The Securities and Exchange Commission’s (the “SEC”) “Enforcement Initiatives to Combat Financial Reporting and Microcap Fraud and Enhance Risk Analysis” identifies red flags that are useful to private companies seeking to go public using a reverse merger with a public shell.
The SEC identified a primary target of its new task force — reverse merger purveyors and securities attorneys. The release emphasized the importance of the role of gatekeepers—attorneys, auditors, broker-dealers, and transfer agents—play, or ought to play, in stopping fraud before it happens. All too often, unfortunately, those gatekeepers collude with the fraudsters. Now the SEC plans to target miscreants which should send a clear message to any company considering a reverse merger transaction.
Private companies involved in going public transactions should consider who they hire as a securities attorney. They should avoid hiring any securities attorney who wears the hat of a lawyer and shell purveyor. In recent years, the SEC as well as the Justice Department have brought actions against numerous securities attorneys for their role in securities fraud schemes including pump and dumps, ponzi schemes, insider trading, money laundering, corporate hijackings, manufacturing public shell companies for reverse mergers, drafting bogus legal opinions and even forging legal opinions.
Common Red Flags Include:
♦ changes in management of the public shell company while it is inactive or shortly after its corporate charter is reinstated;
♦ state receivership or custodianship proceedings followed by reverse stock splits and/or large stock issuances which transfer shareholder voting control;
♦ recent transfers of stock between entities or persons who received shares for services rendered in receivership or custodianship proceedings;
♦ periods of inactivity in the Secretary of State corporate records of the public shell company;
♦ reinstatement of an administratively dissolved corporate entity with the Secretary of State where the public shell company is domiciled;
♦ changes in the state of domicile of the public shell company;
♦ multiple corporations domiciled in the same state or different states with the same or similar names, which are controlled by the same person or persons;
♦ accountants, lawyers and transfer agent principals and their family members and/or employees having voting control or beneficial stock positions of the public shell company;
♦ changes of control or corporate name changes at times when the public shell company does not have an active business; and
♦ involvement of persons or entities in multiple public shell company or reverse merger transactions.
For further information about this blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at email@example.com or visit www.reversemergers101.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 OTC Markets 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 by email at firstname.lastname@example.org. 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 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855