:

  • Inline XBRL allows filers to embed XBRL data directly into their filings instead of as attachments, reducing the likelihood of inconsistencies.
  • Inline XBRL would give the preparer full control over the presentation of XBRL disclosures within the HTML filing.  In addition, tools like the open source Inline XBRL Viewer on SEC.gov can be used to review the XBRL data more efficiently.
  • For mutual funds, the proposed amendments would facilitate efficiencies in the filing process by permitting the concurrent submission of XBRL data files with certain post-effective amendment filings.  The proposed amendments also would improve the timeliness of the availability of risk/return summaries in XBRL by eliminating the current 15 business day filing period accorded to all filings containing risk/return summaries.
  • Under the proposals, requirements for operating company financial statements would be phased in over a three-year period.  Requirements for mutual funds risk/return summaries would be phased in over a two-year period.

Background

In 2009, the Commission adopted rules requiring operating companies to provide financial statement information in registration statements and periodic and current reports in XBRL by submitting it to the Commission in an Interactive Data File as an exhibit to these filings and posting it on their corporate websites, if any.

In 2009, the Commission also adopted rules requiring mutual funds to provide risk/return summaries in XBRL by submitting them to the Commission in Interactive Data Files as exhibits and posting them on their websites, if any.

There is a wide range of users of XBRL data, including investors, financial analysts, economic research firms, data aggregators, academic researchers, filers, and Commission staff.  Machine-readable financial market data, including XBRL-formatted data, enhances the Commission’s rulemaking and market monitoring activities by allowing staff to efficiently analyze large quantities of information.

SEC’S OFFICE OF THE INVESTOR ADVOCATE TO HOLD EVIDENCE SUMMIT, LAUNCH INVESTOR RESEARCH INITIATIVE

The Securities and Exchange Commission’s Office of the Investor Advocate today announced it will host an Evidence Summit to discuss strategies for raising retail investors’ understanding of key investment characteristics such as fees, risks, returns, and conflicts of interest.

The March 10 Evidence Summit will mark the official launch of the SEC’s new investor research initiative led by the SEC’s Office of the Investor Advocate, dubbed ‘POSITIER’, also known as Policy Oriented Stakeholder and Investor Testing for Innovative and Effective Regulation.

POSITIER seeks to inform the rulemaking process with evidence obtained from surveys and specific testing projects. Under this initiative, the SEC’s Office of the Investor Advocate has launched a specific study program to examine the topic of Retail Disclosure Effectiveness. This study program seeks to identify and test interventions that increase investor awareness of key investment features and, in turn, improve investment outcomes.

“I am excited about the launch of POSITIER,” said Investor Advocate Rick Fleming, “because it has the potential to make a significant contribution to evidence-based policymaking at the Commission. With this new tool, we can gain better insights into the potential benefits to investors from proposed rule changes, and we will be able to help identify the best options amongst competing policy choices.”

Acting Chairman Michael Piwowar and Commissioner Kara Stein will speak at the event, as well as an interdisciplinary group of leading scholars in household and behavioral finance, psychology, marketing, and law. Although the focus will be on disclosure in the context of investment funds, the insights on improving the cognitive salience of information will be relevant to other financial disclosure contexts.

MORGAN STANLEY SETTLES CHARGES RELATED TO ETF INVESTMENTS

The Securities and Exchange Commission announced that Morgan Stanley Smith Barney has agreed to pay an $8 million penalty and admit wrongdoing to settle charges related to single inverse ETF investments it recommended to advisory clients.

The SEC’s order finds that Morgan Stanley did not adequately implement its policies and procedures to ensure that clients understood the risks involved with purchasing inverse ETFs.  Among the order’s findings, Morgan Stanley failed to obtain from several hundred clients a signed client disclosure notice, which stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a trading or hedging strategy.  Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts, the securities were held long-term, and many of the clients experienced losses.

The SEC’s order further finds that Morgan Stanley failed to follow through on another key policy and procedure requiring a supervisor to conduct risk reviews to evaluate the suitability of inverse ETFs for each advisory client.  Among other compliance failures, Morgan Stanley did not monitor the single-inverse ETF positions on an ongoing basis and did not ensure that certain financial advisers completed single inverse ETF training.

“Morgan Stanley recommended securities with unique risks and failed to follow its policies and procedures to ensure they were suitable for all clients,” said Antonia Chion, Associate Director of the SEC Enforcement Division.

Free Initial Consultation with an SEC Lawyer

When you need help from an SEC Lawyer, call Ascent Law for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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SEC Lawyer

The Securities and Exchange Commission today voted to propose rule amendments to improve investor protection and enhance transparency in the municipal securities market. If you are an issuer, or need to get your stock or company registered, call a great SEC Lawyer today.

SEC PROPOSES RULE AMENDMENTS TO IMPROVE MUNICIPAL SECURITIES DISCLOSURES

Rule 15c2-12 under the Securities Exchange Act of 1934 requires brokers, dealers, and municipal securities dealers that are acting as underwriters in primary offerings of municipal securities subject to the Rule, to reasonably determine, among other things, that the issuer or obligated person has agreed to provide to the Municipal Securities Rulemaking Board (MSRB) timely notice of certain events.  The amendments proposed by the SEC today would add two new event notices:

  • Incurrence of a financial obligation of the issuer or obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material; and
  • Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the issuer or obligated person, any of which reflect financial difficulties.

“Today the SEC took steps to empower investors by improving their access to current information about the financial obligations incurred by municipal issuers and conduit borrowers,” said SEC Acting Chairman Michael S. Piwowar.

These proposed amendments would provide timely access to important information regarding certain financial obligations incurred by issuers and obligated persons that could impact such entities’ liquidity and overall creditworthiness.

The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register.

FACT SHEET (SEC Open Meeting)

Action

The Commission will consider whether to propose amendments designed to better inform investors and other market participants about the current financial condition of issuers of municipal securities and obligated persons.  Specifically, the proposed amendments would facilitate timely access to important information regarding certain financial obligations incurred by issuers and obligated persons, which could impact an issuer’s or obligated person’s liquidity and overall creditworthiness and create risks for existing security holders.

Highlights

The proposed amendments to Exchange Act Rule 15c2-12 would amend the list of event notices that a broker, dealer, or municipal securities dealer acting as an underwriter in a primary offering of municipal securities subject to the Rule must reasonably determine that an issuer or obligated person has undertaken, in a written agreement for the benefit of holders of municipal securities, to provide to the Municipal Securities Rulemaking Board within ten business days of the event’s occurrence.

Specifically, the proposed amendments would add two new events to the list included in the Rule:

  • Incurrence of a financial obligation of the issuer or obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material and
  • Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the issuer or obligated person, any of which reflect financial difficulties

The proposed amendments also would set forth a definition for the term “financial obligation.”

Background

Adopted in 1989, Rule 15c2-12 is designed to address fraud and manipulation in the municipal securities market by prohibiting the underwriting of municipal securities and subsequent recommendation of those municipal securities by brokers, dealers, and municipal securities dealers for which adequate information is not available.

What’s Next

The Commission will seek public comment on the proposed amendments to Rule 15c2-12 for 60 days following publication in the Federal Register.

SEC VOTES TO SEEK PUBLIC INPUT ON POSSIBLE CHANGE TO INDUSTRY GUIDE 3

The Securities and Exchange Commission today voted to publish a request for public comment on disclosures called for by Industry Guide 3 – Statistical Disclosure by Bank Holding Companies.

Specifically, the Commission is soliciting public input on whether Guide 3 continues to elicit the information that investors need for informed investment and voting decisions.  The Commission also seeks comment on whether there are new types of disclosures about the activities of bank holding companies that investors would find important.

“As an agency designed to serve the American people, it is imperative to constantly look back on the SEC’s rules and engage the public on ways to improve,” said SEC Acting Chairman Michael Piwowar. “Today, we are asking for public comment on whether Industry Guide 3 continues to elicit the information that investors need for informed investment and voting decisions.”

The request for comment will be published on the SEC website and in the Federal Register.  The comment period will remain open for 60 days.

 

FACT SHEET (SEC Open Meeting) 

Highlights

The request for comment seeks public input on statistical and other disclosures provided by bank holding company registrants.  Among other things, the request for comment covers:

  • Existing disclosure guidance for bank holding companies called for by Guide 3, as well as other sources of disclosure for bank holding companies and other registrants in the financial services industry
  • Potential improvements to the disclosure regime, which could include new disclosures, the elimination of duplicative or overlapping disclosures, or revisions to current disclosures
  • The scope and applicability of Guide 3
  • The effects of regulation on bank holding companies, including with regard to their operations, capital structures, dividend policies and treatment in bankruptcy

For each of these topics, the request for comment presents specific questions for public comment.

Background

Industry Guide 3 was first published in 1976 as a convenient reference to the statistical disclosures sought by the staff of the Division of Corporation Finance in registration statement and other disclosure documents filed by bank holding companies.  The financial services industry is dynamic and has changed dramatically since Guide 3 was first published.  Consequently, our disclosure guidance may not in all cases reflect recent industry developments or changes in accounting standards related to financial and other reporting requirements.

Free Consultation with SEC Lawyer

When you need an SEC lawyer, call Ascent Law for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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Shake Shack’s IPO

Shake Shack's IPO

You can tell a lot about different companies from their initial public offerings and private placement offerings. Just ask the nation’s corporate securities law firms, and IPO attorneys. Though it’s unclear whether it worked with a securities law firm or not, fast food chain Shake Shack recently filed their own plans for a $100 million initial public offering, which, as you might have guessed, revealed some interesting facts about the company. Here are just a few.

More Burgers.

According to its filings, Shake Shack plans to open 10 new company owned domestic locations per year, expanding to at least 450 outlets long-term. Maybe there will be a new Shake Shack coming to a town near you.

Fine Casual

Shake Shack is shaking off its fast casual brand for a “fine casual” one. It plans to source premium, sustainable ingredients, like all-natural, hormone and antibiotic-free beef.

Strong ROI

Shake Shacks that aren’t located in Manhattan typically need about 3.2 years to recoup the original investment, while any new Shake Shacks opened in Manhattan only need 1.2 years to earn enough money to pay back its original investment. This might sound like a long time, but it’s really quite fast.

As the nation’s leading securities law firms can tell you, IPOs, such as Shake Shack’s, are an important part of the nation’s economy. In 2014, securities law firms were able to help companies complete an astounding 275 IPOs, topping 2013’s total of 222 by over 23% and shattering its high-water mark of $55 billion with a whopping $85 billion in proceeds. This is quite the impressive feat, as seven of the IPOs securities law firms were able to help complete were in excess of a billion dollars.

SEC Cracking Down on Illegal Finders

The Securities and Exchange Commission charged two men with pocketing investor money they raised for limited liability companies they owned and controlled that purportedly held warrants to purchase the common stock of a technology startup company.

The SEC alleges that James R. Trolice and Lee P. Vaccaro raised approximately $6 million from more than 100 investors by creating a false sense of urgency and exclusivity around the offering, claiming that only a limited amount of warrants were available and that they eventually could be exercised at a very profitable price. Trolice further lured investors by showcasing his apparent wealth and hosting elaborate investor parties at his multi-million-dollar home. He also touted his purported track record of bringing startup companies public and obtaining high returns for investors.

Meanwhile, Trolice allegedly used investor funds to pay his mortgage along with other bills for a credit card, car lease, college tuition, and landscaping. Vaccaro allegedly spent at least a quarter-million dollars in investor funds at Utah casinos.

The SEC further alleges that neither Trolice nor Vaccaro was registered with the SEC or any state regulator.  Investors can quickly and easily check whether people selling investments are registered by using the SEC’s investor.gov website.

“We allege that Trolice and Vaccaro lied to investors about the nature of the investment, created a phony aura of success, and ultimately funded their own lifestyles rather than investing all the money as promised,” said Andrew M. Calamari. “The SEC continues to pursue and investors should continue to be aware of unregistered brokers selling investments.”

The SEC’s complaint, filed today in federal court in Newark, N.J., also charges former stockbroker Patrick G. Mackaronis, who received commissions for bringing prospective investors to Trolice and Vaccaro so they could close the sales. Mackaronis ignored fraud risks and blindly touted the opportunity to family members, friends, and brokerage clients while knowing very little about the investments themselves. Mackaronis has agreed to settle the SEC’s charges by disgorging the $85,000 in commissions he received plus paying $8,486.91 in interest and a $50,000 penalty. Mackaronis also agreed to a three-year bar from the securities industry. The settlement is subject to court approval.

In parallel actions, the U.S. Attorney’s Office for the District of Utah today announced criminal charges against Vaccaro, and the New Jersey Bureau of Securities announced civil charges against Trolice, Vaccaro, and Mackaronis.

The SEC’s complaint charges Trolice and Vaccaro with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5. Vaccaro is additionally charged with violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.

SEC Votes to Renew Equity Market Structure Advisory Committee

The Securities and Exchange Commission announced that the Commission voted to renew the Equity Market Structure Advisory Committee’s charter until August 2017 with the current membership.  The committee’s charter was originally scheduled to expire in February 2017.

The committee provides a formal mechanism through which the Commission can receive advice and recommendations specifically related to equity market structure issues.  The committee has met seven times since it was established in February 2015.

“The Equity Market Structure Advisory Committee’s renewal enables the next Chair and the next Commission to benefit seamlessly from this vital resource for our ongoing assessment of equity market structure issues and potential enhancements,” said SEC Chair Mary Jo White.

Since its inception, the committee has considered a range of issues, including Regulation NMS and a structure for an access fee pilot, the governance framework for national market system plans, transparency for investors of broker-dealer order handling practices, and market-wide volatility moderators.  The Commission-approved committee members come from different sectors of the financial services industry, academia, and from public interest groups.

Free Consultation with a Securities Lawyer

When you need help from a SEC Lawyer, call Ascent Law for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.7 stars – based on 45 reviews


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